Islamabad

A Sweet Crisis

The agro-based sugar industry has become so powerful in Pakistan
that it determines the economic priorities of the state.

By Aadil Nakhoda | July 2020

The recently published report of the commission to probe into the increase in sugar prices has created major shockwaves across the political spectrum in Pakistan . The report suggests that sugar mill owners have often colluded to earn significant profits from the export of sugar through their ability to influence the government by political maneuvering, irrespective of the party in office. Approximately Rs 30 billion worth of export subsidies were provided to politically influential mill owners across Pakistan. As the report itself indicates, export subsidies create distortions in the market. This not only allows other uncompetitive exporters to sell their products to foreign buyers in lieu of domestic buyers at lower prices but increases the price of sugar in the domestic market by creating an imbalance between demand and supply. In other words, the consumers bear the burden of inefficient producers by paying higher prices for goods otherwise available at a lower price while the government incurs greater expenditure as it subsidizes uncompetitive exporters.

According to the estimates provided by the Food and Agricultural Organization of the United Nations, Pakistan’s sugarcane harvest area peaked in 2017 at 1.3 million hectares. The acreage, yield and production was followed closely by the election cycle. The area increased by more than 20% in 2008, 9% in 2013 and 9% in 2017. However, there was a decline in the production area in 2018. The yield in terms of hectograms per hectare peaked in 2017. The yield also spiked around the election years of 2008 and 2013 compared to the years immediately before and after. Production of sugarcane increased to 83.3 million tonnes in 2017 compared to 62.8 million tonnes in 2014. Similarly, the production in 2013 increased to 67.5 million tonnes from 49.4 million in 2010. The largest spike was between 2006 and 2008 as sugarcane increased from 44.7 million tonnes to 63.9 million tonnes. The greatest volatility was evident between 2008 and 2013.

A closer look at the yearly distribution of the beginning stock of sugarcane suggests that its value was the highest close to the election year. The surge in production of sugarcane around the election year resulted in higher ending stocks. The surge followed with a fall in production in the years subsequent to the elections. However, interestingly, domestic consumption followed a less volatile pattern. On the other hand, the increase in exports of refined sugar accompanied the surge in production. Exports increased three times between 2012 and 2013 and increased four times between 2017 and 2018 in quantity terms. According to data from the Pakistan Bureau of Statistics, there was a strong surge in export value in FY13-14. Comparatively, the export surge in FY18 was significantly lower. However, the base year effect could have played a role as exports in FY2012 were lower.

Read More

The writer is an Assistant Professor of Economics and Research Fellow at CBER, Institute of Business Administration (IBA), Karachi. He can be reached at anakhoda@iba.edu.pk

Cover Story
Tributes
Special Editorial Feature
News Buzz

Leave a Reply

Update