Friday, Aug 19, 2022

After Wheat, Why Government Is Curbing Sugar Exports From India 

The sugar exports in India have remained consistently high over the past few years

Sugar export
Sugar export

The government has decided to ban sugar exports from the country. The restrictions will be applicable with effect from June 1st to October 31st of the current marketing period. The marketing season for sugar in India follows the October to September yearly calendar. The Department General of Foreign Trade said, “Export of sugar (raw, refined and white sugar) is placed under restricted category from June 1, 2022, onwards.” 

The government has also capped the exports of sugar to 10 million tonnes until May 31st. The development comes days after the cabinet imposed  ban on wheat exports last week. 

Depleting Domestic Stocks And Rising Prices

A major reason behind the curbs on sugar exports is to maintain the depleting domestic stocks as well as the stability in prices amidst the soaring inflation. A government official had earlier told Reuters that despite the record output of sugar, uncontrolled exports would lead to scarcity of domestic stocks and a spike in sugar prices, especially during festive seasons. India has recorded the highest sugar exports so far in six years. 

The food ministry said in a statement, “Taking into consideration unprecedented growth in exports of sugar and the need to maintain sufficient stock of sugar in the country as well as to safeguard interests of the common citizens of the country by keeping prices of sugar under check, Government of India has decided to regulate sugar exports w.e.f. June 1, 2022.”

India is the second-largest sugar producer after Brazil, with its three states –Uttar Pradesh, Haryana, and Maharashtra contributing to 85 per cent of sugar output demand. As of April 2022, these three states have collectively produced 29.1 MT of sugar, against the 25.4 MT in the year-ago period. Meanwhile, all other states have only produced 5.1 MT sugar so far compared to 4.6 MT in the year-ago period.

“The decision will ensure that the closing stock of sugar at the end of sugar season (September 30th 2022) remains 60-65 LMT which is 2-3 months stocks (monthly requirement is around 24 LMT in those months) required for domestic use," the food ministry added. 

The crushing of sugarcane in Uttar Pradesh and Karnataka for the new season begins in October last week, whereas in Haryana it begins in November. The crushing is an essential step in the production of sugar. It starts in the month of October and ends in March and April of the succeeding year, with January usually witnessing the highest level of crushing. However, crushing also depends on the availability of sugarcane.

“So generally, up to November, supply of sugar takes place from previous year stock," the government said.

The Inflation Factor

Another factor that has impacted sugar exports is the soaring wholesale and retail inflation in India, which are at an eight-year high. In April, the wholesale inflation soared to 15.08 per cent compared to 14.55 per cent in March, whereas the retail inflation soared to 7.79 per cent in April compared to 6.95 per cent in March this year, owing to high food prices. Both wholesale and retail inflation remained high against the Reserve Bank Of India’s limit of six per cent. 

Notably, while the inflation in wholesale food articles rose to 8.35 per cent, the inflation in retail food basket rose to 8.38 per cent. Meanwhile, food inflation, which accounts for nearly half the consumer price index (CPI) basket can remain elevated due to higher vegetable and cooking oil prices globally.

Record Sugar Production

According to the National Federation of Cooperative Sugar Factories (NFCSF), the production of sugar soared 14 per cent to 34.2 million tonnes in the current 2021-22 marketing year and is expected to reach a record-high of 35.5 MT. In 2017-18 the sugar production was 31.2 MT whereas in 2018-19 the sugar production was 32.2 MT. In 2019-20 and 2020-21, the sugar production was 25.9 MT and 31.1 MT. 

Moreover, India has 520 sugar mills that are in operation for crushing. Of this, 219 sugar mills are still in crushing compared to the 106 sugar mills in crushing in the year ago period, according to NFCSF. 

“At this pace, all India net sugar production (after subsuming 3.5 MT of sugar for ethanol) is poised to be in excess of 35.5 million tonnes," NFCSF said.

However, despite the record sugar production in India, the ex-mill realization of sugar in the domestic market has not crashed, according to NFCSF. The ex-mill realization is the selling price of sugar from the factory/mill. Until now, the average realization for S grade of sugar is Rs 3,300 per quintal, while for M grade it is Rs 3,550 per quintal, as per NFCSF. 

"This is mainly due to record-breaking sugar export contracts of 8.5 MT of which 6.5 MT has been physically dispatched from mill level to ports for exports," NFCSF said.

Record Sugar Exports In India

The sugar exports in India have remained consistently high over the past few years. During the sugar seasons of 2017-2018, 2018-19, and 2019-21, India reported record sugar exports at 6.2 LMT, 38 LMT, and 59.60 LMT, respectively. In the sugar season of 2020-21, the exports touched 70 LMT as against the target of 60 LMT. As for the current marketing year, India received export contracts for 90 LMT sugar. Of this, 82 LMT of sugar has been dispatched from sugar mills for export and about 78 LMT have been exported. 

India exports 15 per cent of its sugar to Indonesia, 10 per cent of sugar to Bangladesh, and three per cent to Afghanistan, Somalia, Djibouti and Malaysia. 

Impact on International Market

Amidst the low sugar production by Brazil and soaring crude oil prices to run the mills that produce sugarcane-based ethanol, curbs on Indian export would lead to soaring sugar prices globally.