After wheat and rice, India likely to curb sugar export

Scanty rainfall in sugarcane-growing states, and a policy target involving ethanol means the government might add a notch to the belt to curb inflation

India may ban or curb export of sugar in the new season that began on October 1, as a patchy June-September monsoon is anticipated to cut output in the world’s second-largest producer, two officials familiar with the matter said.

Domestic sugar prices have risen by about 3% over the past month, according to official figures, although they are nearly 40% lower than global prices currently.(HT/ PHOTO)

A curb on shipments by India due to a below-normal monsoon will add to a surge in international prices amid forecasts of a global supply crunch this year. Summer rains in the top cane-growing states of Maharashtra and Karnataka, which together account for more than half of the country’s total output of the sweetener, were scanty especially in August, stressing cane crops. India Meteorological Department (IMD) data for August showed that Maharashtra experienced an average 11% rainfall deficit for the cumulative period between June 1 to August 29. While September proved to be better for the state, all of Karnataka’s 31 districts received rainfall below the long period average for all the monsoon months — June to September — leaving the state under a spell of drought.

Domestic sugar prices have risen by about 3% over the past month, according to official figures, although they are nearly 40% lower than global prices currently.

The Indian Sugar Mill Association (ISMA), a top industry body, last month said sugar output will likely decline by 3.41% (to 31.68 million tonnes) in the coming sugar season (2023-24). The government has yet to come out with its own estimates for the summer crop. India is the world’s largest consumer of the sweetener at 27 million tonnes.

Although the estimated drop output in itself isn’t likely to cause a domestic shortage, supplies can come under pressure if exports take place, analysts said. This will be the first time in seven years that the world’s second-largest sugar producer will bar exports.

Government regulation

Battling high prices, the government has regulated trade in most food items to cool consumer inflation, which rose to 6.83% from a year ago continuing to be above the Reserve Bank of India’s so-called acceptable limit of 4% (+/-2), according to official data. In the previous month, retail inflation soared to a 15-month high of 7.44%, mainly driven by food prices.

To curb food inflation, India banned export of non-basmati rice, levied a 40% duty on onion export and allowed duty-free imports of pulses. It banned wheat shipments abroad in May last year. An anticipated fall in sugar output could fan prices further.

Sugar prices are likely to fall when crushing of freshly harvested cane starts this month onwards because there is an “abysmally low possibility of export”, the first official said. The country had limited overseas shipments to 6.1 million tonnes in the season ending September 30, compared to 11.1 million tonnes exported in the previous season. The sugarcane season in India begins in autumn, on October 1, and runs till September 30 (of the next year).

India’s likely restriction on export is also prompted by global market cues.

International sugar prices have witnessed a massive surge in recent weeks due to expected poor harvests this year that will keep supplies tight. In August, global sugar prices rose to a 12-year high, rising 14% month-on-month, according to a Bloomberg report. Prices have been elevated since.

E20 target

In addition to a likely ban on export, the government is also weighing a proposal to impose a 25% export duty on molasses, a byproduct of sugar that goes into making of ethanol that is blended with petrol and also enforce limits on how much sugar a mill can store, measures aimed at boosting supplies, a second official said.

Although molasses can be used as a food sweetener, they are an industrial raw material and largely used to manufacture ethanol, which goes into fuel blending. Oil marketing and petroleum companies, such as Indian Oil Ltd, are major end-users of ethanol derived from molasses. An export duty aims to discourage exports and help improve domestic availability. So, the point of a 25% duty on export of molasses is to ensure just that. In terms of inflation, an export duty — the government hopes — will help to keep prices stable for users of ethanol.

Under a government-mandated programme, a surplus part of the sugarcane crop is utilised to make ethanol, which is blended with petrol by oil-marketing companies. Ethanol can also be made with cereals, such as rice and maize. According to India’s fuel-blending programme known as the E20 target, 5.5 billion litres of ethanol are to come from sugarcane and rest 4.6 billion litres from grains, totalling 10.1 billion litres of ethanol required to meet the target.

As on September 1, overall cane acreage stood at 5.9 million hectares, marginally higher than 5.5 million hectares in the previous year. The E20 target requires the country to achieve 20% ethanol blending in petrol by 2025.

This year, more sugarcane may be required to be diverted for ethanol-making due high cereal prices and concerns of lower yield due to a poor monsoon. The Union government last month decided to stop the sale of surplus state-owned rice for ethanol-making, mainly to bolster food security.

“The government wants fair trade but we want to ensure no hoarding can happen,” the person cited above said. Sugar is considered an essential item because people are sensitive to its prices.

To ensure sugar prices don’t jump in the festive season beginning this month, the government recently asked all millers to provide details of quantities sold to traders and wholesalers in each of the past four months in a specified format, according to an order seen by HT.

The sales-data-submission format which should include the name of buyers, their GST records and phone numbers, as the government fears possible hoarding to lift prices in the world’s biggest consumer of the sweetener amid soaring festival-season demand, according to the second official, who declined to be named.

Millers have to declare quantities sold to each client during May-August, including to traders, wholesalers, big-chain retailers and supermarkets, according to the order issued under clause 5 of the Sugar Control Order.

India's domestic output of sugar is usually in the range of 34-35 million tonne, while domestic consumption stands at about 27 million tonne. A ban on export will leave a larger domestic surplus, which the government hopes will help to keep sugar prices stable.