PBS monthly trade numbers are out, and exports don’t seem to have bought into the rupee devaluation bonhomie. While 10MFY19 exports are stagnant at negative 11 bps in dollar terms, food group exports have recorded a decline of 4.13 percent over the same period.
It may well be argued that the effects of currency devaluation may take their sweet time in trickling down the value-addition ladder. However, the case of commodity exports should be a lot more straightforward. After all, a steep fall in local currency should immediately make the latter group more competitive, as commodity trade theoretically requires lower marketing effort in securing orders from foreign buyers.
Instead, not only have most line-items under food group recorded a decline in value terms; volumes also appear to be following the same trend, by and large. Even more surprisingly, respite noted in volumes of some line items seem to have mostly come from high-value and low-delta commodities, such as basmati rice, fruits, and vegetables – while low-value commodities such as wheat witnessed double digit fall in both volume and value.
In absolute terms, ten months food group exports have fallen short by $164 million compared to previous year. Of this, rice exports, at forty percent of total food group pie, largely remained flat. But readers may recall that despite poor yield Pakistan is exporting as much as fifty percent of its total rice production, which is still an impressive tally in the region.
In contrast, sugar exports declined by nearly two-thirds in both value and volume terms, declining in value by $276 million during the period under discussion. For regular followers of this space, this may not at all be surprising since sugar bonanza witnessed during last fiscal year came on the back of generous subsidy of close to Rs26 billion (aggregated for handouts extended at both federal and provincial levels).
Moreover, back in June 2018, international price of sugar (as tracked by London futures) stood at $350 per ton and has since spiral down $323 per ton in recent days. Thus, while Pakistani exporters were able to fetch $353 per ton on average for export of 1.2 million tons during 10MFY18, export of one-third that volume during current season has struggled to fetch any more than $311 per ton on average.
But surely the gain on rupee devaluation should have made lowered sugar prices in international markets easier to swallow? It depends. Given average exchange rates for the comparable periods - Rs134.07 as against Rs109.67 – exporting margin should have only inched forward.
But by same token, subsidy extended under the garb of freight support during last year comes out at nearly $238 million in dollar terms (converted at average exchange rate of Rs109.67). In effect, the country paid 86 cents for each additional dollar earned on incremental sugar exports attributable to the subsidy effect.
Excluding sugar exports, food group exports have risen by three percent, or $111.7 million. Minus the subsidy, that’s not such a shoddy performance after all.
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