Analysts in New York feel that TCP’s tender process was not ‘above board,’ and they lost an opportunity to import at much better price than local producers can offer.

TCP had received the lowest bid to import 200,000 metric tons of refined sugar at approximately $125 below per ton from an American company. All together TCP had received seven bids for its 200,000 tons of sugar import tender with lowest at $579.90 per ton and the highest at $826 per ton C&F.

TCP officials told us that the lowest offer of $579.90 per ton was from the American Investment Group. This bid is $125 below current market price. Star International had the second lowest bid at $749 per ton for 50,000 ton.

But both, AIG and Start failed to secure bank guarantee. Pakistan requires a total 1.2 million tons to bridge a gap in supplies that has pushed prices to near a record. It plans to import 500,000 tons by June and another 700,000 tons by July.

Earlier, a Dubai based trading firm – Sadan General Trading had won a partial award and has already submitted a bond for $350,000 with the TCP.

Current world sugar range from $706 to $709 per ton Fob, but it is possible that American Investment Group is trying to unload inventory.

Pakistani experts were concerned about low bids from AIG. Chief of TCP was quoted by Dawn saying that AIG must be trying off-load old inventory.

But sugar executives in the US claim that the vast majority of sugar marketed here is sold well below the spot prices commonly reported in the media. They feel that AIG prices offered to TCP were reflective of street price of refined sugar.

Inder Mathur, the CEO of Western Sugar Cooperative says companies in the US sell sugar for an estimated 25-30 percent cheaper than what the USDA reports as average prices.

Most food manufacturers booked this year’s sugar purchases months in advance at lower levels, and few ever pay the asking price, he noted. The same situation occurs in sugarcane-producing regions, too.

Jim Simon, the general manager for the American Sugar Cane League, which represents the Louisiana sugar industry, says producers expect to sell this year’s raw sugar crop for between 23.5 cents and 24 cents per pound.

“This is an improvement from the 20.5 cents seen in previous years, but is certainly not a windfall,” he explained. The publically reported raw price was close to 40 cents per pound last month, and the average price for 2009 was under 25 cents.

The price of sugar, which had been stagnant for more than two decades, has recovered over the past year.

“Prices are still below levels seen in 1985 when they are corrected for inflation,” Mathur told Forum attendees. “And world prices have risen twice as much as domestic.” Sugar shortages around the globe have led to steep price increases worldwide.

He also noted that 23 years of flat prices in America combined with higher input costs have led to contraction and consolidation within the U.S. industry. In fact, 54 sugar mills and refineries have closed since 1985, according to the American Sugar Alliance.

“If the recent price recovery can be sustained,” Mathur concluded, “producers might be able to improve returns over past years, reduce their debt load, re-invest, continue to improve efficiency, and stay in business.”

But despite falling prices in the US market, countries like Pakistan are facing severe sugar crisis. Many blame local producers for the unreasonable hike in sugar prices.

“Look for the sweetener in a local bazaar and you’ll find there’s none on the shelves; ask for it at the counter and you’ll hear there’s a black market supply available–at more than a full day’s wage” says Forbes Magazine.

Estimates show a 23 percent decline in sugar crop production this year. While last year Pakistan produced 4.7 million tons, farmers are expected to produce 3.2 million tons this year. Since the average annual consumption is 4.2 million tons, this means a severe shortfall for Pakistan.

Millers, along with the government are prime targets of blame and outrage. Interestingly enough, many leading political families are these very mill owners. While the military owns Fauji sugar mills, one of the largest in Pakistan, more than 50% of the sugar in Pakistan is produced in mills owned by the most powerful politicians in the country.

Pakistan, is not, however, the only country currently in this situation. India, which is currently world’s largest consumer and currently a leading importer of sugar, needs 23 million tons of sugar annually. This year the country is expected to produce only around 16 million tons in the crop year ending Sept. 30. Cane production is expected to decrease even further in coming months.

The rising shortage of sugar in India has been affecting the international market. In anticipation of shortages in India, sugar futures have been trading at a 28 year high of 27.49 cents per kg. Delhi based SMC Global Securities analyst, Ajeet Kumar says “There is no respite from high sugar prices till September,” as India’s sugar marketing year runs from October to September.

This is not welcoming news for the citizens of both Pakistan and India as the situation they are facing now is quite grim. Amidst hoarding of the little amount of sugar in circulation by wholesalers, The nation’s courts, ordered seizure of wholesale stocks and fixed a third price, for retail sugar, at 40 rupees per kilo, which was half the price in neighboring Afghanistan. Moreover, to simply break even while buying sugar cane at the government price of 100 rupees per 40 kilograms, mills say they’d have to sell refined sugar at 48 rupees per kilo; now they are mandated to sell at 40 rupees. It would be impossible for them to meet both requirements at once.

The lack of policy co-ordination is also becoming a hindrance to government efforts to control prices in India. While the federal government has been encouraging sugar mills to import raw sugar, for example, the opposition-led provincial administration of Uttar Pradesh has a ban on imports by mills in the state, resulting in some 900,000 tons of raw sugar being held up at Indian ports. “The government’s record of implementing (programs) have been poor,” says Ajeet Kumar.

A food ministry official Tuesday told Dow Jones Newswires that India will make a cap on the amount of sugar that can be held by bulk consumers such as makers of biscuits and beverages by six months, to November. The cap, which was supposed to have expired in mid-February, prohibits users from holding stocks of more than 15 days’ requirement.

As both India and Pakistan, as well as other countries such as Brazil, search for solutions to their sugar problem the outcome in the near future is uncertain. And it is also still uncertain whether or not the shortage will continue through next year.

One can only hope that a solution is found to this shortage of sugar, as shortages of other foods such as wheat and other staples are becoming more and more imminent. Nations should begin to worry about severe food shortages in the coming years as they are starting to take shape.