Moaaz Manzoor

Targeted subsidies and a revised sugarcane pricing model have been proposed as part of broader sugar sector reforms, aimed at replacing uniform government support mechanisms while addressing longstanding issues related to cost structures, farmer payments, and market distortions, according to a policy document issued by the Institute of Cost and Management Accountants of Pakistan (ICMA).

The document notes that sugar subsidies in Pakistan have often been applied in a broad and uniform manner, benefiting different segments of the supply chain without adequate differentiation by efficiency or vulnerability. According to ICMA, such universal subsidies have created fiscal pressure while failing to consistently deliver intended outcomes for farmer welfare or market stability.

The study observes that blanket support mechanisms can distort incentives within the sector by weakening cost discipline and encouraging inefficiencies. ICMA notes that these distortions have contributed to persistent disputes and operational challenges across the sugar value chain.

To address these concerns, ICMA proposes phasing out across-the-board subsidies and replacing them with more targeted, time-bound forms of support. According to the report, this approach would allow assistance to be directed toward vulnerable farmers and smaller market participants as the sector transitions toward a more market-oriented system.

The document also identifies sugarcane pricing as a central structural issue in the sugar economy. It notes that sugarcane prices are administratively determined and are not systematically linked to production costs, total recoverable sugar, or prevailing market conditions. ICMA states that this has contributed to recurring tensions between farmers and millers.

According to the study, a revised sugarcane pricing model is proposed that would incorporate objective cost indicators alongside recovery-based considerations. The document refers to a hybrid cane pricing approach, drawing on international practices, under which sugarcane prices would reflect a combination of regional production costs and output-related parameters.

ICMA states that adopting a transparent and formula-based pricing mechanism would improve predictability and fairness in the sector. The report notes that clearer pricing benchmarks can help reduce disputes and support more timely payments to farmers, which remain a key concern.

The document further explains that reforms to subsidies and sugarcane pricing are closely linked with the broader objective of strengthening market discipline as the sector moves toward deregulation. According to ICMA, distorted input pricing weakens cost discipline and contributes to inefficiencies in the sugar sector.

The study records that any changes to subsidy structures and pricing mechanisms should be implemented gradually. According to the document, a phased approach would help limit uncertainty for farmers and mills and reduce the risk of disruption to planting and production decisions.

The report notes that reforms to sugar subsidies and sugarcane pricing are both aimed at improving the functioning of the sector as it moves toward deregulation. According to ICMA, pricing reforms focus on introducing more transparent and cost-based pricing mechanisms, while targeted support measures are intended to protect vulnerable stakeholders during the transition.

The document concludes that reforming sugar subsidies and sugarcane pricing arrangements is a critical component of the proposed restructuring of the sugar sector. According to ICMA, aligning support mechanisms with cost and productivity considerations would enhance transparency, reduce fiscal pressure, and support a more orderly functioning of the sugar market as broader reforms move forward

Credit: INP-WealthPk