New sugar crisis

The recent surge in sugar prices to record highs, despite the start of the crushing season and ample stocks, is illustrative of long-running policy failures and deep-seated structural problems in the industry. This crisis, hurting households and farmers alike, is not due to a lack of supply but to a collapse in governance and distribution. In Karachi, retail prices have climbed to an unprecedented Rs210-215 per kg, with wholesale rates hitting a record high of Rs202 per kg earlier this week.

Similar prices have been seen in Lahore and elsewhere. The surge is particularly baffling as it comes in the middle of sugarcane crushing season, when prices tend to come down, or at least level out. Instead, the official government retail price of Rs177 per kg is looking comical.

At the heart of the problem is the supply chain which, despite mill owners' claims, seems to show signs of manipulation. The Pakistan Sugar Mills Association blames the government for, among other things, the closure of the FBR sales tracking portal and restrictions on interprovincial movement of sugar. They also claim the government is doing this to prioritise the sale of imported sugar at higher prices.

Unfortunately for mill owners, everyone else in the supply chain is blaming mill owners, with wholesalers' representatives saying only 10% of mills have begun crushing, using the ensuing supply gap to artificially inflate prices. A wholesaler's group official also noted that raw sugar only costs mills about Rs10 per kg, meaning that the markup, which covers processing costs and the mill's profits, is almost 2,000%. Actual criminal enterprises are not as profitable.

This price crisis is a symptom of a larger, chronic illness. The sugar industry is dominated by powerful political families who have long been suspected of manipulating the market - and are compared to criminal enterprises by their opponents. The only way out of this mess, like many other economic messes, is to minimise political considerations when crafting market reforms and empower regulators to put the billionaires profiting from these annual crises behind bars.