Sugar policy ends price controls
The government has agreed to the need for a mini-budget if revenues fall short of expectations by end-December 2025, according to the IMF. Photo: file
The government has finalised a new national sugar policy to largely end political control over prices, production and sales – in a move that this time may also benefit poor farmers and open a highly controlled sector to competition.
The draft National De-Regulation Policy of the sugar sector has also met a benchmark set by the International Monetary Fund (IMF) for "the cessation of formal and informal price controls at all stages along the value chain".
The draft suggests that the new policy could promote market efficiency, enhance competition, safeguard consumer welfare, and unlock the true economic potential of the sector, farmers and millers.
The policy also talks about ending the zoning policy, which aimed to keep tight control over pricing, production and licensing, and served as a major tool for exploitation of farmers while limiting the business of setting up sugar mills to a few families.
At the processing stage, limitations with respect to determination of sugarcane crop zoning and approvals for installation of new mills or enhancement of their capacity will be removed with the consensus of provincial governments, according to government officials.
Under the new policy, farmers will have freedom and competitive market pricing, as the government will remove all restrictions on where farmers sell and what they grow. This will empower growers to get better market returns and encourage efficient price discovery.
According to IMF documents, the new national policy on sugar will be a crucial test for Pakistan's resolve to overcome reform resistance. The draft suggests that the government of Prime Minister Shehbaz Sharif has managed to overcome resistance and now the sugar sector can operate like any other normal sector.
The prime minister had constituted a committee to recommend steps for the de-regulation of the highly controlled sector. The committee held nine meetings with all stakeholders, of which the most important were farmers' associations, the Pakistan Sugar Mills Association (PSMA) and the four provincial governments.
The total production of the sugar sector value chain has been estimated at Rs1.1 trillion, which is also critical for farmers, particularly small landholders having less than five hectares.
A mosaic of provincial zoning and varietal rules, price fixation in some jurisdictions, licensing requirements for mill entry and federal trade restrictions have together produced inefficient allocation of raw material and processing capacity, according to the draft policy.
The government has decided that all regulations related to the growing of sugarcane and its processing will be removed, subject to the consent of the provinces that have main control over the agriculture sector.
Millers will also benefit as they will be permitted to choose their raw materials, as the production of sugarcane is less than the installed capacity. This would improve product diversification, raise profitability and reduce distortions from price controls, officials said.
One of the key aspects of the new policy is the rights of farmers that had in the past been abused by control over pricing and the right to whom to sell. The new policy would help farmers through the introduction of third-party weighing, easier credit access and mechanisation support. These measures will increase transparency, secure timely payments, and raise yields and farm incomes.
The government will also use cess funds for competitive research, maintain buffer stocks, promote ethanol blending, strengthen competition oversight and commodity markets to drive innovation, enhance supply resilience, lower fuel import costs, and prevent monopolistic behaviour.
The policy aims to safeguard the rights and interests of farmers and common citizens by ensuring fair, transparent and competitive market practices, while also promoting efficiency and sustainability in the sector. It aims to implement reforms that would not only protect growers and consumers but also stimulate economic growth, enhance productivity, and contribute to the overall strengthening of the national economy.
The government has proposed ending the existing politically controlled structure of sugar exports and imports, which would benefit growers, millers and consumers.
New explicitly defined procedures have been laid out for the export of sugar while taking care of the domestic market, officials said.
However, to avoid any market shock, as a transition measure, a more predictable process for taking export decisions for this year is proposed to be followed. Depending upon the success of this new process, transition to complete liberalisation will be made from November 2026 onwards.
Under the new policy, domestic consumption requirements for next year will be determined by the Ministry of Food on the basis of a balance sheet or other appropriate formula by October 15. It will also verify the actual quantity of sugar produced at the end of the crushing season using a track and trace system by March 31.
With an average annual production of around 6.13 million tonnes, Pakistan ranks as the seventh-largest producer of refined sugar in the world. There are 79 sugar processing mills of various sizes in Pakistan.
The policy notes that regulatory interventions have mostly had limited market effects at the retail level, but liberalising sugarcane prices resulted in gains for growers. In recent seasons, announced minimum indicative prices often fell below the prices that were actually paid to growers.
Pakistan's current sugar policy benefits the rich more than growers. The Sugar Factories Control Act of 1950 empowers the cane commissioner to declare an area as reserved for the purpose of supplying sugarcane to a particular mill. The cane commissioner can order any grower in the reserved area to supply sugarcane to the mill at notified rates.
These provisions restrict the ability of growers as well as mills from making rational economic choices and will be removed, according to the government's decision.
The 1950 Act also prohibits any person from purchasing sugarcane from reserved and assigned areas. These restrictions will be removed by amending the relevant provisions, allowing growers the freedom to sell their produce either to mills or to any other buyer, officials said. The 1950 Act empowers provincial governments to fix the minimum price for the purchase of sugarcane by mills, and these powers will now be curtailed.