After a slow takeoff by sugar exports during July 2024, the policymakers are back to repeating errors of the past. According to a report in this newspaper earlier this week, the Economic Coordination Committee (ECC) has eased the conditions on export of sugar by mills, based on recommendations made by the Sugar Advisory Board (SAB).
First, both extension and enhancement in the export quota of sugar during the off-season (when no production takes place) is a bad place to be, as it would inadvertently lead to pressure on local market prices. Granted, the sugar industry – which had been demanding the lifting of the export ban since October 2023 is not to be held responsible for delayed decision-making by the federal government. The stated objective of the federal government’s sugar trade policy is to milk exports only to the extent of maintaining price stability in the domestic market. An enhancement in the export quota during the off-season will almost certainly lead to a rise in local market prices, guaranteeing the failure of the state’s policy objectives on the export of sugar.
To some degree, the slow-burn rise in prices of sugar during the ongoing marketing year has given a veneer of calm to policymakers, who may be mistaken to believe that the delayed decision to allow the export of sugar shall not land them into trouble later in the year. The decision-makers forget that the price stability in the local market during the ongoing season has come on the back of a historic rise in local market sugar prices last year, which ended with local market prices rising by 45 percent versus the year before.
Market watchers will recall that sugar prices had risen abnormally at the time due to a confluence of factors: chief among them being international market prices breaching the decade-high $750 per ton, which coincided with the currency exchange rate losing all bearings. It also followed a year of weak production due to raw material crops being lost to the monsoon floods of 2022, and an election-year rise in cane support prices by the provincial government. Although both the international market prices and the exchange rate later retreated, local market prices held on to their peak and are in fact now itching to rise.
To repeat, that failure is not with the sugar industry, which had been advising the government to allow exports since October 2023, when international market prices were at historic levels, and the export receipts (and profits) fetched would have been phenomenal. Alas, fear of domestic price stability and looming general elections led to a deferral of that decision by almost 8 months, by which time international market prices had collapsed by some 25 percent.
When the export quota was finally allowed in June 2024, it was against stringent conditions such as linking of export to retail market price monitoring, 100 percent advance receipt of export payments, and linking of export permission to settlement of grower dues. Expectedly, those strict conditions resulted in the receipt of only $50 million in export payments in 45 days, against expected exports of $90 million (at an average export price of $600 per metric ton).
Now, those conditions are being relaxed along with an enhancement under the recommendations of SAB, a regulatory committee that has traditionally had the misfortune of being labeled as a surrogate for the industry’s lobby. If this leads to a rise in retail market prices – which it most certainly will – the government will be blamed for favoring the industry at the expense of ordinary consumers, a label that PML-N and PPP have faced far too often in our recent political history.
If sanity is to prevail, and Pakistan is to avoid the endless cycle of media headlines blaming political parties being run by sugar barons, the federal government would at least alter its sugar export policy by de-linking it with domestic price stability altogether. Pakistan needs exports, and those exports will lead to a rise in local prices of sugar – by all means.
Own it, rather than pretending to be surprised and suspending bureaucrats for a failure to make timely decisions, ad infinitum. Don’t politicians get tired of stepping into the same quality of mud, again and again?
Comments