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Monday, July 15, 2024

Sugar Exports: A Boon for Mill Owners Amid Concerns of Domestic Shortages

The government's permission for sugar exports has allowed mill owners to capitalize on high international prices, raising economic benefits but also concerns about potential domestic shortages and price hikes.

Following permission granted by the government, sugar mill owners have swiftly capitalized on high international prices, making quick profits. Driven by multiple factors boosting global sugar prices, local manufacturers stand to earn billions through exports of 0.15 million tonnes. Deals have been struck at prices ranging from $580 to $630 per tonne for various export destinations. Industry insiders anticipate the quick utilization of the allotted export quota, with mill owners lobbying for further export permissions.

It is estimated that members of the Pakistan Sugar Mills Association (PSMA) could collectively earn around $90 million or nearly Rs25 billion from these exports, surpassing the $105 million recorded in 2023. If additional export permissions are granted, export values may even exceed the $223 million achieved in 2019.

Economic Boost vs. Domestic Supply Concerns

While foreign exchange earnings are welcomed, concerns persist that sugar exports could disrupt the domestic supply chain. A senior official expressed concerns over lifting the ban on sugar exports, adding that exports should not have been allowed at all as this could create a shortfall in the country leading to price hikes. “Sugar’s is a perception-driven market. Despite tall claims by the sugar industry, there are chances that the price will escalate,” he warned.

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According to him, middlemen have started purchasing sugar in anticipation of a price surge in the future. India, facing similar concerns, has maintained a ban on sugar exports despite bullish sentiments in the international market.

Industry Perspectives and Market Dynamics

PSMA senior member Muhammad Waheed Chaudhary held a different view of the commodity market situation. To a question about sugar exports, he said that trade should absolutely be allowed, stating that there should be no ban on the export of sugar at least until the next crushing season. He insisted that at least 0.75-1 million tonnes of sugar should be allowed to export.

Sugar is being sold below the cost of production in the domestic market, causing huge losses to the mills, he observed. Without timely permission for sugar exports, mills could face difficulty in paying the farmers’ dues. This factor may adversely affect sugarcane cultivation. This loss may translate into lower sugar production, necessitating sugar imports next year.

Global Market Influences

According to a report, global sugar prices have surged to a three-month high this year after a relatively flat trend until April 2024, driven by concerns over the reduced supply from India, the world’s second-largest sugar producer. India kept export restrictions in place to ensure sufficient domestic supplies as food inflation remained one of the highest drivers of price growth in the country, reducing availability in export markets.

Additionally, below-average monsoon rains have negatively impacted Indian sugar production, with a reported 1.6% decline from October to April and more mills closing earlier than the previous year. India extended restrictions on sugar exports from October 31, 2023, until further notice to maintain adequate domestic supplies. Moreover, in Thailand, record heat and below-average rainfall have resulted in the lowest sugarcane yield in 13 years, pushing global sugar prices higher.

Balancing Act for the Future

Waheed Chaudhary emphasized that if the government continues to make decisions based on economics, Pakistan can become a significant player in the sugar export market like neighboring India, creating a win-win situation for farmers and manufacturers. He argued that if the government wanted to keep the price of sugar low by imposing a ban on the export of the commodity, it should also consider the impact of allowing the export of other goods like rice, vegetables, and fruit without considering their domestic prices.

As the debate continues, the balance between economic gains from exports and ensuring adequate domestic supply remains a crucial consideration for policymakers. The situation underscores the need for a strategic approach to managing both domestic needs and international trade opportunities.