Sweet Crisis: Sugar Prices Reach 6-Year High, Government Mulls Export Ban

Sweet Crisis: Sugar Prices Reach 6-Year High, Government Mulls Export Ban

India’s sugar prices have soared to a six-year high, raising worries about probable price increases during the forthcoming holiday season. Deficient rainfall in Maharashtra and Karnataka, two important sugar-producing regions, has been blamed for the price increase, leading the government to contemplate prohibiting sugar exports starting on October 1 if production is insufficient. Let us take a more in-depth look at the situation:

Rising Sugar Prices Amidst Weather Woes

Sugar prices in India have risen by more than three percent in just a couple of weeks, hitting their highest level in six years as of September 6, 2023. According to a Reuters report, both dealers as well as industry officials have noticed this frightening price growth. The main cause of this increase is the insufficient rainfall that the crucial sugar-producing regions of the nation have been experiencing, which raises concerns about the next sugar production season.

Impact on Inflation and Export Prospects

The current spike in sugar prices could make food inflation worse and make the central government less likely to permit sugar exports. The prices of sugar around the world, which are already close to their highest levels in over a decade, may be more broadly impacted by this choice. The Bombay Sugar Merchants Association’s president, Ashok Jain, stated that “sugar mills are concerned that production could decline substantially in the new season due to drought. They are not prepared to sell for less.

While rising sugar prices may be a source of concern for consumers, they bring relief to sugar producers such as Balrampur Chini, Dwarikesh Sugar, Shree Renuka Sugars, as well as Dalmia Bharat Sugar. These companies are expected to see improved profit margins, which will facilitate timely payments to farmers, in accordance with the statements  given by industry experts and dealers.

Production Outlook

According to estimates, India’s sugar production could decrease by 3.3 percent in the new season that starts on October 1 and reach 31.7 million metric tons. According to a leading trade association, the main cause of this reduction is the lack of rainfall, which has had a severe impact on cane yields in Maharashtra and Karnataka, which together produce more than half of all the sugar produced in India.

Export Restrictions Looming

Despite sugar prices have recently increased to INR 37,760 ($454.80) per metric ton, they are still roughly 38% cheaper in India than the international benchmark price for white sugar. The Indian government is anticipated to refrain from allowing sugar exports during the forthcoming season as a result of this difference. Compared to a record-breaking 11.1 million metric tons the season before, the government had only permitted mills to export 6.1 million metric tons of sugar during the current season.

According to government sources, the Centre is thinking about prohibiting sugar exports during the season that begins in October. This would be the first such restriction in seven years. Due to dwindling sugar supplies and the impending holiday season, traders believe sugar prices will likely increase over the next few months. The cost of sugar is varying internationally as well. Prices for sugar have risen to their highest levels in four and a half months in New York and twelve years in London.

Varied Estimates of Sugar Deficit

Different reputable sources give varying estimates of the sugar deficit in India for the 2023–2024 season. The Indian Sugar Association forecasts a deficit of 2.2 million tons, but ALVEAN, one of the biggest sugar traders in the world, projects a deficit that is far larger—5.4 million tons. Between the two, the United States Department of Agriculture (USDA) projects a deficit of 2.12 million tons over the same time frame.

Consumers, producers, as well as decision-makers will closely follow events in the sugar market as the situation develops in the hopes that supply and demand will be balanced to maintain stability in sugar prices.

Government Takes Swift Measures to Address Soaring Food Prices

The Indian government has put in place a number of significant measures designed to alleviate the situation and protect food security in the face of rising food costs. The government has previously banned the export of rice and wheat in order to guarantee a sufficient supply of critical staples and stabilize domestic food prices. In order to avoid Non-Basmati white rice from being mistakenly classified as Basmati rice during export transactions and maintain the integrity of the Basmati rice market, the central government also added additional safeguards for exports of Basmati rice on August 17, 2023.

The government has taken a number of actions to combat the rising pricing of onions on the domestic market. These include exceeding the initial procurement target of 3.00 lakh metric tonnes and raising the quantity of the onion buffer to 5.00 lakh metric tonnes for the current year. To control onion prices, stocks from the buffer are also being released by the Price Stabilization Fund (PSF). A 40% levy has also been imposed on such exports in order to limit onion exports.

The government has introduced “Bharat Dal,” available in retail packets priced at Rs 60 per kilogram as well as Rs 55 per kilogram for 30-kilogram packs, to increase consumer access to and affordability of pulses. Bharat Dal distribution is supported by a number of retail establishments, including NAFED, NCCF, Kendriya Bhandar, and Safal.

Under the Price Stabilization Fund (PSF), buffer supplies are being kept for five important pulses: chana, tur, urad, moong, and masur. The government has changed import regulations in an effort to keep pulse prices stable. Up to March 31, 2024, imports of tur and urad are classified as being in the “Free Category,” whereas masur imports are subject to no import charge. These actions seek to stabilize prices while increasing domestic supply of pulses.

Under the Essential Commodities Act of 1955, the government set stock restrictions on tur and urad that will be in effect starting on June 2, 2023, and will last until October 31, 2023. These stock limits were put in place to avoid hoarding as well as ensure a fair distribution of pulses. The government’s dedication to reducing rising food prices, guaranteeing food security, as well as containing inflation is reflected in these several efforts. Along with its attempts to control sugar price hikes, these steps show a thorough strategy for preserving stable food costs, especially throughout the next holiday season and beyond, protecting the interests of both consumers and producers.