EDITORIAL: When it comes to promoting exports, few countries in the world may be as reluctant as Pakistan. That’s because policymakers have historically preferred indebtedness over rationalising local consumption, thus the outcome is a directionless economy where pricing policies emit signals that cause confusion rather than reflect information about supply and demand.
The sugar policy is a near perfect example of such mess. Price controls have resulted in a situation where local sugar production is lucrative enough to have elbowed out competing crops, but not nearly enough to produce an exportable surplus on a regular basis. The result is a market caught between cycles of deficits and surpluses, often at a predictable frequency.
The obvious solution would be to freely permit imports in times of shortage, and exports in times of surplus, allowing market forces to maintain equilibrium at all times. Instead, because the federal government jealously guards all levers of foreign trade, local production is shielded from competitive imports through prohibitive tariffs.
In return, exports are banned too. In fact, confronted with an inventory pile-up, in the past mills went on strike in violation of law, in order to extract export quotas.
Considering that many notable political families – from the Sharifs, the Zardaris, the Tareens, the Chaudhries of Gujrat, to up-and-coming Makhdooms of Rahimyar Khan – are either cane growers or mill owners or both, it is unbelievable that the political leadership is ignorant of the industry’s dynamics.
Unfortunately, the politically-charged environment means that rational economic decision-making continues to be sacrificed at the altar of populism. In any other economy, political leadership is expected to seriously consider deregulating an over-regulated industry such as sugar as an opportunity to build its reform credentials. In Pakistan, this is where political careers get burned: just ask Jahangir Khan Tareen!
Short of reform, what can the federal government do in the near-term? Although the existence of surplus stock is nearly certain – as indicated by the remarkable stability in retail sugar prices over the past 12 months – the coalition government is in no mood to take risks months before the general election.
The decision to undertake an independent audit of carryover inventory held with mills is the right step. Urgent completion of this exercise will ensure that mills do not take farmers for a ride either by slowing down procurement of cane or making deductions in payments.
Furthermore, the permission to export at this stage should be made conditional, requiring the industry to reach minimum production targets for each month of the crushing season between December and March.
Since the industry claims that sugar output will exceed local demand in the upcoming marketing year as well, export permission can be allowed in a stepwise manner. Customs and the State Bank of Pakistan could be jointly tasked for monitoring and halting (if needed) exports immediately in case monthly production during December remains below a pre-determined level.
Similarly, exports may be discontinued post-crushing season unless officially reported production is at least 10 percent higher than that of last year, for example.
Given its track record, expecting the PML (N)-led coalition government to deregulate the sugar industry may be wishful thinking. Nevertheless, while bold decisions may be off the table, there is yet time to avoid a potential debacle.
As recent as 2017, the then PML (N) government dragged its feet over the industry’s pleas to allow export until it was too late. By mid-December 2017, the industry had refused to begin crushing, so much so the judiciary had to ‘intervene’ in public interest.
Eventually, exports were allowed, but only against an expensive subsidy as international market prices had collapsed due to a global surplus. Later, the subsidy was abused, and what followed is still fresh in memory of people. There is still time to export without burdening the exchequer with any subsidy. Timely decision-making is a compelling need of the hour.
Copyright Business Recorder, 2022
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