Sugar, Water, and National Security: How Policy Failure Entrenched Pakistan’s Cartel Economy
By Fazeel Asif.
Last year, Pakistan’s sugar industry quietly extracted around Rs 300 billion in windfall profits.
Not through efficiency.
Not through innovation.
But through manipulation enabled by policy.
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This figure was not speculative. The Auditor General of Pakistan placed it before Parliament’s Public Accounts Committee, linking these gains to export timing, coordinated supply restrictions, and price volatility in a sector where real competition barely exists. While 67 mills exported roughly 746,000 tonnes of sugar, earning about $400 million in foreign exchange, domestic prices climbed from Rs 143 to Rs 173 per kilogram.
That gap between what exporters earned and what households paid is where the Rs 300 billion came from. According to the PAC, most of it accrued to roughly 42 families that dominate the industry.
This is not a market failure.
It is a captured market.
I have worked in investment facilitation and institutional reform. I have seen how cartels behave when they enjoy political protection. Pakistan’s sugar sector is not complicated. It is closed, coordinated, and shielded from accountability.
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Every year, the Pakistan Sugar Mills Association tells the same story: losses, rising costs, unsustainable operations. And every year, the same mills continue operating without interruption.
That contradiction alone exposes the fiction.
If sugar milling were genuinely unviable, firms would exit. Banks would foreclose. New players with better technology would enter. That is how markets function.
But Pakistan has not seen a genuinely new, large-scale sugar mill built since 2005. There have been relocations, expansions on paper, and ownership reshuffles — but no meaningful greenfield competition.
This is not an accident.
A competitive industry attracts capital and innovation. A cartel locks the door. It ensures the same families retain control, technology remains outdated, and transparency never arrives.
The money in Pakistan’s sugar business is not made in production.
It is made in policy-engineered scarcity.
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Crushing schedules are coordinated. Exports are timed to manufacture domestic shortages. Political ownership ensures favorable decisions. Efficiency becomes irrelevant when influence determines profit.
Technological stagnation is part of the design. Modern mills require digital inventory systems, real-time reporting, and auditable stock data. That kind of transparency would make coordination harder.
Obsolescence, in this system, is an asset.
Inefficiency is not a failure here.
It is the business model.
And this is where the simplest solution is also the most threatening to the cartel: open entry.
The fastest way to break cartel power is not another inquiry or regulation. It is competition.
If Pakistan allowed genuine new entrants into sugar milling — through open licensing, neutral financing, and transparent market access — the economics of the sector would change rapidly. Modern mills operate with 30–40 percent lower energy consumption, higher recovery rates, automated inventory tracking, and far fewer losses. International benchmarks show sucrose recovery rates of 11.5–12 percent, compared to Pakistan’s average of 9.5–10 percent. That difference alone represents billions of rupees in additional output from the same crop.
New plants would not survive on manipulation. They would survive on throughput, efficiency, and scale.
That alone collapses cartel behavior.
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When multiple independent mills compete for cane, delayed farmer payments become impossible — farmers simply sell elsewhere. When inventories are digitized and financing depends on audited data, artificial shortages become harder to manufacture. When margins come from efficiency rather than policy swings, export timing loses its power.
Most importantly, price coordination breaks down.
Cartels require predictability: fixed players, fixed capacity, and shared incentives. New entrants disrupt all three. Even a handful of technologically modern mills, operating outside political ownership, would force price discipline across the entire sector.
This is precisely why entry has been blocked for two decades.
Pakistan consumes roughly 6.5 to 7 million tonnes of sugar each year. Most of it is bought by households — families purchasing a few kilograms at a time for tea, cooking, and daily use. They have no bargaining power. Commercial users can pass costs forward. Households cannot.
When prices jumped 21 percent in a single year, the burden was spread thinly across 250 million consumers. Individually, the pain seemed manageable. Collectively, it created one of the largest silent transfers of wealth in the economy — from households to a few dozen politically connected owners.
Breaking this cartel does not require new laws. It requires enforcement.
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No public office holder should own a sugar mill, directly or indirectly. As long as legislators are also mill owners, cartelization will persist. The coordinating role of the Pakistan Sugar Mills Association must be dismantled. Export permissions must move from discretion to rules-based triggers tied to independently verified surplus. Real-time digital reporting of production and stocks must be mandatory and public. And delayed farmer payments which run into billions must carry criminal liability, not symbolic penalties.
Without this, every inquiry is theater.
But an even more uncomfortable question must be asked: should Pakistan be growing sugarcane at all?
Sugarcane is among the most water-intensive crops in the country. It crowds out food crops and locks farmers into a payment chain where money arrives months late, if at all. Pakistan subsidizes sugar through cheap water, subsidized electricity, export incentives, and periodic bailouts — and still ends up importing sugar during shortages.
This is not agricultural policy.
It is expensive political performance.
Sugarcane occupies about 1.3 million hectares, nearly 6 percent of Pakistan’s cultivated land, yet contributes only around 3 percent of agricultural GDP. At the same time, Pakistan imports $3.5 to $4 billion worth of edible oil each year, has lost nearly one million hectares of cotton since 2015, and imports 600,000 to 800,000 tonnes of pulses annually.
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Even partial reallocation of sugarcane land could reduce import dependence, revive cotton for textiles, improve food security, and dramatically increase water productivity. Cotton alone delivers more than double the economic return per unit of water compared to sugarcane.
In a water-scarce country, this is not a marginal trade-off.
It is strategic.
What sugar costs Pakistan today is enormous: tens of billions in subsidies, hundreds of billions in consumer welfare losses, chronic farmer arrears, and severe water misallocation. Strategic imports during shortages would cost a fraction of this. Crop substitution would generate lasting gains in exports, food security, and water efficiency.
So why has nothing changed?
Because sugar is politically protected. Mill owners sit in parliament. Policy mirrors ownership maps.
Obsolete mills survive because opacity is profitable. Modernization threatens control.
The absence of new sugar mills for two decades is not a failure of investment climate. It is proof of deliberate market closure.
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Pakistan can continue pretending sugarcane is strategic. Or it can acknowledge the reality: this is elite capture, irrigated by subsidies and protected by power.
Last year’s Rs 300 billion was not earned.
It was extracted.
Water scarcity is real. Food inflation is persistent. The textile sector is desperate for cotton. Yet the least strategic, most water-wasteful, most manipulated crop remains untouchable.
The economics are settled. The alternatives are known. What is missing is the willingness to choose food security, water security, and national interest over a cartel’s guaranteed profit.
Sugar reform is not a technical challenge.
It is a test of whether Pakistan can still act like a state. Or we should prepare ourselves for the next 300 billion gift for the cartel.
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The article is written by Fazeel Asif. The writer can be reached through email: fazeel63@gmail.com.
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