Government Brings In Sugar Export Curbs As A Precautionary Measure

Days after banning the export of wheat in order to control rising inflation and amid growing international pressure to roll back the ban, comes another cap, this time on sugar exports with the government on 24 May deciding on 10 MT of exports with special permission between 1 June to 31 October 2022.

The sugar exports curb in the current sugar season 2021-22 with effect from 1 June 2022 is, according to Food Secretary Sudhanshu Pandey, “a precautionary step to ensure enough supply in festive season in October-November”.

The government argument is that with global availability of sugar restricted due to shortage in Brazil, it wants to ensure that the closing stock of sugar at the end of sugar season (30 September 2022) remains about 6-6.2 million tonnes -- just the optimum level to meet the domestic requirement in October-November.

The move to regulate exports of sugar will help to maintain domestic availability and price stability of sugar in the country during sugar season 2021-22 (October-September), says Pandey.

On the flip side, with global sugar prices rising over concerns about Brazil's low sugar production, India's sugar exporters saw better prospects which may lose shine with this export curb. The export tightening, ironically, comes amidst India’s emergence as a leading exporter and world’s largest sugar producer, toppling Brazil which faced shortage of output this year.

Sugar production at 35.5 MT is highest in the world this year, after discounting diversion of 3.5 million tonnes for ethanol. The availability is higher than the domestic requirement of 27.8 million tonnes. Over the past few years, the government has diverted surplus sugar to ethanol and by means of export which has led to a surge in sugar shipments abroad and made India the world’s second largest exporter of this commodity.

In sugar seasons 2017-18, India exported 0.62 MT, in 2018-19, exports were 3.8 MT and in 2019-20, the country dispatched I5.96 MT of sugar. Sugar exports stood at a record 7 MT in the 2020-21 marketing year exceeding the target of 6 MT. At 10 MT in this ongoing 2021-22 marketing year, exports of the sweetener are the highest ever, according to Pandey, with exports of about 9 MT already and out of which 7.5 MT have been exported.

With no official word yet on the exact duration of the sugar export ban, there are concerns, going ahead, over a slowdown in India’s sugar exports which have grown by leaps supported by government policies that helped farmers increase their income by tapping global markets and India’s sugar exports in reaching 121 countries across the globe.

India also exported sugar to Somalia, Saudi Arab, Malaysia, Sri Lanka, Afghanistan, Iraq, Pakistan, Nepal, China, USA, Singapore, Oman, Qatar, Turkey, Iran, Syria, Canada, Australia, South Africa, Germany, France, New Zealand, Denmark, Israel, Russia and Egypt. With the sugar export limitations, India could lose the advantage it has gained and the opportunity to tap its export potential and markets.

Raj Vyas, Portfolio Manager of Teji Mandi, a SEBI registered investment advisory firm, believes that it is a good step by the government which will safeguard the country's own food supplies. “As in any case exports were not expected to be happening beyond 10 MT and the fact that the government is comfortable even at an inventory level of 6 MT by end of September 2022, is positive,” says Vyas, ruling out any earnings impact because it is just the potential export restrictions and there is no ban on exports.

India has other concerns. The “timely” measure, according to the food secretary, will prevent any undue spike in retail prices amid global shortage of the commodity. Currently, sugar prices both in wholesale and retail markets are more stable when compared to other commodities and in the last 12 months, prices of sugar have been under control. These measures need to be seen in the context of efforts to tame inflation.

Consumer prices in April leapt to an eight-year high of 7.79 per cent, well above the Reserve Bank’s tolerance limit of 6 per cent for four straight months. With an assured sugar stock to meet the October-November demand, the government would not only have tamed a speculative price increase but meet an anticipated increase in domestic demand as well.

India's sugar consumption in the 2021/22 marketing year that ends on 30 September is set to rise by nearly 3 per cent from a year ago to an all-time high of 27.2 MT, according to the Indian Sugar Mills Association, as bulk consumers in beverages and FMCG segment call for increased stock in the summer after the lifting of COVID-19 restrictions.

The curbs on sugar export have come for the first time in six years after India restricted export of the sweetener by imposing an export duty of 20 per cent in 2016. An export halt is likely to have a significant impact on the global sugar market given India is a major producer and exporter and send prices soaring in the middle of rising global commodities prices, but there is reason for hope.

Brazil’s sugarcane production, as per industry and market sources, may increase by 6.7 per cent to 558 MT in the 2022-23 season due to improved recovery of the fields from the drought last year. As a result, sugar production is expected to increase to 33.5 MT as compared to 32.1 million tonnes in the 2021-22 season. Also, ethanol production is expected to reach at 30.2 billion litres as against 27.5 billion litres in the previous season.

Also Read: Why Bihar Is Bullish On Ethanol And How This Alternative Fuel Fits In India's Energy Jigsaw