Ayesha Saba

The government is considering a transition framework to manage sugar prices during the proposed deregulation of the sugar market, to prevent sudden price volatility while gradually reducing direct administrative controls, according to a policy document issued by the Institute of Cost and Management Accountants of Pakistan (ICMA).

The document states that the proposed deregulation of the sugar sector is not intended to involve an immediate withdrawal of the state from market oversight. Instead, it outlines a structured transition phase in which regulatory and monitoring mechanisms would remain in place while price controls are progressively eased. This approach, the study notes, is aimed at ensuring market stability during the shift from a controlled to a market-based pricing system.

According to ICMA, sugar is a politically sensitive and widely consumed essential commodity, making abrupt price movements a significant economic and social concern. The report explains that unmanaged deregulation could lead to sharp increases in retail prices, particularly during periods of supply tightness, thereby undermining consumer confidence and prompting renewed government intervention.

The document highlights that under the existing system, the government frequently intervenes through price caps, administrative directives, and trade restrictions when prices rise sharply. The proposed transition framework seeks to replace these ad hoc measures with predictable, rule-based mechanisms that can respond to market developments without distorting supply signals.

ICMA notes that the transition phase would require continued regulatory oversight to monitor price movements, stock levels, and market conduct. During this period, authorities would retain the ability to intervene under exceptional circumstances, while allowing market forces to play a gradually increasing role in price determination.

The report further states that the transition framework is linked to other proposed reforms in the sugar sector, including improved stock-monitoring systems, enhanced transparency requirements, and clearly defined import and export rules. These measures are described as necessary supports to ensure that deregulation does not result in artificial shortages or speculative price behaviour.

According to the study, managing expectations among stakeholders is a key component of the transition. Farmers, millers, traders, and consumers would need clarity regarding how prices are expected to evolve, what safeguards are in place, and under what conditions the government may intervene. The document notes that uncertainty during the transition could itself become a source of volatility.

ICMA records that international experience suggests that gradual transitions are more effective than abrupt policy shifts in commodity markets with concentrated supply chains. The report notes that maintaining temporary safeguards during the adjustment period can help stabilise prices while market participants adapt to new rules and incentives.

The document also stresses the importance of coordination between federal and provincial authorities during the transition. Given that sugarcane pricing and certain regulatory functions fall under provincial jurisdiction, the report notes that inconsistent policies could undermine the effectiveness of the transition framework.

ICMA states that the success of sugar market deregulation depends not only on the eventual removal of price controls but also on how the transition is managed. The report emphasises that a clearly defined framework, supported by monitoring tools and enforcement capacity, is essential to prevent market disruption.

The document concludes that a structured transition framework would allow the government to reduce its direct role in sugar price setting while maintaining stability during the reform process. According to ICMA, this approach is intended to balance the objectives of market efficiency, consumer protection, and policy credibility as Pakistan moves toward deregulating its sugar sector.

Credit: INP-WealthPk