Allowing sugar exports

Last week, the Commerce Ministry gave sugar mills the green light to export 225,000MT of sugar, but without a subsidy. However, the mills are okay with that proposition, given the resurgence in global sugar prices.

As the graph indicates, international sugar prices have increased more than the domestic price in Pakistan. However, there seems to be a persistent gap Rs8.6 per kg as of December 2016 that might be of concern.

According to sources, however, in spite of what the data spells out, the prices are more or less equal. The reason for this is that firstly, eight percent of the price of sugar is in the form of taxes, which are not applicable on exports. Moreover, when we talk sugar exports, we are largely concerned with Afghanistan, which is our primary market. The sugar coming internationally into Afghanistan, when accounting for freight and transportation costs, becomes around $20-30 more expensive (per ton), sources say.

So, accounting for these differences, the gap between the domestic and international price of sugar narrows significantly, as the graph of adjusted prices illustrates. It does not become eliminated, however. Nevertheless, the mills would be willing to capitalise on this opportunity and do away with their surpluses, willing to take some of the burden of the differential. And as of December, the gap has actually closed.

As per news reports, the ongoing harvest will bring 5.5 million tons of sugar based on 70 million tons of sugarcane. With a current carryover stock of 1.2 million tons as of September 2016, and local consumption of around five million tons, the PSMA expects surpluses to be around 1.7 million tons a year from now. This leaves ample room for exports.

Allowing mills to export sugar at this time should be a no-brainer. The exorbitant support price of sugarcane of Rs180 per 40kg makes Pakistani sugar the most expensive in the world. The country has been in surplus of sugar for past several years, and has to finance the exports. The subsidised sugar ends up going to the foreign buyers, while the common man pays full price in Pakistan.