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Everything Wrong With the Sugar Industry in 2023

Mistakes made by Government in making decisions regarding sugar Industry

Introduction

Due to a potential deficit during the two and a half months before the sugarcane crushing season starts in late November. The government is now considering to import 100,000 tons of sugar from Brazil. It’s interesting to note that the volume exported in July 2023 was 5,542 tons, more than five times the amount exported in June 2023, but we’ll get to it later. Furthermore, when the government approved exports last year, we were informed that we had a surplus of 1.2 to 1.7 million tons of sugar. What happened? To do that, we must take a brief detour.

In spite of the Pakistan Sugar Mills Association vehemently arguing. Pakistan could make more than $1 billion at the time because the prices were high. The federal government outright banned sugar exports in May 2022. But when November arrived, the government authorized the shipment of 100,000 tons of sugar at first, increasing that amount to 250,000 tons in January 2023 despite the shrinking foreign reserves.

Wrong Decisions

First and foremost, the former National Food Security and Research minister has claimed that stock data provided to the government was falsified. Let’s avoid going there, though, and suppose that we had the surplus and that we allowed a third of it to be smuggled while continuing to export it and even increasing the amount by five times in July 2023 before we recognized we had to outlaw it. Does it sound okay? Officials from the Food and Agriculture Department frequently argue in private conversations. I think the idea of verifying the smuggling would be a bit before it reaches the border, wouldn’t it? They place the blame on the Federal Board of Revenue while admitting that it’s nearly difficult to cover the enormous Afghan border.

It should be mentioned that although the idea was opposed on numerous occasions by the federal minister in charge of national food security and research at the time, exports were nonetheless permitted. Minister Tariq Basheer Cheema stated in November 2022, “The government cannot permit the export of sugar and then import at higher prices.” The Lahore High Court granted a stay order in response to the Sugar Advisory Board, a government organization, revising the sugar price in April to Rs. 98 per kg. The provincial government’s attempts to set the prices were met with a similar reaction.

In the meantime, despite what appeared to be the establishment of a track and trace system, sugar smuggling via the Afghan border was widespread. Nearly 800,000 tons of sugar have reportedly been smuggled through the western border, according to the Punjab Food Department. The fact that the Punjab Food Department is disclosing the data in the manner of a news outlet rather than taking harsh action calls for a separate discussion.

High Increase in Prices

Retail prices have increased by about 70–80 percent since April to Rs. 170–185 per kg and may soon surpass Rs. 200 per kg as a result of the deteriorating market attitude. Ex-mill prices have already risen by 37 percent in less than two months to reach Rs. 16,500 per 100kg (today’s average price), and they will surpass Rs. 18,000 in the future weeks.

However, there is still another element that is rarely brought up in these discussions: trading. Due to its volatility and high stakes, sugar is one of the most traded commodities in undocumented trade. Even Pakistan does not have a significant recognized commodity market. The Sugar Inquiry Committee Report from 2020 contains extensive documentation of the proof of advance contracts and the sugar business. Leads to unwarranted speculation and market price increases.

The rising cost of production, the sales tax, and the policy rates are frequently cited as the reasons for the price increase. Some claim that there is a natural two-year cycle of surplus and shortage of sugarcane. Sugar mills and farmers profit greatly from high prices in years of shortage. And turn encourages more farmers to grow sugarcane, leading to the excess. However, things are not so straightforward.

Contribution in Economy

The second-largest agro-based sector in Pakistan is sugar. Employs 1.5 million people and contributes 0.9 percent of the country’s GDP and 3.7 percent of the value added to agriculture.  In 2022–2023, sugarcane was grown on 1,319 thousand hectares, an increase of 4.7% from 1,260 thousand hectares the previous year.

The lucrative market prices of the previous year were the primary factor in increased area being sown. Its output grew from 88.651 million tons the year before to 91.111 million tons, a 2.8 percent rise. But over time, the sugar sector has come under fire for creating vast empires. On crop that requires a lot of water to thrive in a nation. That is third in the world for water scarcity and for having regulations that limit expansion at a high barrier.

Increase in Demand

What we should tell to the consumers who would have been getting cheaper sugar in a better competitive market. With fewer protections for the sugar industry and more protections for them. We can also call sugar an unhealthy luxury whose usage must be limited. Someone is willing to go on the news and tell 240 million people under extreme inflationary pressure to actually reduce their consumption, that argument needs to be put in the back drawer.

Furthermore, according to the data, sugar consumption has risen over time along with prices. Exactly what some traders and those in the sugar industry are always betting on. It’s also claimed that the sugar industry is fiercely competitive. Only in specific regions and situations when cane lands (the area around sugar mills) are too close together. They frequently have to battle for the sugarcane during years of scarcity. Despite the fact that the number of these firms has increased since 2019. They still control more than half of the country’s production, making them powerful enough to manipulate the market and have an impact on administration and policy.

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