Pakistan Mercantile Exchange can be a solution to recurring sugar crisis
The challenges in managing sugar supply chain and controlling prices are not unique to Imran Khan. Such supply shocks have been recurring and are not just limited to sugar but have also hit other essential food and agri produce.
One of the core reasons why it is so difficult to manage demand and supply balance is that the agriculture value chain is mostly undocumented and fragmented.
Over the years, numerous task forces and donor-funded agencies have published studies identifying the issues - in particular the inefficiencies due to middlemen or as they are known locally, "aarthis". The Pakistan Mercantile Exchange (PMEX) could bring about a permanent solution to this challenge, which has now become a political nightmare for the government.
Here's how it can be used to bring sugar trade into a formal network. Instead of being sold at the mandis (markets), sugar output can be brought to the local commodity bourse. Here, it can be tested, measured, priced, stored and tracked.
Since the exchange provides live trading of the sugar contract, it reduces price volatility and provides transparency. The aarthi can become a broker on the PMEX and become part of regulatory coverage.
This could not only reduce price fluctuations but more importantly, by bringing transparency, it will end the need for the usual witch hunt that always follows.
PMEX has remained a marginalised institution because institutional investors such as banks and insurance companies are not allowed to invest in the contracts offered at the exchange and therefore it lacks the financial resources to market widely to retail investors.
Although PMEX offers contracts in multiple product categories such as precious metals (gold, silver, platinum), agricultural commodities (red chilli, rice), energy (oil), and equity index futures, the volumes have been disappointing due to a clear lack of market makers.
Even in international commodities such as gold, market markers struggle due to restrictions by the State Bank of Pakistan.