Pakistan Faces Surplus Sugar Crisis Amid Regulatory Challenges

Pakistan, the world’s 7th largest producer of sweeteners, is grappling with a significant surplus sugar crisis. As the country produced an unprecedented 7.8 million tonnes of sugar in the 2021-22 crop year, it now faces the challenge of managing over 1.5 million tonnes of excess stock amid regulatory hurdles. The sugar industry in Pakistan witnessed a decline in output from 2016-17 to 2019-20. However, the subsequent two years saw an increase in production due to better yields, increased crop acreage, and improved payment mechanisms for growers, particularly in Punjab. Despite these gains, the surplus has led to selling prices falling below production costs, posing a severe threat to the industry’s financial stability.

Government regulations heavily influence the sugar industry, from factory commissioning and trade to price controls. This involvement extends to import and export policies aimed at maintaining domestic prices. In the 2022-23 season, millers lobbied hard to export 1 million tonnes of surplus sugar, hoping to earn around $1.2 billion in foreign exchange. However, the government only permitted the export of 0.15 million tonnes, fearing a repeat of last year’s price surge when domestic prices nearly doubled after exports were allowed. As the crushing season for 2023-24 commenced, the industry carried over 0.7 million tonnes from the previous year, with total production exceeding 6.84 million tonnes. This brought the total stock to over 7.54 million tonnes against a projected domestic consumption of 6.1 million tonnes, leaving a significant surplus.

An official from the Pakistan Sugar Mills Association (PSMA), speaking on condition of anonymity, warned of catastrophic consequences if the surplus issue is not addressed. With selling prices below production costs, the industry faces massive losses, potential bank defaults, and the possible shutdown of around 40 sugar mills in the forthcoming season. This would severely impact sugarcane farmers, who might not receive fair prices or timely payments. The official criticized the government’s mismanagement, stating that the fear of domestic price hikes due to exports has disrupted the entire sugar value chain. With 90% of sugar consumed industrially and substantial federal taxes levied on each kilogram, the current policies benefit industrial consumers at the expense of households and farmers.