Second Global Sugar Producer Succumb to Import for Next Crop Year?

Second Global Sugar Producer Succumb to Import for Next Crop Year?



India, the second-largest global sugar producer and consumers, is predicted to affect the consumption for the first time in seven years and beckoning shortage in the global agriculture market. Low sugar plantations due to uneven rainfall contributed to depleting sugar manufacturing across various regions in the country. Agricultural sustainability is in chaos since as the country alternates between being a net importer and exporter on a regular basis.

Sugar stocks have dropped from the global agriculture market over the last two years, reaching their lowest point since 2011. This has contributed to the 20 percent increase in sugar futures prices so far this year, reaching multi-year highs.

The sugarcane crop in the states of Maharashtra and Karnataka, which together produce almost one-third of all sugar produced in India, flourishes in the plentiful monsoon rains that occur from June to September. Nonetheless, lower yields and decreased output may come from this year's inadequate precipitation during the crop's early vegetative growth period.

According to Gro's Climate Risk Navigator for Agriculture, the state of Karnataka's June total precipitation was 60 percent less than the 10-year normal. Despite a 72 percent increase in rainfall in July compared to the previous month, the crop may have already been harmed by the early plant deficiency.

Scanty Rains: The Bane of Sugarcane Wane

The sugarcane-growing regions of Maharashtra also experienced a drier-than-normal June and July with a lot of rain.

"This Gro Navigator display shows that the state's sugarcane areas are now tracking 16 percent over average for accumulated precipitation from June to mid-August."

In Maharashtra and Karnataka, even significant reservoirs contain as little as 28 percent of the 10-year average. Along with Shinde, 181 other farmers from Maharashtra's 11 cane-producing districts and 49 more from Karnataka's sugar belt said that water constraint is causing them to reduce or stop cultivating cane.

June 2021 also had less rain than usual, which resulted in a 13 percent decrease in India's overall sugarcane crop that year compared to the previous year. That year, exports decreased by almost half.

The largest sugarcane-growing state in India is Uttar Pradesh, but a recent Gro research indicated that production there is not as tightly correlated with the quantity and timing of monsoon rains as it is in Maharashtra and Karnataka. Due to this reason, sugarcane production in Uttar Pradesh has been comparatively constant over the last 20 years.

Sugar Ban

According to an announcement from the Directorate General of Foreign Trade, India has extended the ban on sugar exports till October 31, 2023, and until further directives are received.Exports of white sugar, refined sugar, organic sugar, and raw sugar are prohibited.

The limits were first put in place from June 1 to October 31, 2022, and then they were extended for an additional year, until October 31, 2023. In essence, a tariff rate quota is a quota for exports with comparatively low levies. Additional shipments are subject to a higher levy when the cap is reached. Initially, the goal of the sugar export ban was to stabilize domestic sugar prices. India banned the export of white rice that wasn't basmati earlier in July in an effort to control domestic prices and guarantee food security. While changing the export policy, DGFT insisted that exports would only be permitted if the government gave approval to other nations to meet their demands for food security and at those nations' request.

For that reason, India has permitted the export of non-basmati white rice to the following countries: Nepal, Cameroon, Republic of Guinea, Cote d'Ivoire, Malaysia, Philippines, Seychelles, United Arab Emirates, and Singapore, in varied amounts. One of the main importers of non-basmati rice from India is the West African nation of Benin. The UAE, Nepal, Bangladesh, China, Cote D'Ivoire, Togo, Senegal, Guinea, Vietnam, Djibouti, Madagascar, Cameroon, Somalia, Malaysia, and Liberia are additional target countries.

India implemented extra security measures in late August by setting a minimum floor price for exports of basmati rice. This was done to stop non-basmati white rice from being exported, which had been banned since July. According to an official announcement, the central government last week extended the 20 percent export duty on parboiled rice until March 31, 2024. Parboiled rice is rice that has been partially boiled with husk.

However, sugar exported to the US and the EU under the TRQ quota and concession (CXL), as announced last year, is exempt from the restriction.

How it Affects Other Countries

With benchmark prices in New York and London already close to multi-year highs, the exclusion of India from the global market is expected to drive up costs, adding to the worry about further inflation on the world's food markets.

Since sugar is an essential staple in the Gulf Cooperation Council countries, price increases resulting from the stoppage of exports could particularly affect them.  Furthermore, these nations will have a difficult time in the interim finding new or alternative sources of sugar.  In spite of these expected consequences, the Indian government has determined that the ban was a necessary measure.

Short-term effects might bring affect the less developed Arab nations, where food security is already a problem due to the start of the Russia-Ukraine conflict, which puts grain supplies to important importers in jeopardy. While large sugar importers like the UAE have the financial reserves to handle rising food prices, other emerging countries in the area lack such reserves.

Reversing the Ban

Experts and industry stakeholders predict that the government's decision to remove the ban on using sugarcane to generate ethanol would raise closing stocks of sugar from the multi-year low of the previous season, which will moderate the spike in sugar prices. According to industry observers, additional latitude is anticipated if the sugar surplus meets projections following the conclusion of the crushing season in the first quarter of FY25, since the government is concentrating on the ethanol blending scheme.

On December 16, the government issued an order lifting the prohibition on using sugarcane juice to produce ethanol. In the supply year 2023–2024, the food ministry also approved the use of B heavy molasses and juice to create green fuel. The government's December 7 decree, which prohibited the use of sugarcane juice and sugar syrup for the 2023–24 supply year (November–October) in an effort to maintain a sufficient supply of sugar on the domestic market and control prices, was followed by the updated order a few days later.

Industry participants claim that the government is trying to level the playing field by establishing a single price for ethanol made from either B-heavy or C-heavy feedstock syrups.