Sugar daddies are back

With regular intervals, the governments in Pakistan have to deal with the demand of the sugar daddies to allow the export of the product because of surplus production.

Usman Hanif’s story in this paper (October 12, 2022) reports an estimated 1.74 million tonnes of surplus by November and warning by millers that any delay would constitute a missed opportunity to earn foreign exchange when it is needed most.

Exports and remittances are falling and the external financing needs are the highest ever. But the Prime Minister tweeted as early as in May that domestic demand was his priority and ordered a complete ban on export. At the back his mind must be the fiasco of 2019 during the IK regime when the federal and Punjab government allowed a subsidy of Rs5 billion that a subsequent inquiry found to be unnecessary.

However, the millers would rather talk about 2017 when a delayed decision coincided with fall in international prices requiring subsidisation of export. This time round, the millers claim that FBR’s Track & Trace System ensures the authenticity of data to deal with speculation in the stocks and flows of the commodity. Prices in the world market, they say, are still competitive and domestic producers are competing with imports. A subsidy is thus not required.

As usual, the farmers are being rallied around the millers’ demand. The sugarcane growers are being warned about the adverse consequences that they would have to face with abnormally high carryover stocks of sugar. In the flood affected Sindh, sugarcane is the only hope left for the farmer.

Inability to make timely payments to farmers in case export is not allowed is the standard ploy. Sugar is the worst case of politicsbusiness nexus. There are players on both sides, adept in what must be done and when to maximise gains. Initially, the government — whatever that means in this context — swears by the ordinary consumer. After all, sugar is a sensitive item of consumption in Pakistan. Cheeni-chai-roti is the staple diet of the poor voter. In fact, cheeni has larger weight in the Consumer Price Index than chai.

On a year on year basis, the price of sugar has persistently decreased since January and has entered double-digit under the present government. The decrease peaked to 19% in September. In this background, the government may appear reluctant to allow export and risk the return of price escalation.

Behind the scene, however, the ministers and advisers of agriculture, commerce and industry start selling the foreign exchange story to the finance ministry.

Ostensibly, the processors keep pressing to hurry up before prices fall and the ministers keep delaying. In reality, both seek delay so that the subsidy becomes inevitable to dispose of the surplus, or else the growers will suffer gravely. This is where the angels fear to tread. No wonder, the inquiry by IK’s Sugar Sector Reform Committee was sound and fury, signifying nothing. Export will continue to be done by processors in the name of growers. Import is allowed in the name of consumer, but the unstated objective is to add to revenue through the easy route of import duties. These may be termed as off the cuff statements. No serious research seems to have been done on the subject, even by Institutes shouting reform, reform from the rooftop.

There are simplistic suggestions to deregulate and let the market decide whether to export or not and when to import. No study shows HOW it will work. More important, economists have not displayed much interest in analysing the political economy considerations.

Published in The Express Tribune, October 14th, 2022.