No sugar exports

Export numbers for August reveal that our sugar exports have dropped to zero - according to PBS data, not a single ton of sugar was exported during the month. The reason is simple; the permission given to mills to export the surplus (along with the subsidy being given) expired in July, effectively resulting in a ban.

For the two months ended FY16, the quantity of sugar exported is down by 79 percent year-on-year, while in dollar terms the decline is 80 percent. To make matters worse, the recent commodity price crunch has meant that sugar has been fetching lower returns. Ballpark figures indicate that for 2MFY16, the revenue per unit ton of sugar exported is lower by some 4 percent as compared to 2MFY15.

This column has often written about the problems plaguing the sugar industry - namely, an unreasonably high sugarcane support price. As a result of the exorbitant cost of production, sugar in Pakistan is the most expensive in the world and we have trouble finding markets. As such, sugar mills had to be given an export subsidy of Rs65 billion to get rid of the surplus; 650,000 tons were allowed to be exported and the deadline was May. This deadline was stretched out into July and 550,000 tons were exported.

BR Research spoke to a number of industry sources, who said further exports have been disallowed to maintain stability of domestic sugar prices. No extension has been given by the government, nor was one asked for. However, Chairman Punjab Sugar Mills Association Javed Kiyani said there needs to be a mechanism whereby the government maintains strategic reserves via procurement. He added that the crushing season will commence this month and a surplus is expected, so mills will be asking for the green light again soon.

Pakistan Sugar Mills Association Chairman Iskander Khan said nine sugar mills have been sealed due to non-payment to farmers and three have gone bankrupt. In an earlier interview with BR Research, he said that thirty mills are expected to go bankrupt this year.

There are two things wrong with this picture: firstly, why is sugar price so high that the national exchequer has to subsidize it for exports? Secondly, why is the onus of maintaining reserves on the mills and not the government?