Bartering is the oldest form of trade, going as far back as civilisation can remember. In its basic form, though it’s often forgotten in day-to-day life even if it’s written on the back of most bills, hard currency is a standardised form of barter. So it would stand to reason that bartering with sugar rather than cash shouldn’t seem too foreign of a concept.
Yet in a world of credit lines, letters of credit and cash settlement, the idea may be a bit uncomfortable. Unless, of course, you’re the one who needs sugar but the world has stood against you to deny you access to cash. Then you might be more keen to find a way to make this ancient system actually work.
During the decade-long embargo against Saddam Hussein, Iraq’s famous oil-for-food programme—which later became a scandal that reached the highest echelons of the United Nations—seemed like a good idea at the time. For more than 30 years, Cuba bartered oil-for-sugar with the USSR, allowing it to use the oil for its own needs but also to re-export it for foreign currency that kept the country humming. But in 1990, that all came to an end when Russia was forced to demand hard currency for its oil and sugar prices hovered at less than 9 cents per pound, leaving Cuba scrambling to survive.
More recently, in the early part of the 21st century, during another time of sugar surplus, India favoured the idea of bartering sugar for things such as palm oil from countries like Bangladesh and Sri Lanka who didn’t have huge reserves of foreign currency, or dried fruits from Afghanistan whose economic system had been shattered by wars. Some trade was successful but the technicalities got in the way and remained intermittent.
Now there’s another surplus and another embargo, again opening up the opportunity to bring sugar bartering back to the table, with Pakistan and India leading the way.
In the last months, as the global economic community has tightened the embargo on Iran, Pakistan got it into its head that this might be a good opportunity to trade sugar not for oil, but for urea. Fertilizer is an expensive commodity in Pakistan, and it would like to produce its own. With urea prices at roughly half of that of sugar in recent months, it stands to reason that the country should be able to strike a deal with Iran in exchange for sugar.
In fact, Pakistan is looking to exchange a lot of sugar. The Pakistani Sugar Mills Association has tried to convince the federal government to negotiate 800,000 metric tonnes of urea in exchange for 400,000 tonnes of sugar. As the government had already approved import of 300,000 tonnes of urea, it stood to reason, at least for them, that that existing purchase could be paid for in sugar, saving precious foreign exchange.
Previously, the PSMA had been trying to allow sugar exports in general, perhaps 100,000 tonnes but surely no more than 200,000 tonnes. Success was minor amidst concerns that even though there is a surplus now they needed to hold onto stocks in case of emergency.
Yet here’s PSMA trying to get more than double that figure in exports in exchange for a whole lot of urea. What’s more, PSMA thinks there could be room to get another 400,000 tonnes of urea representing another 200,000 tonnes of sugar. That would total 600,000 tonnes of sugar in exchange for Iranian urea, even when the government wasn’t so keen on sugar exports of 100,000 tonnes.
Some local press reports indicated that the Iranian government wasn’t as keen on trading sugar for urea as the Pakistani mills had been, but it’s not clear where those negotiations currently stand.
But it’s not just Pakistan who’s looking to skirt the trade embargo with Iran. Iran reportedly wants soybean meal, tea, wheat, steel and yes, sugar, from India. There had been talk of a similar kind of bartering proposal, but the deal has found itself mired in complicated and unfavourable circumstances that might be insurmountable.
According to Asia Times Online, the Reserve Bank of India recently dismantled the settlement mechanism denominated in dollars and euros that had facilitated the annual payments of US$9.5 billion for India’s annual oil imports from Iran. That is what led to talks about bartering commodities in exchange for oil through India’s UCO Bank, as Bloomberg reported last month. Later reports suggest that this mechanism might facilitate payment for as much as 45% of oil trade between the two countries.
But more recently, the Economic Times of India has reported that there are number of obstacles to this plan, not the least of which stems from the other end of UCO’s relationship with Iran. Its Iranian partner Parsian bank requires a minimum 120% margin deposit from importers which has been criticised as worse than a cash deal in financial terms but has also made a mess of issuing and negotiating shipping documents. As a result, the bartering plan may be put to bed after all.
That leaves Iran in a bit of a pickle, however. It can’t have its pie and eat it too. So perhaps today it may want some sugar, but not all of its oil in sugar reserves. That’s fine. But how it plans to get around the trade embargo to get the other commodities it needs will be a real challenge if it isn’t able to figure out internal mechanisms that will facilitate barter, even on the short term.
Unless, of course, it reverses its policies sufficiently to allow it to re-enter the global trading system so it can sell it’s oil for cash and buy its sugar for cash like anyone else, leaving the Pakistanis to do the same for their urea. And the world’s sugar trade remains as it has.