Economics 101 tells us that when supply exceeds demand, prices should fall, or the surplus can be exported to a market where demand is stronger. The latter should not lead to price spikes at home, if there is indeed a surplus. However, even things as basic as supply and demand can get a bit murky in Pakistan. Last year, the country exported around 750,000 metric tonnes of sugar while claiming it had sufficient reserves. Prices then began spiking and the government ended up having to approve the import of around 500,000 tonnes of sugar. Similar episodes have taken place in the past, with allegations of market manipulation by the so-called ‘sugar cartel’ often raised and the government’s ability to competently regulate the sector coming into question. Now, as per media reports, the government has allowed the export of 200,000 metric tonnes of while also approving exports last month. The decision comes after warnings from the Pakistan Sugar Mills Association that the presence of surplus sugar in godowns is forcing sugar mills to bear additional costs and that the sugar industry is facing an acute shortage of cash required for maintenance and repair of plant and machinery, payments to farmers, salary disbursements and other related matters with the crushing season right around the corner.
The Pakistan Kissan Ittehad (PKI) has also reportedly spoken in favour of exports before the crushing season in November, warning of a potential collapse in farmers’ revenues due to the surplus. These concerns may be genuine, but how does the country know it will not find itself in the same fix as in years past? It is also worth noting that some oppose sugar exports, arguing that exporting sugar right before the onset of the new crushing season would severely disrupt domestic market supply. The controversy over the impact of the export decisions suggests uncertainty around claims of a surplus. But the larger question is why the sugar market seems to revolve entirely around whether the government will approve exports.
This is simply not how a properly functioning market should work. One should not have to sit around and figure out whether there is a surplus and what an export decision based on it will or won’t do. It is the market that should tell us these things based on the way the prices move. The IMF has also previously pointed out how the sugar sector in Pakistan provides a case study of how the intertwined relationship between economic elites and state regulators combines to capture public benefits at deep costs to the overall public. Firms in the sector benefit from subsidies, favourable policies and regulatory loopholes and have also influenced export and pricing policies to their advantage, as per the IMF technical assistance report released last year. If those meant to be policing the sugar industry are actually facing accusations that they are, in fact, in bed with it, then it is very hard for any decision to project any credibility. Things will always be murky and accusations of manipulation will continue to surface, which creates chaos of its own. More importantly, we may keep seeing repeats of what happened last year, all at the expense of consumers who subsidise the sugar industry. The current controversy and the crises of the past year urgently point towards a need for deregulation and a more market-oriented sugar sector.
