Sugar crisis

EDITORIAL: Public Accounts Committee (PAC) under the chairmanship of Junaid Akbar, a Pakistan Tehrik-i-Insaaf loyalist, has sought records of sugar mill owners and exporters to determine the cause behind the escalation in the price of sugar in the domestic market – a recurring cause reminiscent of the boom-bust cycle in the country’s balance of payment position that has compelled successive administrations to periodically seek an International Monetary Fund (IMF) loan. The country is currently on the harshest-ever upfront programme – the twenty-fourth in our history, average three years per programme.

The root of the recurring problem is as follows: the growers are seen lined-up with their cane outside mills which are, on occasion, not immediately accepted by the mill owners due to reasons ranging from a deliberate delay in the start of crushing due to price disputes, capacity limitations of mills and the middlemen (aarthis) exploiting farmers. Once the cane is accepted after negotiating the price downward, the mill owners begin crushing.

The Sugar Advisory Board (SAB), headed by the Minister for Food Security and Research, with provincial cane commissioners and representatives from the politically powerful Pakistan Sugar Mills Association (with 80 plus members) reviews the sugar stocks to determine scarcity and or surplus.

The SAB recommends exports to Economic Coordination Committee (ECC) of the Cabinet, the highest economic policymaking forum, only if there is an assurance that there are surplus stocks — an assurance that has been given time and again through data fudging — exports would in no way impact on domestic prices. In several years, allowing exports have been accompanied by a subsidy paid at the taxpayers’ expense on the plea that the international price of sugar is lower than the cost to the mill owners.

Mid-October 2024, Musaddiq Mailk as Sugar Monitoring Committee chair was replaced with Ishaq Dar who allowed export of 0.500 million metric tons (MT) of sugar, in addition to the already approved 0.140 million MT, based on the following data: 2.054 million MT of sugar was available with 5.465 MT consumed domestically in ten months, 0.900 million MT was projected to be used in the next two months premised on the September data (which was 0.450 million MT – a quantity that was set aside).

Failure to allow legal exports, it was argued, would lead to smuggling of sugar across the Afghan border. That this argument backed by trumped-up data was flawed, as in previous years, is evident, given the subsequent rise in domestic prices reaching a high of 210 rupees per kg in Islamabad this week past prompting the Minister for Food Security to publicly propose deregulating the sugar industry as well as lifting a long-standing ban on new sugar mill licences.

Would these proposed measures assist in resolving the issue for all times to come? The answer sadly is not positive because it presupposes that sugar operates in the open market where there are too many buyers and sellers to be able to influence market price.

This is not the case in Pakistan where most items which are operating in open market conditions in other countries have managed to establish associations duly registered with the Securities and Exchange Commission of Pakistan that allows them to operate in the market as oligopolists (few buyers who collude to set prices) and through their pervasive influence in the country’s politics to get approval for exports and export subsidies.

In addition, lifting the ban on issuing sugar mill licences, a ban that was violated by the ruling Sharif family during a previous administration, would in all probability allow for even more of a concentration of mills in the hands of a few. This, in turn, may exacerbate the situation.

To conclude, the prevalence of associations for products that operate in open market conditions in other countries must be revisited and the Competition Commission of Pakistan strengthened to take up the challenge of powerful influential groups. In addition, the government also needs to revisit sugar as a large-scale manufacturing sector with a weightage of 3.43 in the calculation of large scale manufacturing sector that provides justification for government support. And finally, there is a need to update and delink the data from those whose interest it is to manipulate it.

Copyright Business Recorder, 2025