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Liberalization and non-interference by government will clean up Pakistan's sugar
July 07 ,2020
Recently, there have been some scandals in Pakistan's sugar industry. According to Pakistani media reports, sugar mill owners fudge production costs to apply for subsidies, manipulate the market, conceal sales volumes and cheat farmers.
Thanks to the sugar crisis this year, sugar tycoons have made a huge profit of 100 billion Rupees. On June 2, Prime Minister Imran Khan said at a meeting of his cabinet that the reasons for the rise in sugar prices should be immediately investigated and sternly dealt with.
Imran stressed that all facts should be revealed through a thorough investigation. Subsequently, the federal cabinet proposed comprehensive reforms to make the existing system, including supervision, more effective.
Pakistan is one of the major sugar producing countries in the world, with a sugarcane planting area of more than 1 million hectares. According to the government of Pakistan, from fiscal year 2013-2014 to fiscal year 2017-2018, sugarcane production increased by 24%, from 67 million tons to 83 million tons.
The planting area of sugarcane increased from 1.17 million hectares to 1.34 million hectares, an increase of 14%. The average yield of sugarcane per hectare increased from 57 tons to 62 tons, an increase of 8%.
However, in fiscal year 2018-2019, the planting area decreased by 9% and the yield decreased by 6%, which was mainly caused by arrears in payment due to farmers, drought, water shortage, and the uncertain policy environment.
At present, there are 89 sugar factories in Pakistan. Most of them are owned by influential families.
The price of sugarcane and sugar in Pakistan are mainly regulated by the government. The government announces the minimum guaranteed price for sugarcane to encourage farmers to increase the planted area and to ensure that sugar mills have enough raw materials to maintain their operations.
In order to protect the domestic sugar industry, the government of Pakistan imposes high tariffs on sugar imports. In order to increase foreign exchange reserves, Pakistan decided to allow sugar export in 2018. Pakistan exported 400,000 tons of sugar in fiscal year 2016-2017 and 1.6 million tons in fiscal year 2017-2018.
There are two kinds of sugar pricing in Pakistan, one is the ex-factory price, and the other is the selling price. With increase in export, the domestic retail price of sugar increased. Between December 2019 and March 2020, the ex-factory price of sugar rose by 39% and the retail price rose by 33% to Rs. 80.
Sugar industries have benefited greatly from the government's protection policy. From January 2019 to March 2020, sugar mill owners had gained very high profits. Some people complain that government policies have distorted the sugar market and caused huge losses to the domestic economy. The only beneficiaries are sugar enterprises with a strong family network.
What policies should the Pakistani government adopt to reform the sugar industry? As a friend of Pakistan, I believe that the basic problem in the sugar industry here is bad policy.
I would like to put forward four principles for the attention of Pakistani friends: First, Pakistan should completely liberalize the sugarcane market; Second, it should go by market conditions; Third, it should stop government involvement in the sugar market. Fourth and the most important, foreign investment should be allowed, so as to break the monopoly of particular families over the sugar industry. Pakistan should also use advanced foreign technology and management practices.