Sugar millers are celebrating record high exports – and what is not to like? Their greatest performance has come at a time of slowing sugar prices globally.
During the 10MFY18, sugar export (in tonnage) has grown by more than six times over the same period last year. Even as the global sugar prices dropped by 20 percent as per Global Sugar Alliance, ten-month export value quadrupled over the corresponding period last year.
As other countries threaten WTO action (see “Soaring Sugar Exports” published on May 29, 2018), there is also a serious need to look inward and examine its domestic impact. Rising sugar export has come on the back of excess sugarcane cultivation and sugar production, as Pakistan exported about 20 percent of a heavily subsidized crop-based product.
Sugar exporters’ record year added an incremental $317 million to forex earnings even as raw cotton exports slumped by $1 billion over the same period. While textile’s woes have several causes, incentivization of sugarcane cultivation over cotton is one of them.
During 2016-17, area under cotton cultivation declined by over 14 percent at the same time area under sugarcane cultivation increased by 7.7 percent. The worrying trend has been recorded for three straight years now as farmers seek to benefit from support prices.
Political government’s sensitivity to maintaining sugar’s retail price due to food security factors lends some credence to the pro-subsidy camp. At the same time, it makes little sense to incentivize export of a low value-add commodity even as the country continues to rely on textile exports to finance its ever rising current account gap.
As the global commodity market’s sugar glut sustains, Pakistan’s sugar export will have to find its own two feet to stand on if it is to continue on the current growth trajectory. All exports earnings are created equal, and sugar earnings are no worse than cottons’. That is, so long as the subsidy does not cancel the benefit to exchange reserves.
As the political government in Islamabad changes hand this summer, one hope that sense prevails, and subsidy is rationalized. However, if sugar millers seek to demand the same treatment as cotton, they should start with looking into value-adding exports and expanding vertically.