Insufficient rainfall in India has taken a toll on its sugar output, leading to growing concerns that following the government's ban on certain rice exports, sugar might be the next target.
On August 2, according to an announcement by the Indian Sugar Mills Association (ISMA), a decrease in rainfall in major sugar-producing states could negatively impact yield per unit. Consequently, the sugar production for the upcoming 2023/24 season, starting October 1, is predicted to decline by 3.3%, with an anticipated output of just 31.7 million tons. This implies that sugar output is set to decrease for the second consecutive year.
Bloomberg reported on August 7 that this drop in production might curtail India's sugar exports. The Indian government has already restricted exports of wheat and certain varieties of rice to ensure domestic supply and control prices.
Bloomberg analysts noted that India has previously limited sugar exports. For the 2022/23 season, sugar export quantities were capped at 6.1 million tons, down from 11 million tons in the preceding season.
Industry analysts predict that, based on current production estimates, the upcoming season might only permit exports between 2 to 3 million tons of sugar, less than half of this season's volume. Alternatively, the Indian government might prohibit sugar exports altogether. Either scenario is likely to push global sugar prices even higher.
The global grain market is already grappling with challenges brought on by the El Niño phenomenon and heightened tensions from the Russia-Ukraine conflict. As the world's largest sugar producer and second-largest exporter, any move by India to curb sugar exports will undoubtedly compound the stress on global food supply, exacerbating already soaring sugar prices.
Henrique Akamine, head of the sugar and ethanol division at Tropical Research Services, stated that the ban on rice exports sends a clear signal that the Indian government is concerned about food security and inflation. There's now apprehension that "the government might take measures similar to the rice ban for sugar."
Despite the projected decline in sugar production for the 2023/2024 season, Aditya Jhunjhunwala, Chairman of ISMA, assured that there will still be enough to meet India's domestic demand. Concurrently, India might redirect more sugar towards biofuel production. The association forecasts that around 4.5 million tons of sugar will be used to produce ethanol, marking a 9.8% year-on-year increase.
Bruno Lima, head of sugar and ethanol at StoneX, highlighted that given the current production levels, India might not release any exports at all. "We need to closely monitor how much sugar is channeled towards ethanol production," he said.
The Indian government, before making a decision on allowing sugar exports for the next season, will require a definitive understanding of next year's production. It's expected that the decision might not be made until the first half of 2024. This year's monsoon performance and sugarcane output over the next two seasons (2023/2024 and 2024/2025) will be pivotal.
