DISSECTING THE RECENT SUGAR CRISIS
During 2016-17 and 2017-18, the production of sugarcane and sugar was much higher than the national requirements. The surplus supply motivated provincial governments to increase the support price. The data shows that support prices had not been increased since 2015-16. In 2019, the announcement to increase sugarcane support prices was made at a very late stage when the crushing season had already started. Due to the delay in the announcement, the objective to attract higher area for sugarcane could not be achieved. Resultantly, there was a slight decrease in sugarcane cultivated area. It also resulted in competition between sugar mills to purchase sugarcane during the 2019-20 crushing season, which forced sugar mills to offer about 15 percent higher prices all over the country than the announced support prices to meet their sugarcane needs.
On December 19, 2019, the Pakistan Sugar Mills Association (PSMA) announced the closure of crushing to pressurise farmers and the provincial governments. Finally, a representative of PSMA met with the cabinet committee on the sugar sector on January 6, 2020. After the meeting, PSMA announced the resumption of sugarcane crushing. After the resumption, the sugarcane prices further increased but sugar prices also increased by Rs 1.28/kg. This demonstrates that in contrast to the previous year there was a shortage of sugarcane and was not sufficient to meet the demands of sugar mills.
Furthermore, it also signals the reduction in sugar supply during 2019. Despite that, however, the Economic Coordination Committee (ECC), at the recommendation of the Sugar Advisory Board (SAB), approved the export of 1.0 and 0.10 million tons of sugar on October 2, 2018, and December 4, 2019, respectively. During the same meeting, the Secretary Ministry of National Food Security and Research raised the concern over low production of sugarcane due to water shortages and reduction in the area allocated to the crop. In a subsequent meeting of SAB, Punjab raised the concern about the increasing prices of sugar in the local market but still, the ban on export was not recommended by SAB. It was revealed in the meeting that the net stocks were at negative 0.191 million tons. However, the belief was that the increasing prices of sugar were mainly the result of hoarding and not of export.
The retail price of sugar started to increase in December 2018 when the export of sugar was allowed (Figure 5). The retail price was the lowest at Rs 55.99/kg in November 2018 but by June 2019 it had reached Rs 71.44/kg. It was mainly due to the export of sugar, which put pressure on the leftover stock and increased the gap between supply and demand. The price increased by Rs 16/kg within seven months. Similarly, a major increase in ex-mill price (from Rs 51.64 to Rs 63.59) took place during the same period, which is about Rs 12/kg (Sugar Inquiry Report 2020). The retail prices further increased from Rs 71.44 to Rs 74.64 from July 2019 to January 2020 but PSMA denied the facts by claiming that the ex-mill price of sugar had not changed. It is important to note that there was no increase in GST or other taxes. Furthermore, the prices of sugarcane and other inputs remained stable during this period. In the presence of strong signals of increasing prices in the local market, the government reacted slowly to cancel the export permit, which aggravated the sugar crises in the country.
