As efforts to oust Imran Khan pick up steam, the charge that became his Achilles’ heel has seemingly been resolved. Exactly two years since local markets were hit by a shortage of sugar, the industry is on its way to produce a surplus, possibly the largest in country’s history. Will industry’s growing output prove to be a leading indicator of Khan’s political fortunes, or is this where the correlation comes to an abrupt end?

Although the rise in sugar production during the ongoing crushing season (2021 – 2022) is exactly as per forecast, a new problem may now beset the local industry. Retail prices have fallen to levels last witnessed more than a year ago, unlike prices of almost every other commodity that are on a relentless rise.

And lest it be forgotten, it may be another three to four weeks before crushing season concludes across the country. This means some production may take place in Ramzan, historically peak demand season due to higher consumption during religious festivities. That may keep prices range bound, if not altogether pushing them into a downward spin.

Based on data (released with lag) by PBS and SBP, sugar mills were sitting on record inventory by February end, with output level surpassing inventory levels last witnessed in May 2018. According to LSM data, monthly sugar production overshot 2 million tons for the first time since March 2017, and is the highest in history. That has prompted market participants to put forward wild estimates of total production during the season, with some forecasting output as high as 8 million tons.

BR Research disagrees. While it is almost certain that output will exceed estimated national demand of 6 million tons, the industry may not yet be out of the woods. Two recent developments indicate that the surplus may not be substantial, and it may be too early to go on an export spree.

First, policymakers would be wise to treat any increase in the range of 10 percent of national production with caution. If season’s output records rise of 0.5 to 0.6 million tons over last year, the rise could just as well be attributable to improved documentation in the industry and may not technically qualify as a surplus.

Two, although monthly output in January 2021 is definitely highest ever, the industry has moved towards recording greater share of production during November to January, compared to recent past. As late as 2018, 60 percent of seasonal production took place between February and April, which fell to one-third by last year. Highest-ever monthly production could very well indicate the crushing season being pushed earlier, especially if mills strive to conclude crushing before Ramzan.

Going by the cautious estimate that production thus far (Nov – Jan) represents no more than 55 percent of annual output, total production this year may land at 7.2 million tons. Highest-ever yes; but representing a surplus of 20 percent over national output.

Does this mean the country should eye exports? International market prices are at their highest levels in at least in more than a decade, with the premium between international and local prices dropping to its thinnest in as many years. If total output exceeds 7 million tons, the country could definitely afford exports up to 0.5 million tons – this time with no subsidy or freight support.

Will a politically weakened PTI government take that bet? At this time, it may be best to err on the side of caution. In absence of latest output data (upto March 2022), it may be impossible to make an informed decision.

However, local price behavior (both retail and wholesale) during Ramzan may be particularly indicative, along with pledge stock data from the central bank. Even if policymakers decide against the export decision, 2022 season may finally resolve the mystery that is the size of domestic sugar consumption/market.