Fears of inflation have taken over the country again amid the rupee dropping to the historical low of Rs. 300 against the dollar in a matter of days but the rise in sugar prices extends beyond the exchange rate fluctuation.
Sweetener equally important across all economic classes is already selling at Rs. 170 in some areas but there is a further rise expected ahead of the crushing season.
The Ex-mill sugar prices have increased by nearly 25 percent to above Rs. 15,000 per 100 kg in the last month and a half and traders believe that this shock is yet to hit the consumers with strong expectations of a further rise ahead of the crushing season with Ex-mill prices to jump near Rs. 18,000 and sugar being sold at Rs. 200 per kg.
Pakistan Sugar Mills Association (PSMA) in a July statement argued that a rise in sugarcane minimum support price from Rs. 250 to Rs. 300 per 40kg, sales tax hike from 17 percent to 18 percent, doubling of markup rates and increased cost of imported machinery due to devaluation has been the primary contributor. But it avoided discussing the elephant in the room!
Yes, the smuggling for which unconfirmed media reports put the figure anywhere between 400,000 to 700,000 tons while the exports through official channels also continued despite the rise in local prices. Pakistan exported 215,715 tons of sugar in FY23 for $104 million and exported another 5,542 tons in July 2023.
On the other hand, the Former Minister of National Food Security and Research Tariq Basheer Cheema alleged in last month’s Senate Standing Committee meeting that the sugar stock numbers shared with the government for permitting the exports were fudged and exports are the primary contributor to the price hike. It’s to be noted that the said minister strongly opposed the exports before allowing it through the Sugar Advisory Board in January.
Sugar Sector’s net profit margins have nearly doubled to 8.3 percent from 4.2 percent during the previous year as per Pakistan Credit Rating Agency (PACRA) before declining slightly to 8.1 percent during Q1CY23 and it’s expected to decline further in light of finance cost due to rising interest rates.
“Sugar price increases have more to do with demand-supply rather than increases in costs. As international prices are higher, sugar will get smuggled till prices are equal. All attempts by mills to increase prices in years of surpluses have been futile. Similarly, all attempts by the govt to control prices in years of shortages and years of higher international prices have been unsuccessful” stated Yousuf M. Farooq, Director of Research at Chase Securities talking to ProPakistani
He also said that Pakistan has porous borders and no institution anywhere in the world can control a border this large. He said that if there is a very large price difference, people will smuggle and trying to influence the market price in any way is like trying to stop a river by building a wall. “Water will find its way and get through”, he added.
Smuggling has been governing the market at the moment but there is no doubt in the fact that it’s an anomaly and needs to be fixed. How? That’s a million-dollar question. The Track and Trace system was put in place primarily to solve both tax evasion and smuggling but its effectiveness is questionable at the least and smuggling only stands to become more lucrative in the coming days.
Reuters reported today quoting the Indian government sources that after banning the rice exports, India is expected to suspend the sugar trade as well first time in seven years to curb inflation at home. India is the second biggest sugar exporter in the world and the action will further spike the international market prices.
London Sugar Futures have already jumped to $695 per tonne, posting a 27 percent increase YoY due to the to negative crop outlook in India, Thailand, China, Brazil, and Europe due to heatwaves and other extreme climate events. The further rise in price will only make smuggling from Pakistan more lucrative and in the absence of any genuine disincentive, there is only one outcome that can be expected.
“Sugar production is expected to be back up next year and should lead to softening prices. He added that the sector will buy the sugarcane at higher prices and international prices will drop next year which will put a lot of pressure on the industry.”, added Farooq.
He said that there is nothing unsustainable about the market’s function as we have been fairly efficient when it comes to producing sugar after devaluation. He added that the key is a free currency market and a free market for commodities because interventions are unsustainable and cause long-term structural damage to sectors.
This week Cane Commissioner Punjab also sought data from all sugar mills of stocks sold to the dealers and brokers but yet not lifted from the mills as it’s believed that more than often sugar stocks lying in the mills are traded multiple times, jacking up the prices while dealers are bound to lift the sugar stocks within three days.
According to well-informed sources, the Ex-mill sugar price rally has been so massive that most sugar mills have oversold their stocks and are now promising deliveries three months later when the crushing season starts. Others argue that it’s a normal phenomenon since sugar mills have to raise cash to finance the payment to farmers although the overselling is expected to increase compared to the previous years.
It’s also argued that every time there is an oversupply of sugarcane, mills are unable to pay the farmers especially since the government increases the support price and when cultivation declines next year due to non-payment, it sparks sugar shortages and higher prices for farmers and consumers which results in more farmers cultivating the crop next year and this four-year cycle of surplus and deficit continues.
In all of this, sugarcane support price has been raised to Rs. 425 per 40kg for the upcoming season in Sindh while Punjab is also expected to follow, which has also caused the rally in prices. Critics argue that prices have risen earlier than expected to reap electoral gains. The increase in support price and timely commencement of sugarcane prices has been a troublesome issue for years but this year surprisingly, the matter was decided in one sitting as per news reports.
Smuggling and other factors have made even those essentials unaffordable for the masses in which Pakistan is largely self-sufficient i.e. seventh biggest wheat producer and 9th biggest sugarcane producer. It might take decades for Afghanistan to rebuild and achieve any level of self-sufficiency in the meantime, we have been failing to put our own house in order.
maaro bhai, jitni marzi hay maro
Good governments will look after their own people first unlike our government.
The sugar mafia is earning billions. Farmers are earning nothing and sugar mafia is earning billions by hiking the prices. Someone should control them before it is too late.
What about our very own sugar mafia? Minting dollars through exports.
No electricity, no water, no petrol, no gas, no wheat, no sugar………. I wonder what all I will have to give up to live in Pakistan???