Trade Off between Sugar and Ethanol Production to Shape India’s Sugar Exports in the Upcoming MY

Published 2022년 9월 15일

Recent estimates by the Indian Sugar Mills Association suggest that India will be diverting a larger share of sugarcane towards producing ethanol. As the demand for ethanol in the country increases, the sugar processors are facing a major trade-off and are likely to make a decision in the coming months. With this anticipation, India’s sugar exports are projected to fall by 28% in the upcoming year. Based on the domestic price of sugar, it will be decided whether India will export under an open general licence or the prevailing quota system. Traders from across the world have their eyes set on the changes happening in the sugar industry in the coming few weeks as India is one of the leading exporters of sugar in the world and plays a major role in stabilising global sugar prices.

The Indian Sugar Mills Association (ISMA) has come up with the preliminary estimates for India’s sugar production in the upcoming marketing year (MY) of October 2022–September 2023. According to the report, India's centrifugal sugar production may fall slightly to 355 lakh tonnes in the 2022-23 marketing year starting in October due to the diversion of sugarcane towards ethanol manufacturing. This is a YoY fall of only 1% in comparison to the previous MY when India was projected to produce 360 lakh tonnes. According to the report, around 45 lakh tonnes of sugar will be diverted to cane juice and B-molasses to ethanol, which will reduce sugar production. The domestic demand for sugar in the country is estimated to be at 275 lakh tonnes in MY 2022–23, which will leave a surplus of about 80 lakh tonnes for exports.

Looking at the sugarcane production figures, based on the satellite images procured in the latter part of June 2022, the total acreage under sugarcane is estimated to be higher by 4 per cent to 58.28 lakh hectares in MY 2022–23. Furthermore, assuming normal rainfall and other optimum conditions during the remaining period, there will be ample availability of raw materials for the industry to either produce sugar or ethanol. With the current target of achieving 12 percent ethanol blending, a total of about 545 crore litres of ethanol would be required and supplied in the coming year, which means lower availability of sugarcane for producing centrifugal sugar. This would impact the volume of sugar exports from India in the coming year and also disrupt the global dynamics of sugar processing and prices.

Sugar exports in India are most likely to plunge by 28.57% to around 8 million tonnes in MY 2022–23. Due to a lower opening balance stock and a higher diversion for ethanol, the country will have very little availability of surplus for export. It is likely that the domestic price situation will be monitored once the sugarcane crushing operation begins and the decision on whether to permit export under an open general licence or the prevailing quota system will be made. The trade off between centrifugal sugar and ethanol production is not unique to India, as a similar trend was observed in Brazil a few months ago. With India being a leading sugar exporter, traders from across the world have their eyes set on the changes happening in the sugar industry in the coming few weeks. Any unanticipated development might lead to a drastic change in the global sugar price and impact the current trade flows.