It is that time of the year again! Cane crushing season is barely four weeks away, with proposals making round for fixing Minimum Support Price as high as at Rs 300, an increase of 20 – 30 percent over last year. Meanwhile, the industry is gearing up for a replay of 2017, claiming presence of abnormally high carryover stocks, raising fears that crushing year may be delayed inordinately, riling up farmers.
Industry representatives have been demanding resumption of exports since March this year. At the time, many PSMA members claimed that the 2021-2022 crushing season had yielded a surplus, possibly exceeding domestic demand by as much 1.5 to 2 million metric tons (MMT). PBS’s LSM index reported annual sugar output of nearly 8MMT, record sugar production in country’s history. During the preceding two years, national supply (local production + imports) had averaged at 5.5MMT. Local markets witnessed limited instances of price gouging as consumer prices saw significant escalation, but no shortages.
If GoP had acted on its advice, allowing exports could have yielded close to one billion dollars in foreign exchange, claimed PSMA. But there was a problem. During the last crushing season, Pakistan finally completed successful implementation of the Track and Trace system in the sugar industry, hoping to bring large quantities of previously under reported sugar production into the documented economy. GoP feared that the crazy jump in sugar production – 2.2MMT more sugar was produced in 2021-22 compared to prior year – may in large part reflect improved reporting, and not necessarily significant surplus volumes being dumped into the market.
The prospect of surplus export could have not come at a worse time, politically. Bitten by the sugar price spiral of 2020, the PTI government in power would not even stand to consider any export proposal, instead suggesting buying off portion of surplus as reserves stocks for Utility Stores. Later, the incoming PDM government could also not risk beginning its tenure with allowing sugar exports, given that as mill owners PDM leadership would have been direct beneficiaries of any such permission.
The proposal went into cold storage, as PSMA also realized that exports weren’t going to transpire for them in such a politically charged environment. In fact, as floods damaged standing sugarcane crop in Sindh and south Punjab, it looked as if export would no longer be required at all, as the carryover would be used to service deficit in the upcoming marketing year.
But the recommended rise in MSP has once again thrown a spanner in the works. PSMA insists sugar mills would not be able to turn a profit if their cost of production (MSP) is raised, as retail prices might crash simultaneously due to significant carryover. Meanwhile, GoP is relying on the oldest trick in the book, using the MSP as indirect means for cash transferto farmers, to compensate them for losses during floods and higher prices of farm inputs (without booking an entry in public finances).
What will happen next? Come December, it is highly likely that mills and the federal government will enter a staring contest – one that GoP will lose. Given prospect of grain shortages, GoP will be doubly concerned to free up land under cane cultivation just in time for wheat sowing. Meanwhile, as sugar futures begin to show signs of slowdown in the global commodity market, there may come a time when mills claim they can no longer export without a subsidy, putting more egg in GoP’s face.
But is there really a substantive surplus in the local market, one that will outlast lower production in following seasons? More on that later.
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