Exploring The Impact Of Free Market Mechanism On Sugar Prices And Value Chain Analysis
Author: Nageen Binat Khalid

The sugar industry is the second-largest cash crop industry domestically and the fourth largest globally. The industry offers 3.9 million seasonal jobs in Pakistan and employs a 12.14% agricultural labor force. It also contributes 1.1% to gross domestic product (GDP). Every country strives to ensure and maximize the wellbeing of its stakeholders, i.e., consumers and producers. In this study, an effort has been made to analyze the cost of government interference and the impact of the free-market mechanism on sugar prices. To accomplish the objectives of this study, both primary and secondary data have been utilized. The primary data is collected through snowball techniques from 22 farmers, millers, and institutional experts. The objective of these interviews was to investigate the sources of market inefficiency. At the same time, the secondary data consists of two parts. The first part deals with the annual data on production, consumption, export, and import of sugarcane between 1980 to 2020. The second part consists of monthly data for 2019-20 to investigate the situation thoroughly. The analysis reveals a huge difference in domestic and international sugar prices. Even after adding 10% handling cost (storage, loading, unloading, etc.) then, it is still observed that international prices were significantly lower than domestic prices in 2019 (US$66/ton). This implies that rather than interference in the sugar market, if the government had left the market free, then consumers would have enjoyed lower prices. The government would have saved the cost incurred in terms of subsidy. Due to government interference in the market, consumers paid Rs. 96 billion extra in terms of high prices during 2019, which could be saved by keeping the sugar market open for import. The government spent Rs.2 billion to compensate the exporters for exporting sugar surplus because international prices were low in 2019, but later on, it was found that there was a shortage and local stock was not sufficient to meet the demand. The government also could have saved Rs.3 billion spent in terms of subsidy to keep the prices low but failed to achieve the objective. This implies that the government could have saved Rs.5 billion by adopting the free market mechanism, which could be a win-win situation for both the government and consumers. Therefore, all kinds of barriers to import (permission from the ECC committee) should be abolished to create free-market mechanize in a true sense. If the government still wants to give subsidies to the marginal consumers operating below the poverty line, it should give targeted subsidies to consumers by using the BISP database. Supervised:- Dr. Abedullah

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Supervisor: Abedullah Anjum

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