After allowing the export of 0.8 million metric tons of sugar during the outgoing financial year—earning private operators just under $400 million in foreign exchange—the government of Pakistan now plans to urgently import 0.5 million tons through the public sector.

Why? Because sugar prices have surged, rising 37 percent since the start of the calendar year and 26 percent year-on-year this week. This marks the second-highest price increase in the past decade, behind only the historic 50 percent spike recorded in 2023, during the same month when headline inflation crossed 35 percent.

But this time, the context is entirely different. The 2023 price rally followed the partial destruction of the sugarcane crop earlier that marketing year due to the 2022 monsoon floods, which led to a 15 percent decline in production. That was also the moment when Pakistan’s macroeconomy was brushing up against default, the exchange rate had lost all anchors, and prices across the commodity board were spiraling. In contrast, today’s domestic sugar prices are climbing even as the country celebrates a disinflation narrative. Food inflation has recently dipped into negative territory. The exchange rate remains mostly stable, with only mild depreciation. The macroeconomy is, at least superficially, in a more stable place. Prices across most major commodities are either softening or moving within a narrow band.

And yet sugar stands out. With four months remaining before the next crushing season begins and demand showing only modest recovery, sugar prices have climbed with little restraint. Having already exported nearly 15 percent of annual production under the label of “exportable surplus,” the private sector is, quite rationally, capitalizing on tight supply and favorable timing. In a market where production is constrained by the availability of finite raw material that can only be sourced domestically, and where private-sector import is altogether banned, prices have increased—because the system allowed them to.

But that does not mean exports were a mistake. The actual policy failure lies in the restriction on free trade. Sugar prices in global markets have declined by nearly $100 per ton—or roughly 20 percent—since October last year. Which means there was nothing inherently wrong with the decision to allow exports. If anything, it was a smart call. The problem is that the government simultaneously prohibited imports. That ensured domestic inventories were either depleted or hoarded, and consumers were blocked from accessing lower-priced sugar available in the international market.

Will the decision to allow imports now solve the problem? Not quite. For one, the public sector will be handling the imports, with all the inefficiencies, procurement delays, and procedural red tape that come with state-managed trade. Instead of private traders sourcing the lowest-cost supplies to maximize margins and efficiency, the state will end up absorbing the loss. We successfully privatized the gains from exports and are now preparing to socialize the cost of imports by putting the burden on the exchequer.

Second, retail prices rarely fall with the same force with which they rise. Even if consumer prices ease marginally after the arrival of imported sugar, the price floor will have already shifted upward. Which means that when the next crushing season begins, opening prices will likely be anchored higher than the year before.

Third, the timing of this import decision could not be more ill-advised. The imports will begin landing just as the new harvest season kicks off. As cheaper refined sugar arrives in the domestic market over the next couple of months, market prices will fall. That decline will inevitably trickle down to raw material prices. Even if cane prices do not decline outright, they will not rise to the levels they might have reached without the downward pressure from publicly financed imports. So while the mills and trading segment will have already booked record profits during what has turned out to be a very profitable season, farmers will face suppressed market prices just as it is their turn to sell. That cannot possibly be considered fair.

We can keep pointing fingers at hoarders, traders, millers, and middlemen. But no amount of private-sector greed—or even outright malpractice—can match the damage inflicted by flawed, inconsistent, and poorly sequenced policymaking. And that is the real root of the problem.

Note: This piece of research first appeared in the Business Recorder on July 09, 2025.