India set to restrict sugar exports in threat to global supply

India is contemplating a potential shift of sugar exports from the ‘restricted’ to the ‘prohibited’ category for the entire 2023-24 season due to concerns arising from the weakest monsoon in five years affecting sugarcane crops in major producing states like Maharashtra and Karnataka, according to information provided by two government officials. Currently, sugar mills can apply for an export quota under the restricted category, but a move to the prohibited category would signify a complete ban on exports.

India set to restrict sugar exports

India set to restrict sugar exports

One official mentioned that sugar output is anticipated to decrease to 30 million tonnes in the 2023-24 season, in contrast to domestic consumption ranging between 27.5-28 million tonnes. The primary cause attributed to this decline is the impact of El Niño on monsoon rains in August. The official further noted that the El Niño weather phenomenon is expected to strengthen through the 2023-24 period, potentially exacerbating dry conditions in the upcoming sugar season and resulting in a further reduction in sugar production during the 2024-25 season.

The El Niño weather pattern led to August experiencing the driest conditions in over a century, with rainfall at 161.7 mm, the lowest recorded since 1901. India, surpassing Brazil in the 2021-22 season, became the world’s leading sugar producer and the second-largest exporter. Export controls were enforced in October last year, implementing a mill-wise quota system. By the conclusion of the 2022-23 crop year, local sugar mills had exported 6.2 million tonnes of sugar.

Reports suggest that the Indian government may opt not to grant sugar mills unrestricted freedom in exporting sugar to ensure domestic supply and regulate prices. There are indications that the government will reassess its sugar export policy, currently categorized as restricted, in October following the submission of crop estimates for the 2023-24 season by state cane commissioners. These reports were initially disclosed in a Mint article on June 2, with a subsequent report on August 29 indicating an upcoming policy review.

As India approaches pivotal elections, the government has heightened export restrictions to stabilize local prices. Beyond sugar, India has imposed limitations on the export of wheat and rice. For the 2022-23 season, estimates indicate that India produced approximately 32.7-32.8 million tonnes of sugar, with 4.3 million tonnes of the commodity diverted towards ethanol production. This diversion has resulted in closing stocks of about 5.5-6 million tonnes. To manage domestic retail prices of sugar and establish a buffer for the 2024-25 season, officials suggest that there may be a need for further diversion of sugar towards ethanol production, potentially leading to lower closing stocks. The government’s primary focus is on ensuring an ample supply for domestic consumption, regulating domestic sugar prices, promoting ethanol production, and maintaining sufficient closing stocks at the end of the season, as articulated by a government official. Another official emphasized that the government is cautious and aims to avoid risks in this context.