New Delhi, October 19, 2023
India, the second-largest sugar producer in the world, has decided to extend its restrictions on sugar exports, sparking concerns about tightening global markets and increased costs for the food industry. The decision aims to safeguard domestic sugar supplies amidst challenges in the agricultural sector.
The Directorate General of Foreign Trade confirmed on October 18 that the Indian government would continue to limit overseas shipments of sugar beyond the initial deadline of October 31. This move aligns with the recent Bloomberg News report, which predicted such an extension.
In the 2022-23 season, India had introduced a quota system that restricted sugar exports to approximately 6 million tons. This decision followed a decrease in sugar production caused by late rains. To put this in perspective, the previous year had seen unrestricted exports amounting to 11 million tons. The specific size of the quota for overseas shipments in the upcoming 2023-24 season remains uncertain.
This policy has had an impact on raw sugar futures, which have reached their highest levels since 2011. Concerns about waning supplies from India and Thailand are driving up prices. While the extension of export restrictions may help stabilize domestic sugar prices in India, it poses challenges to global manufacturers across various industries, from soft drinks and chocolate to baked goods.
India's government is taking a cautious approach to inflation, with several states preparing for elections in the coming months and a national election scheduled for 2024. Prime Minister Narendra Modi will be seeking a third term, and any drop in agricultural output could intensify the pressure on authorities to control food prices.
Kona Haque, the head of commodities research at ED&F Man, expressed skepticism about India allowing any export quota this season. The lower crop yield anticipated due to deficient rains in major growing regions is a significant factor contributing to this decision.
On October 18, raw sugar futures in New York increased by as much as 0.7% to 27.67 cents a pound, while the white sugar variety experienced a gain of over 1% in London following India's announcement.
The Indian Sugar Mills Association predicts that India's sugar production will decrease by 3.4% compared to the previous year, totaling 31.68 million tons for the year starting on October 1, 2023.
It's worth noting that these export restrictions do not apply to sugar being exported to the European Union and the United States under certain quota systems, as specified in the notification.
Domestic sugar prices in India have already increased by about 3% this year, according to data compiled by the food ministry. The government indirectly influences these prices by regulating the monthly volume that millers can sell.
According to a Bloomberg survey conducted in September, most of the 14 analysts, traders, and millers polled expressed doubts about India exporting any sugar this season due to lower production. Only two respondents suggested that shipments might reach at least 2 million tons.
In addition to the restrictions on conventional sugar exports, India has also implemented limits on shipments of organic sugar, as indicated in the official notification.
The decision to extend these export restrictions underscores the Indian government's commitment to ensuring domestic sugar supply, despite its potential implications for the global market and the industries reliant on this sweet commodity.
Comments