Pakistan’s monthly foreign trade report card for March 2021 shows only a trickle of sugar imports, keeping 9MFY21 import well under projected 0.3 million tons. Meanwhile, LSM performance during the same period shows that domestic production is up by 17 percent over last year to 5.6 million tons, but fell significantly short of expectations of 5.8 to 6 million tons. Does the import slowdown - coupled with rangebound national prices – signal an equilibrium in domestic demand-supply?

Peak Ramzan consumption season has past us by without witnessing significant price volatility. While some may be quick to take credit for fixing ex-factory prices in the largest province, it may be worthwhile to remember that administrative measures to impose price ceilings inevitably lead to shortages later. So, what does the coming 6 months hold for sugar prices?

Some caution may still be warranted. If last quarter of CY20 was bad due to available stocks touching dead-level nationally, CY21 may look no better. At national consumption of 0.5 million tons per month, available stocks (inclusive of imports made thus far) should barely pull the country through November 2021. Already, the lockdown dominated 2020 proved that slowdown in economic activity puts little dent in domestic sugar demand. Now that the economic growth is aiming to go full throttle, demand for the sweetener will only bounce back harder.

Incidentally, BR Research calculations based on SBP’s industry wise financing data shows that sugar stocks pledged with commercial banks at the end of March were less than compared to same period last year – at 2.35 million tons against 2.6 million tons as at March 2020. This can either indicate that mills are holding on to more inventory using internally generated cash - or the more likely explanation – that sugar offtake has been significantly higher than last year due to upbeat demand dynamics.

Which leads us back to the same conclusion repeated in this space ad nauseum. Instead of declaring victory prematurely on stable price trend over past 11 odd weeks, government should keep the gates to imports wide open. Despite an upward trend in global commodity prices over past 9 months, international prices are still at a 20 – 30 percent discount to local prices, indicating that the landed cost of imports may well be equivalent to prevailing domestic retail prices, if not lower.

Context is important here. Even an import of 0.5 million tons of sugar in the following 6 months would rake in no more than $250 million in import bill, itself a highly generous forecast. Moreover, it will be worth recalling that domestic production has been incredibly underwhelming – blamed on early start of crushing season - despite what was the second highest crop in country’s history based on officially reported figures. That means starting crushing season early by November 2021 is no longer an option, even since the industry has bested the government at its own game – whether through science or might, remains a mystery.

Put together, and the facts indicate the country would need stocks to last through whole of November 2021 if not a fortnight of December as well, which comes out to 3 to 3.5 million tons (for Jun to Nov). By the end of current month, the country may be looking at estimated stocks well under that figure. No harm in erring on the side of caution, and importing some more.