Last Friday, Punjab government notified the official beginning of crushing season in the province. This follows a dramatic escalation in minimum support price announced earlier, which was raised by Rs75 per 40kg - or 33 percent – over last year. MSP in Punjab now stands at Rs300 per 40kg, effectively matching the rate announced by Sindh government few weeks ago.

According to news reports, the sugar industry in Punjab is divided over timely beginning of crushing cycle. Some of the largest sugar mill-owning groups in the province such as Naubahar, Tariq Corp., Akhtar brothers, JKT, Umer group, RYK, Noon, and Sharifs have reportedly started crushing, although some are still holding out.

Earlier, some sections of the press had reported that the delay in notification of cane crushing season in Punjab had occurred as the sugar milling group commonly associated with chief minister’s family had high carryover inventory that it was unable to offload. Several provincial cabinet members were also reportedly unhappy due to the feet dragging by the federal government over the export decision.

Either way, it appears that the PTI-supported provincial government is not prepared to bet its political capital on the issue. In recent years, PTI leadership has earned recognition among the farming community for ensuring timely start of crushing by mid-November, despite opposition by some in the industry.

According to BR Research’s calculations, mills that have publicly reported beginning of crushing account for at least 40 percent of installed capacity in the province. Note that some farmer groups have raised suspicions on these announcements, claiming that although trollies are queuing up, factories have not started procurement in earnest. BR Research is unable to independently verify the accuracy of this claim.

Meanwhile, the industry association officially remains of the view that timely start of crushing remains contingent on permission to export surplus carryover stock from last year. PSMA representatives themselves have acknowledged that permission to export is fraughtwith political challenges, as the 2020-21 sugar price spiral episode is still very fresh in public memory.

BR Research has remained of the view that the Dar led finance team in Islamabad is counting on the seasonal drop in December to claim victory over inflation. Historically, sugar prices declined by an average of 6 percent month-on-month in December, bringing down headline CPI with it. The announcement of export decision at this stage may help rally sugar prices in the local secondary market, dampening the chances of seasonal decline in prices, and hence inflation.

Regardless of the timing over export decision, however, some key developments bear taking note of. Back in March 2022, sugar industry players had claimed that the country may be looking at an exportable surplus of as much as two million metric tons (MMT), given that national production had reached 8MMT. At that time, BR Research had cautioned that the quantum of surplus may be exaggerated, as a greater share of sugar produced becomes officially reported due to successful procedural changes to CPR issuance, and payment mechanism via banking channel.

Since then, the quantity for which export permission has been sought by the industry has become leaner and leaner, now down to 1 MMT. In fact, on November 15th, one industry representative claimed that industry has carryover stock that would last till mid-January. Based on consumption figures supplied by the industry in its annual report, that would be no more than 0.9MMT. If export is allowed up to 1MMT, surely industry would not want to start the upcoming marketing year with nil inventory for local market?

According to its last annual report, carryover + production during marketing year 2022 stood at 9.4MMT. Fresh estimates now suggest that 8MMT of this has been consumed over last12 months, against industry’s forecast of domestic consumption of 5.5 – 6 MMT.

That sugar trade must be de-regulated is adifferent debate altogether. But despite repeated cycles of surpluses and deficits, industry’s repeated failure to come up with robust local demand assessment needs to be forcefully questioned. Keep in mind that despite the damage from floods, industry has given no forward-looking estimate of production in the upcoming year (or damage to standing crop/yield, if any). Of course, the failure of governmental departments such as Crop Reporting in doing their jobs is indisputable. But if the industry wants to continue running itself just as ineffectively as politicians run their ministries, then it should brace itself for the consequences as well.