Last week, BR Research highlighted how indecision over sugar export may lead the milling industry to delay crushing, leading to a replay of the 2017 season episode.(For more, read: Sugar: is it 2017 all over again?”, published on October 26, 2022).Sugarcane harvest is scheduled to begin over the next three weeks, and the coalition government can save itself a lot of trouble by giving a clear-headed policy beforehand.

A timely decision on exports will help release the downward pressure on market prices, which are already 11 percent lower compared to last year (10-month average). However, if the past is any guide, the price control freak duo at the helm of economic affairs in Islamabad would hardly be inclined to go down that road. Aside from flour, milk, and vanaspati, sugar carries one of the highest weightage in Food CPI, and the Sharif-Dar twosome might as well be counting on a crash in sugar prices to demonstrate their victory over the inflation dragoncome January. Persuading federal government to loosen up trade restrictions is never easy, and the uncertainty could not have come at a worse time.

As was noted last week, significant concerns persist whether the cane crop quality in the upcoming crushing season 2022-23 would yield sufficient levels of sucrose recovery. Despite forecast of crop output remaining on the higher side – upwards of 80 million metric tons (MMT) – concerns have been raised that standing water due to flooding in Sindh and southern Punjab may deteriorate recovery, leading to weaker sugar output. Meanwhile, since the milling industry procures crop by tonnage, its cost of production would escalate anyway as minimum support price per unit weight is expected to rise disproportionately.

Moreover, the implementation of Track and Trace shows that Pakistan’s sugar consumption may be significantly higher than previously estimated at 6MMT. Recall that the industry started the now ending marketing year with roughly 0.75MMT in carryover stocks, which together with seasonal output of 8MMT should have placed exportable surplus at 2.75MMT (given consumption of 6MMT). Instead, BR Research’s estimates indicate that carryover stock going into next year may be no more than 1.5MMT, suggesting national consumption of nearly 7.25MMT per annum.

That this places Pakistanis in the top percentile of sugar consumption per capita is a discussion for another day. But suffice to say that the disappearances to Afghanistan may also account for the significantly higher ‘domestic’ per capita demand. So far as the decision to export is concerned, however, it means that if sugar production in the upcoming year performs very poorly due to weak recovery, it is highly likely that the carryover may prove insufficient.

Also, unless significant foreign exchange earnings can be guaranteed from sugar export, the risk from a potential shortfall may far outweigh the potential benefit of exporting half to a million tons of sugar, which would yield no more than $0.5 billion in export earnings, at best.

A politically embattled federal government can turn the situation on its head. Demand the representative association of sugar industry to publicly commit whether certain output level – between 7.25MMT to 7.5MMT – would be reached in the upcoming season, along with ensuring more transparency on carryover inventory in mills’ godowns as of October end, before any favorable decision can be made on export front. Meanwhile, for its part, GoP can lean on commercial banks to loosen up the purse strings and advance credit to the industry in spite of high carryover.This will make sure that mills can keep the boilers running, so that harvest and crushing takes place in a timely fashion.

Or, the PDM government could come in all guns blazing and deregulate the sugar industry. But that may be asking too much of traditional politicians’ knee deep in the business themselves. Allowing export while keeping a keen eye on production forecast, wholesale prices, and inventory levels is at best a mediocre approach, but much better than being caught off guard in case the industry goes on strike.