India Extends Sugar Export Restrictions Amid Climatic Challenges and Soaring Prices
In India, sugar production is not just a major industry – it's an integral part of the country's economic landscape and social fabric. However, this year, the sector is grappling with significant challenges that are driving sugar prices to historic levels. The woes began with a climatic issue. Low rainfall in the western states of Maharashtra and Karnataka in Southern India, which together contribute more than half of the country’s total sugar output, has severely impacted sugarcane yields. This has triggered concerns that sugar production in India could plummet by 3.3%, to around 31.7 million metric tons (mmt) in the new season starting October 1, according to the Indian Sugar Mills Association (ISMA).
As a direct consequence of these production concerns, sugar prices in India soared to their highest level in six years, hitting INR 37,760 (approximately USD 454.80) per metric ton (mt) on September 5, a peak not witnessed since Oct-17, according to the International Sugar Organisation. The surge in prices and concerns over domestic supply stability have prompted the Indian government to prolong its restrictions on sugar exports, extending them beyond October. The Directorate General of Foreign Trade announced the decision on October 18.
Source: International Sugar Organization, Tridge
These export limitations encompass various sugar categories, including raw, white, refined, and organic sugar. Originally enforced from June 1 to October 31, 2022, the restrictions were extended for an additional year until October 31, 2023, with the latest extension stretching the ban beyond October 31. The principle behind these restrictions involved setting a quota for sugar exports at lower duties, with higher tariffs applied to any additional shipments that surpassed the limit. These regulations are an extension of those from the previous season, which concluded on September 30. India allowed mills to export only 6.2 mmt of sugar, a significant reduction from the 2021/22 allowance of 11.1 mmt.
The extended restriction on sugar exports from India is anticipated to apply upward pressure on benchmark sugar prices in both New York and London. These markets have already been grappling with multi-year highs, sparking concerns about the possibility of global food price inflation. Notably, the March NY world sugar #11 (SBH24) closed at USc 27.53 per pound (lb) on October 24, marking a remarkable 12-year high. This surge came on the heels of the news about the Indian government's decision to extend the sugar export ban.
On the flip side, the increased prices could benefit sugar producers in India. Higher prices are expected to improve the margins for producers such as Balrampur Chini, Dwarikesh Sugar, Shree Renuka Sugars, and Dalmia Bharat Sugar. These improved margins could help ensure that they make payments to farmers on time, a critical aspect of India's sugar industry.
Looking ahead, the sugar market might see further price increases in the coming months. As stocks dwindle and the peak festive season approaches, Mumbai-based traders anticipate additional price rises. Furthermore, sugar mills are concerned that production in the new season may fall significantly due to drought conditions, which might lead to a reluctance to sell at lower prices. Consequently, the export ban could remain in place for the remainder of the year as the government seeks to curb sugar inflation.
The complex web of factors influencing the sugar market in India underscores the interplay between climatic conditions, government policy, and the broader implications for global food prices. The situation remains dynamic, and it will be closely watched as it unfolds, with eyes on both domestic and international markets.
For further reading, follow the links below:
1. India Set to Ban Sugar Exports for the First Time in Seven Years in 2023/24
