The bitter cost of sweetness
As the sugar industry continues to thrive at the expense of depleting Pakistan's water resources, there is no justification for incentivising it further. However, a sound policy could focus on rewarding efficient water use. photo: file
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Washington has a very Pakistan-like sugar problem, and for decades, US citizens have paid a premium for their home-grown sugar. Inspired by Soviet practices, the US sugar programme, authorised by the 2002 Farm Bill, sets a minimum price level for sugar – one that is significantly higher than international prices – while simultaneously imposing tariff-driven controls on sugar imports.
The result: wealth transfer from consumers to protected producers who channel taxpayers' money back into campaign coffers. Big Sugar invests heavily in lobbying and political contributions to maintain the status quo and deter any regulatory oversight.
Allied industries that depend on sugar have been directly affected by this long-standing protectionist measure. Hershey Company and other confectioners have been moving their factories out of the US and into Canada and Mexico. Thanks to this sour 'sugary' deal, the Coca-Cola Company and PepsiCo in the US use high fructose corn syrup in their soft drinks instead of sugar, unlike the rest of the world.
It is interesting to note that, like the US's 2002 Farm Bill, a similar protectionist policy was introduced in the same year in Pakistan. In 2002, an executive order was passed barring the establishment of new sugar mills or the expansion of existing mills in the districts of Multan, Pakpattan, Lodhran, Bahawalpur, Rahimyar Khan, DG Khan, Rajanpur, Layyah, Muzaffargarh and Okara.
By 2006, the Punjab government placed a complete ban on setting up new sugar mills or expanding existing ones, citing concerns over new mills encroaching on Pakistan's cotton belt. This policy effectively froze the sugar industry, leaving it entirely in the hands of a mere dozen families.
Now fast-forward to 2025 – cotton farmers are shifting to sugarcane due to its lower manpower requirements, resilience against climate change, and resistance to disease, unlike cotton. The ban under the Punjab Industries (Control on Establishment and Enlargement) Act, 1963, failed to save the cotton industry and instead created severe distortions in resource allocation and management.
Sugarcane, a highly water-intensive crop requiring 18-20 hours of irrigation for proper growth, is depleting groundwater reserves; not to mention that sugarcane fields are breeding grounds for pests that damage cotton crops.
Due to a protectionist approach over the years, the sugar ecosystem is plagued with inefficiencies. When international sugar prices are high, the government sets higher domestic prices, and when international prices are low, financial subsidies are provided to sugar mills to keep them competitive. Despite these economic distortions, Pakistan's sugar sector still does not produce enough to sustain long-term exports.
Pakistan's total sugar production for the current financial year is forecast at 6.8 million tonnes, while consumption is expected to be about 6.7 million tonnes. With a mere 1.5% of stocks contributing to buffer reserves, there is no room for sustained exports in this sector. If buffer stocks are exported, it will leave the country vulnerable to demand shocks, inevitably leading to the costly import of white sugar later.
This means that over the past two decades, Pakistan has traded a forex-earning cotton crop for domestically consumed white sugar. Moreover, if water pricing were factored into the cost of sugar production, it would be highly uneconomical to produce sugar locally at all.
This calls for drawing parallels with another domestic sector – the fertiliser industry. Fertiliser manufacturers have historically enjoyed protectionism and benefited from subsidised gas, just as the sugar industry enjoys access to free water.
International fertiliser prices for di-ammonium phosphate (DAP) could, in theory, bring substantial foreign exchange earnings, but there is a permanent ban on its export. The reasoning behind this ban is to prevent domestic shortages, ensuring availability for local agriculture – a precaution Pakistan fails to take with sugar, leading to periodic market crises.
Taking a cue from the fertiliser industry, Pakistan should impose a permanent ban on sugar exports. Though this goes against free-market principles, it is necessary to prevent the country from repeatedly exporting sugar at low prices and then importing it back at higher costs.
As the sugar industry continues to thrive at the expense of depleting Pakistan's precious water resources, there is no justification for incentivising it further. However, a sound policy could focus on rewarding efficient water use and replenishing aquifers rather than providing production-linked incentives.
Rather than restricting the output and size of sugar mills, as is currently the case, quotas should be set on water usage, and its cost should be reflected in the price of sugar.
Like the US government, Pakistan must introduce a mandate ensuring that the sugar industry operates on a zero-net-cost basis to the federal government in the short run. In the long run, it must also account for hidden ecological damage, ensuring the industry bears the full cost of its environmental impact.
THE WRITER IS A CAMBRIDGE GRADUATE AND IS WORKING AS A STRATEGY CONSULTANT
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