How sugar cycles fuel inflation

Express Tribune

5 days ago

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Prices of sugar in nearly all parts of Pakistan are once again on an upward spiral, creating fresh concerns for consumers already struggling with inflation. Currently, the retail price of sugar is hovering around Rs190 per kilogramme in several urban markets, with traders warning that rates could climb further, reaching Rs200, if supply remains tight.
While the government often blames stockists and middlemen for artificially inflating prices, industry stakeholders and consumers say the cartel is more complex, involving sugar millers, wholesalers, policy decisions, government machinery and even international trade.
Historically, sugar prices in Pakistan tend to rise whenever the government allows export of the commodity. This year is no exception. The Pakistan Sugar Mills Association (PSMA) had been pressing the government for months to permit export, citing surplus production. When the permission was finally granted, prices in the domestic market began to climb almost immediately.
Wholesalers claim that after exports are allowed, millers and large stockists reduce supplies to the local market, creating an artificial shortage. "We are not hoarding; we simply cannot get enough from the mills at a reasonable rate," said Nadeem Ahmed, a wholesale dealer in Lahore. "If I buy sugar at higher rates, how can I sell it at the government's fixed price? It's impossible."
The government's usual response to such price spikes is to enforce strict price controls, ordering retailers to sell at official rates. Shopkeepers, however, argue that this policy is impractical in times of shortage. "They want us to sell at Rs172, but we are buying at Rs180 or even more," said Muhammad Rafiq, a grocery store owner. "If we follow their orders, we will have to sell at a loss. That is not sustainable."
At the same time, the sugar industry points to rising input costs as a key factor for the current price hike. This year, the price of sugarcane has surged to over Rs700 per maund, driven by increased cultivation costs and farmer demands for better returns. A senior executive at a major sugar mill in Punjab, who requested anonymity, said that they have paid record prices to farmers for sugarcane this season. That automatically pushes up the production cost, and add the cost of energy, labour and transportation, the retail price cannot remain where it was last year.
Sugarcane cultivation and processing form a major part of Pakistan's agro-economy. The sugar sector is the second largest agro-based industry after textile, generating business worth around Rs1,000 billion during the crushing season.
As per the millers, it contributes Rs225 billion annually in taxes to federal, provincial and local governments, while saving the country about $4 billion through import substitution. Yet despite its economic significance, the sector has been repeatedly accused of manipulating supplies and prices.
Critics also point to the cyclical pattern of sugar exports and imports as a sign that the system benefits certain players at the expense of the public. In years of surplus, the government allows exports, but when local prices soar, imports are arranged to bring the rates down. This back-and-forth often benefits millers and stockists, who can profit from both situations.
"Whether it is export or import, the millers never lose," said Raheem Khan, a citizen frustrated by the current high prices. "The only ones that suffer are ordinary citizens. We are paying the price for policies that seem designed to protect the big players."
Industry representatives, however, argue that a fair solution lies in a targeted subsidy mechanism. PSMA has proposed a two-tier system in which separate prices are set for industrial, commercial and domestic consumers. Since around 80% of Pakistan's sugar is consumed by industries and commercial users such as bakeries, beverage companies and confectioners, the idea is to let market forces determine the price while ensuring that the remaining 20%, consumed by households, is made available to low-income families at a subsidised rate. If the government can identify deserving households through programmes like the Benazir Income Support Programme, "we can ensure that they get sugar at affordable rates without distorting the entire market," said the sugar mill executive.
An official of the Ministry of National Food Security said that the sugar market is on its way towards deregulation, which means that government price controls may soon have less influence. Once deregulation takes full effect, sugar prices will largely be determined by market supply and demand, leaving the poorest households more vulnerable unless targeted subsidies are in place, he said.
The official added that currently, it looks like a blame game where wholesalers insist they are scapegoats, millers cite rising input costs and the government blames stockists. However, from the perspective of an average Pakistani, the outcome is always the same: higher prices at the checkout counter. "Without structural reforms in pricing, supply management and trade policy, sugar will remain a sweet deal for a few and a bitter burden for millions."