What is the new sugar policy: Deregulation, Price Controls, and Market Impact

January 5, 2026 •

3 min read

In July 2025, Pakistan’s Minister for Food Security announced a major shift toward deregulating the sugar industry, signaling a decisive new sugar policy to address chronic market volatility. This move followed months of consumer frustration over surging prices and intense scrutiny from oversight bodies like the Competition Commission of Pakistan (CCP).

Quick Summary

The government of Pakistan is implementing a new sugar policy focused on deregulating the industry by allowing new mills to increase competition, while also managing supply through strategic imports and temporary price controls.

Key Points

Deregulation is initiated: A long-standing ban on new sugar mills has been lifted to foster competition and increase production, marking a major policy shift.
Price controls are temporary: Provincial governments have set temporary fixed prices for sugar to manage inflation, a measure criticized by regulatory bodies as a short-term fix.
Strategic imports are ongoing: The government has authorized sugar imports with extended tax exemptions until late 2025 to stabilize domestic supply.
Stakeholders have mixed reactions: Mill owners face increased competition, while farmers are promised fair prices, but consumers bear the brunt of initial price volatility.
Environmental concerns persist: The policy largely overlooks the environmental impact of water-intensive sugarcane farming, a long-standing issue.
Political influence remains a challenge: The industry's history of elite capture means that effective implementation of reforms will face strong resistance.
IMF conditions play a role: The government’s import policy has drawn scrutiny from the IMF, which has influenced adjustments in import volumes.

Background: The Crisis Leading to Change

For years, Pakistan's sugar industry has been characterized by price instability, market manipulation, and consumer frustration. Mill owners have been accused of forming cartels, which stifles competition and keeps prices artificially high. A long-standing ban on new sugar mill licenses, especially in Punjab, restricted market entry for decades. This restrictive environment, combined with ad-hoc government policies, created a cycle of shortages and price shocks. The issue reached a head in 2024 and 2025, with retail sugar prices soaring, reaching over PKR 200 per kilogram. The government faced pressure from the industry, consumers, and international bodies like the International Monetary Fund (IMF).

Key Components of the New Sugar Policy

Responding to the crisis, the government initiated a multi-pronged approach that includes the following measures:

Deregulation of the industry: The most significant step is lifting the ban on new sugar mill licenses. This intends to increase competition, boost production, and reduce prices.
Strategic Imports: To address immediate shortages and stabilize prices, the government authorized significant sugar imports. Tax exemptions, including waiving customs duty and reducing sales tax to 0.25%, were extended on these imports until November 2025 to make them more affordable.
Temporary Price Controls: Provincial governments, such as Punjab, implemented temporary fixed price ceilings. However, bodies like the CCP criticized these controls as short-term fixes that could distort the market.
Stakeholder engagement: A high-level committee was formed to consult stakeholders and propose a detailed deregulation plan aimed at a transparent and competitive market structure.
Focus on production: The policy also aims to encourage sugarcane farmers by ensuring fair compensation and promoting higher-yielding crops.

The Impact on Key Stakeholders

The new policy has far-reaching implications for different groups:

Impact on Consumers

Consumers are promised relief from price hikes, but benefits are not immediate and depend on effective implementation. Temporary price controls offer short-term stability, but long-term lower prices rely on increased competition. Import decisions and associated tax exemptions also affect availability and price.

Impact on Farmers

Historically, sugarcane growers have faced exploitation and delayed payments. The new policy promises fair compensation and potentially increased competition for their crops. However, success depends on rigorous enforcement to prevent mill owners from continuing exploitative practices.

Impact on Sugar Millers

The deregulation component challenges established mill owners who have enjoyed market dominance. Lifting the ban introduces a competitive threat. Some millers have criticized the approach, particularly regarding export limitations and price controls. The industry's future depends on adapting to a more competitive landscape.

Impact on the Environment

Critics point out that the policy does not address the environmental impact of water-intensive sugarcane cultivation. Expanding sugarcane farming displaces less water-demanding crops and contributes to depleting groundwater. Sustainable water management and agricultural practices are needed.

Old Policy vs. New Policy Direction: A Comparison


Feature	Old Policy Direction	New Policy Direction
Market Entry	Strict ban on new mill licenses, reinforcing cartel control.	Ban is lifted to encourage new market entrants and competition.
Price Regulation	Ad-hoc interventions, ineffective price caps, and market distortion.	Moves toward market liberalization, with temporary controls during crises.
Trade Controls	Frequent, politically influenced import and export bans and subsidies.	Import and export decisions are linked to supply and price stability, albeit with some controversy.
Farmer Protection	Weak enforcement of minimum prices, leading to exploitation and delayed payments.	Promises to ensure fair compensation for growers, though enforcement is key.
Government Role	Heavy intervention, often favoring specific industry players and leading to cartels.	Shift toward a more hands-off, regulatory role to foster competition.

Conclusion

The new sugar policy signifies a major shift from past restrictive practices. While aiming for long-term price stability and market fairness through deregulation, challenges remain. These include effective enforcement against powerful interests, preventing unintended consequences like hoarding, and addressing economic and environmental issues. The success of this new direction in creating a stable, competitive, and equitable sugar market for Pakistan will be seen in the coming years. For more information on the economic case for deregulation, see research from the Pakistan Institute of Development Economics (PIDE).

A list of key reforms under consideration or implementation:

Lifting the ban on new sugar mill licenses.
Reviewing and potentially abolishing export subsidies and minimum sugarcane prices.
Creating a mechanism for transparent market operations and fair pricing.
Improving forecasting and crop reporting.
Investing in agricultural R&D.
Strengthening the regulatory power of bodies like the CCP.

Frequently Asked Questions

The new sugar policy is a response to persistent market instability, skyrocketing prices, and allegations of cartelization within the sugar industry, which have harmed both consumers and farmers.

The most significant change is the lifting of a long-standing ban on establishing new sugar mills, a move aimed at boosting market competition and increasing production to stabilize prices.

The policy aims to lower and stabilize sugar prices in the long term by fostering more competition and increasing production. In the short term, temporary price controls are in place to prevent large spikes.

The policy and associated government directives emphasize fair compensation for sugarcane growers. However, the effectiveness of these measures relies heavily on strong enforcement to prevent millers from continuing to underpay or delay payments, a historical problem.

While there is a push towards deregulation, the policy's stance on subsidies is evolving. Past subsidies have been controversial, and the IMF has conditioned its loans on reducing such fiscal exemptions.

To address domestic shortages and stabilize prices, the government has authorized strategic sugar imports. These imports have been made more cost-effective through extended tax exemptions, including customs duty and sales tax relief.

If implemented effectively, the long-term goal is for consumers to benefit from more stable and lower prices. Farmers could also benefit from fair compensation. However, the move is a direct challenge to the power of established mill owners.

Critics, including the Competition Commission of Pakistan (CCP), argue that temporary price controls are ineffective and could lead to hoarding. Concerns also persist that political influence within the industry could undermine meaningful reform.