Sugar prices have gone up by Rs. 42 per kg in just three months and mills are being called out for profiteering but mill owners have their own list of reasons.
The Sugar Advisory Board recommended Rs. 7.82 increase in per kg sugar price around April 26, 2023, which was later notified as well. Now according to the reports, SAB recommended these prices after consulting the Ministry of Food Security and Research and the Pakistan Sugar Mills Association (PSMA).
While some suggest PSMA had asked for more time, sugar mills argue they were in fact neither consulted nor heard. Later PSMA filed a petition in Lahore High Court (LHC) on the grounds that it’s a provincial matter post-18th amendment and secondly, these prices can’t be fixed without consulting PSMA. The LHC granted a stay against the enforcement of the sugar price notification and prices are not on the rise.
Sugar prices in retail have gone up to Rs. 140 per kg in three months while the wholesale prices have risen by up to Rs. 2,000 per 50 kg bag. Critics blame sugar mills for lining up their pockets with Rs. 15 billion in three months by hiding behind the court injunction, and it can go up to Rs. 35 billion if the injunction stays till September.
Surprisingly, sugar has been a surplus commodity almost every year and sugar mills had been advocating for exporting 1 million tonnes of sugar out of 1.2 million tonnes of surplus since March 2022, but the government didn’t make up its mind before November when the international prices had also gone down.
Between July-May 2023, 214,789 tonnes of sugar has been exported for $104 million dollars. It’s not a huge amount to fuel a domestic shortage on its own and PSMA also argued the same that exports have no role in the price hike, at least on the formal ones.
“This export permission was granted late and a lot of it had been smuggled by that time due to high international prices. So the government has to make these decisions swiftly”, stated Dr Uzma Zia, Senior Research Economist at Pakistan Institute of Development Economics talking to ProPakistani.
She said that since the government and everyone know when the crop will be harvested and sugar will be ready for export, especially with the Federal Board of Revenue’s (FBR) Track and Trace system implemented in nearly all sugar mills, so timely decision-making is not hard to achieve.
According to media reports, at least 400,000 tonnes of sugar had been smuggled to Afghanistan till April 2023. If we consider the same average price of exported sugar which is $484 per tonne, the smuggled sugar resulted in nearly $200 million in losses to the country at a time of worsening balance of payment crisis.
“In the border cities, you won’t find sugar for even Rs. 200 per kg and the customs will stop anyone from taking even few kgs of sugar, but the smuggling keeps happening” commented a market consultant talking to ProPakistani.
He also added that while the traders and hoarders exist in this business as well like in the case of other agri commodities, still nothing happens unless traders and mills are both on the same page.
Increase in Cost of Production
On the other hand, sugar mills state that the cost of production has gone up to Rs. 130 per kg due to the sugarcane support price rising from Rs. 225 to Rs. 300 per 40kg, a one percent increase in sales tax and markup rate doubling over the year with 70-80 percent increase in the cost of imported chemicals and spare parts.
PSMA also claimed to give Rs. 100 billion in various taxes and savings of $5-6 billion in import substitution and its partially understandable, but it’s the manner in which these things happen every time that raises questions. Secondly, smuggling in that quantity is impossible without the involvement of sugar mills, and it’s also hard to believe PSMA is unaware of those involved.
But among other things, PSMA chairman last week claimed that the sugarcane cultivation area has declined by 10 percent. Foremost, that’s wrong according to the Economic Survey of Pakistan which reported a 4.7 increase in cultivated area and a 2.8 percent rise in production to 1.31 million hectares and 91 million tonnes respectively.
Farmers have a high bar set when it comes to self-respect and last year, several mills closed crushing with a lot of sugarcane still in the field and that happens every other year when production is anticipated to be high. Farmers are not going to have mills’ gates closed on them, payments delayed and still go back and act as if nothing happened.
The boom of sugarcane in Southern Punjab happened as farmers were weary of taking care of delicate cotton crop and still losing to diseases, climate and pests as the problems were with the seed and not their practices. From our conversations with the farming community, if the experience with sugarcane will still be the same, the ones who can afford will look for other options.
Business as Usual
Coming back to the sugar prices, one would expect a committee that would consult all the stakeholders and notify the prices, but that already exists in the form of the Sugar Advisory Board since 2001 as we are good at founding committees, but the ghost of sugar crisis returns every other year regardless of whether production stays high or low or whether the government imports or exports.
The previous government had constituted a Sugar Sector Reform Committee (SSRC) after the massive hike in prices and subsequent investigation led by the Federal Investigation Agency (FIA) which proposed significant reforms in a detailed report in December 2021 on three primary verticals of ‘deregulation, documentation and enhancing competition between the sugar mills.’
It included sugarcane pricing based on sucrose content for better allocation of resources, keeping import open all the time and export only if production exceeds consumption by 1.5 million tonnes, quarterly inspections by FBR and cane commissioners and a massive Rs. 75 million in penalties on violations. It also recommended volumetric water prices since sugarcane consumes 3.5 times more water for 4 times less export value.
It also advocated for private sector-based water testing laboratories and discouraged export subsidies and support prices. As one would expect, none of these reforms have been implemented, and we are again in the same game where everyone is to be blamed so no one is guilty. On top of that, according to market sources, since the International Monetary Fund (IMF) has clearly directed the government against any subsidies, so traders expect the current ex-mill prices of sugar to remain stable at their peak.
