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The ECC’s decision to allow import of 0.6 million tons raw sugar by industry to fulfill gap in expected supply is a first in over a decade, and has taken many by surprise. Except, the decision has come in the aftermath of surgical strike by the industry association, claiming that early crushing has caused sucrose recovery levels to fall. Is the industry right?

The association claims – and rightfully so – that importing raw sugar is better than importing refined type as it allows value addition domestically. To the uninitiated, non-processed, non-refined sucrose syrup is essentially raw material in tradable form, as the source crop sugarcane cannot be transported at long distances (such as via sea) due to its high gross tonnage. Consider that globally, one metric ton of sugarcane only yields a maximum of 0.15 tons raw sugar.

If there is indeed a deficit between forecast of domestic supply and consumption – as the government has validated by accepting industry’s demand to import – raw sugar import seems like the wiser decision. Consider also that unlike 0.3 million tons imported between Sep – Dec 2020 by TCP, the government will no longer have to foot the bill of import and its value chain costs, or bear the differential for supply to Utility Store Corporation at subsidized pricing. Consider also that price of sugar is on an upsurge globally, with ISA White Sugar Index at its highest in at least four years. Thus, import in raw form will help bring prices at parity with international markets, at least in theory.

What is so surprising about the news then? Federal government is obviously on a back foot, since early crushing began on its insistence, and by throwing a tantrum over sucrose recovery the industry association is showing the incumbents that they had picked a fight with the wrong bully. (For more, read “Sugar: don’t let them take you for a ride”, published by BR Research on January 18, 2020).

Yet, as the more progressive sugar millers recognize privately, the way decision has been taken is a step back for both the industry and the country. For a long time, a broad consensus has existed among environmentalists, farmer advocacy groups, economists, and public policy advisors that domestic sugar industry is inefficient due to low suitability of sugarcane for domestic climate, and has led to loss of prime farm acres in Rahim Yar Khan and Ghotki to the crop, in spite of it’s high water foot print in a region blighted with extreme water inequity.

Except, attempts to switch supply from domestic to imported sugar have been abortive because of the high opportunity cost of proposed imports - up to $2 - $2.5 billion annually – in a dollar starved country. Instead, raw sugar imports have been proposed in a form called “tolling”.

But first, short background. The installed capacity of sugarcane crushing in the country is estimated close to 130 million tons annually, of which less than half is utilized as national output of sugarcane averages less than 70 million tons. Unlike tropical countries such as Brazil, less than 20 percent of Pakistan’s prime farm land is devoted to sugarcane, due to low water availability.

Efficient sugar milling units have long argued that import of raw sugar be allowed in the form of tolling – which is to import raw form for purposes of re-exports to regions such as Middle East, Central Asia, and Northern Africa, where domestic sugar milling industry is virtually absent.

Tolling would not only allow for industry to meet domestic demand through imported raw sugar - gradually reducing area under low yielding, low sucrose sugarcane produced domestically. But will also allow industry to earn foreign exchange through re-exports dollars.

The opposition to the proposal comes from the usual suspects - sponsor groups that had obtained milling license through political patronage – and operate terribly inefficient units with histories of delayed/non-payment to growers, plagued with allegations of under reporting of volume and low recovery rates.

Instead, wild proposals are now making waves, encouraging micro sugar mills in the name of breaking cartelization in the industry. That will only incentivize more acres under cane while pushing even greater production into informal segment, increasing risk of under reporting.

Given it’s deep backward linkages, Pakistan's sugar industry is here to stay. The license Raj over setting up of new units must end – as this space has routinely argued – along with liberalization of foreign trade to encourage competition and efficiency.

But that wish list will only become real if the industry is given a fighting chance, and gets out of the vicious cycle where it’s perpetually demands government handouts either in the form of export subsidies or import quotas.

Raw sugar import quotas of 10 percent annual domestic consumption is yet another imaginative trick by the usual rent-seeking suspects from the industry making subsequent regimes do the work for them. Sadly, the more things change, the more they remain the same.


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