2 reasons why India may not cap sugar exports this season

The Indian government is unlikely to consider capping sugar exports as rains during October-December 2021 have boosted yields and domestic prices have dropped by ₹300 a quintal over the last few months, industry experts and exporters say.

“The rains during October-December 2021 have resulted in an increase in sugarcane production. Against the usual yield of 90 tonnes per hectare, farmers are now getting nearly 130 tonnes,” said Rahil Shaikh, Managing Director, MEIR Commodities India Ltd. 

Record exports likely

In view of this, sugar production is now expected to top 34 million tonnes (mt) against initial estimates of 31 mt this season to September. Earlier this month, private millers apex body Indian Sugar Mills Association had raised the output to 33.3 mt. Last season, the production was 31 mt. 

On March 25, official sources said the Centre will soon revise the sugar balance sheet for the current season with production being pegged higher. They also said the Centre has no plans to cap sugar exports following reports that the commodity’s shipments would be capped at 80 mt.

India’s sugar exports are expected to be a record of over 7.5 mt this season in view of lower production in Brazil. Export demand has increased following the Russia-Ukraine conflict and crude oil prices soaring to $120 a barrel. 

Till now, exporters have signed deals to ship about 7.2 mt of sugar - most of it in raw form. Of this, 4.7 mt have been exported till February-end from October 1, the start of the season.

“Karnataka and Maharashtra have benefitted a lot from the rains,” Shaikh said.

Higher than normal yield

Farmers told BusinessLine, during a visit to the Marathwada region, that this year they have got a huge increase in sugarcane yield. This has resulted in mills in the State struggling to crush the cane.

Kurbur Shantakumar, President, Karnataka Sugarcane Growers Association (KSGA), said sugarcane production in the State is good this year on account of higher yield. Surplus rains last year, mainly during the October-November period, have helped boost the yields.

Abhijit Ghorpade of Ghorpade Agrovet, a sugar broker in Kolhapur, said excess rains over the last two years have helped boost the cane yields, which are higher at least by 10 per cent this year. 

“Also, sugar recovery by the factories will be higher by at least one per cent this year,” he said.

Besides the traditional sugarcane belt of Southern Maharashtra, production is also good in the six districts of Vidarbha and Marathawada due to the increased availability of water this year. 

The average cane yield would be higher 10-12 per cent this year across all regions. In Vidarbha and Marathawada, the average yields, which used to be 70-80 tonnes per hectare, would have topped 100 tonnes, while in Kolhapur and North Karnataka the yields are higher than the normal of 100-120 tonnes per hectare, he said.

Record Maharashtra output

While the Maharashtra Sugarcane Commissioner’s office estimates the State’s sugar production at a record high 12.5 mt, MEIR Commodities’ Shaikh said it could be 13 mt tonnes. The previous record high was 10.7 mt  during 2018-19 season. 

In Karnataka, a record 55 mt of sugarcane have been crushed during the current sugar season compared with 37 mt last season, KSGA’s Shantakumar said. The crushing is still on in North Karnataka and may go on for another couple of weeks, he said.

Uttar Pradesh, the largest sugar producer over the last couple of seasons, however, is reporting lower production. Its output is likely to drop 10 per cent to below 10 mt. Besides, sugar mills are diverting the production of sugar towards making ethanol. 

“The other reason why Centre may not look at capping sugar is domestic prices are lower than what they were at the start of the season. I myself bought sugar (ex-mill) at ₹3,500 a quintal in Maharashtra. Now, prices are ruling at ₹3,200 a quintal,” MEIR Commodities’ Shaikh said. 

White sugar price surges

Lower domestic price means the market has been expecting higher production this season, he said.

Currently, S-grade sugar in Maharashtra is quoted at ₹3,100-200 a quintal, while M-grade sugar in Uttar Pradesh is ruling at ₹3,400-525. Maharashtra has taken advantage of the lower prices to sell sugar to eastern markets such as Kolkata with seven rakes of the commodity being transported to Bengal recently. 

In Maharashtra, senior industry players said the industry is looking to get rid of huge white sugar stocks in the warehouses, utilising the export opportunities. 

“Raw sugar cannot be stored. After April there will be no production of raw sugar. More white sugar could be exported. The international market rate for white sugar is on the higher side and this is an opportunity for the sugar industry to get rid of piling stocks,” said a senior industry player said.       

London white sugar prices for delivery in May are currently ruling at $562.70 a tonne. Prices have increased by $65 a tonne over the past month after Russian troops entered Ukraine on February 24. 

Exports fetch premium

The senior industry player said exports of white sugar could increase in the place of raw sugar after April. “The government is keeping a close eye on the domestic sugar stock so that export should not affect the local market prices. There should not be a situation where we export sugar now and have to import sugar later,” he said.

Industry players and exporters expect the government to not cap the export, but it will, at the same time,  ensure that the domestic market is not affected. 

“Currently, export prices are at a premium to domestic prices,” Shaikh said. 

On March 25, All India Sugar Traders Association President Praful Vithalani said the Government could look at ensuring that the ending stocks of sugar were at least 6 mt this season. Coupled with the domestic demand of 28 mt, the total requirement would be 34 mt. 

As against this, the total availability of sugar this season will likely be 42.5 mt, including an 8.5 mt ending stocks from last season. The Centre would be keen on ending stocks since it will be the lean season, which is also the festival season when sugar demand increases. “The Centre would not like to see sugar prices surge during festival season,” an exporter said.

Those talking about exports being capped want the shipment deals to be finalised quickly since Brazil sugar is expected to hit the market from next month. However, countries such as Sri Lanka and Afghanistan will look to India for their white sugar needs. 

(With inputs from Subramani Ra Mancombu, Chennai)