Farooq Awan

Pakistan’s domestic sugar prices have remained largely disconnected from global market trends over time, reflecting extensive government intervention and market distortions, according to a study released by the Institute of Cost and Management Accountants of Pakistan (ICMA).

The document states that despite fluctuations in international sugar prices, domestic prices in Pakistan have followed an independent trajectory, shaped primarily by administrative decisions rather than global supply-demand dynamics. These decisions include government-set sugarcane support prices, restrictions on exports and imports, and periodic price controls at various points in the supply chain.

According to ICMA, international sugar markets are influenced by a range of factors, including global production cycles, weather conditions in major producing countries, energy prices, and trade flows. However, the study notes that these signals are only weakly transmitted to Pakistan’s domestic market due to regulatory interventions that override market-based pricing mechanisms.

The report explains that domestic sugar prices have often increased even when global prices were stable or declining, while at other times international price increases were not fully reflected in local markets. ICMA attributes this divergence to a combination of controlled pricing, discretionary trade decisions, and limited transparency in domestic stock levels.

The document notes that export permissions and import approvals have frequently been granted or withheld based on short-term assessments rather than predictable rules linked to global price movements. This practice, the study states, has weakened the role of international prices as a reference point for domestic market participants.

ICMA notes that sugarcane pricing plays a central role in this disconnect. Sugarcane prices in Pakistan are administratively determined, often without a direct formula linking them to sugar recovery rates or international sugar prices. As a result, mills face cost structures that do not automatically adjust in response to changes in global markets, contributing to rigid pricing.

The report also points to limited integration between domestic and international markets due to episodic trade flows. According to the document, exports and imports are often allowed or restricted through ad hoc government decisions, preventing continuous arbitrage that would otherwise help align domestic prices with global levels.

ICMA states that the lack of alignment with global prices has implications for both consumers and producers. Consumers do not consistently benefit from periods of lower international prices, while producers and traders operate in an environment of uncertainty regarding future trade and pricing decisions.

The study further notes that discrepancies between domestic and international prices have, at times, encouraged speculative behaviour, including stockpiling in anticipation of policy changes. Such behaviour, the document states, has further weakened the relationship between local prices and global market trends.

According to ICMA, improved alignment with global markets would require reducing discretionary interventions and introducing transparent, rule-based mechanisms for trade and pricing. The report emphasises that global price signals can only influence domestic markets if market participants have confidence that these signals will not be overridden by sudden administrative actions.

The document clarifies that the observed disconnect does not imply that Pakistan should fully expose domestic consumers to global price volatility. Rather, it notes that predictable policies and transparent buffers are needed if international prices are to serve as a meaningful reference for domestic decision-making.

ICMA concludes that the persistent divergence between Pakistan’s sugar prices and global markets reflects structural features of the current regulatory regime. The study states that addressing this issue is an important consideration in the broader discussion on sugar sector reforms and the proposed move toward deregulation.

Credit: INP-WealthPk