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Pakistan on sugar-buying spree as prices rise

Pakistan has gone on a sugar buying spree in the international market to meet shortages after an expected shortfall in the 2009/10 crop that has sent the commodity's price soaring in recent weeks.

business Updated: Jan 22, 2010 19:36 IST

Pakistan has gone on a sugar buying spree in the international market to meet shortages after an expected shortfall in the 2009/10 crop that has sent the commodity's price soaring in recent weeks.

High sugar prices contribute to anger with a government struggling with an Islamist insurgency and a troubled economy.

The government has issued six tenders in the past month to import a total of 500,000 tonnes of white sugar, and at the same time is encouraging the private sector, through tax incentives, to import another 750,000 tonnes.

Here are some facts about the sugar situation in Pakistan.

SHORTFALL IN CROP

Pakistan is forecast to produce about 3 million tonnes of refined sugar from the 2009/10 crop against annual demand of 4.3 million tonnes. Sugar production has fallen after farmers moved to other crops. Analysts and industry officials say delayed payments by millers to farmers the previous year were a main factor discouraging farmers from growing sugarcane.

There were supply shortages in August, ahead of the Muslim fasting month of Ramadan when demand traditionally rises, and the government then blamed hoarders. A court ordered millers to cut prices but that led to confusion and even higher free-market prices.

IMPACT ON CONSUMERS

With output low, farmers are said to have been charging higher prices for their sugarcane at mills, and millers say that has pushed up their costs. That has in turn led to higher prices on the open market of up to 60-70 rupees/kg (71-83 U.S. cents) from 40/50 rupees/kg in recent weeks.

The government had been selling sugar at 38 rupees/kg through discount shops to help the poor. But to reduce the price differential, the government last week raised the price sold through its discount shops by 7 rupees to 45 rupees/kg.

SUGAR IMPORTS

Stung by criticism over the price rise, the government in November announced a plan to import 500,000 tonnes of refined sugar through the state trading agency, and another 500,000 tonnes of raw sugar through the private sector. But private traders refused to import, citing high global prices.

The state-owned Trading Corporation of Pakistan is aiming to get the total of 500,000 tonnes of white sugar imported by March 31. All six tenders are to be opened next week.

Pakistan produced 3.2 million tonnes of refined sugar in the 2008/09 crop, and the country imported 225,000 tonnes of sugar last year to meet demand.

INVENTIVES FOR PRIVATE SECTOR TO IMPORT

While making official purchases, the government is also encouraging the private sector to import sugar to boost supplies. The government this week scrapped taxes on the import and sale of 750,000 tonnes of white sugar by the private sector. The imports should be made before June 1 to benefit from the tax waiver, it said.

It is yet to be seen how millers would take that offer as global sugar prices have hovered around record highs on strong demand from several countries, including Pakistan. Traders fear

government intervention if they try to sell sugar they import at a price that reflects the cost.

($1=84.6 Pakistan rupees)