Sugar production in India has exceeded expectations, leading to increases in stockpile. This was primarily due to the government’s decision to divert less sucrose towards ethanol blending. Instead, the focus shifted to ensuring sufficient production to meet domestic demand. Consequently, sugar production increased during the 2023/24 season, and ethanol diversion was significantly reduced, resulting in an addition of nearly 2 million tonnes (mt) to sugar stocks. Now, the challenge is to manage these stocks, sitting in the warehouses of more than 500 sugar mills across the country.

Historically, sugar mills have managed larger stockpiles, thus managing the current level of inventories should not be a major challenge. The surplus, which is well distributed between States and sugar mills, will ensure stable domestic supplies, help meet local demand, and prevent sugar prices from spiking, thus avoiding stringent government intervention as seen in the case of pulses, wheat and rice.

Stock levels

Like in other commodities, there’s often uncertainty in sugar stock levels. Variances of 1-2 mt in stocks can significantly impact local prices, policy-making and industry structure. Rising sugar demand necessitates higher stock levels for food security. Previously, 6 mt was deemed sufficient to meet three months’ demand. However, with a monthly average release of 2.4 mt, 7.2 mt is now required for food security and the level will only continue to rise with the rising demand trend. The mills at some point will have to carry much higher stocks, and provision for same should be made. The government must consider this when formulating trade policies.

Sugar production estimates released before the crushing season often undergo significant revisions based on actual yield, sucrose recovery, ethanol prices, and blending commitments. These estimates are typically finalised around February when most of the crushing is complete and that’s when the surprise element is unleashed — that is, where the production is headed. Therefore, formulating trade policies should wait until there’s more certainty about the production numbers, to avoid jeopardising domestic supplies.

The ethanol programme, previously disrupted by lower supply concerns, needs revitalisation. The government had temporarily reduced ethanol supplies from BHM (B-heavy molasses) and cane juice in anticipation of lower sugar production in the ongoing 2023-24 season but reintroduced them once higher sucrose production was confirmed. This policy flexibility helped manage commodity supplies and stabilise prices especially during the election period. Now, it’s time to refocus on achieving higher ethanol blend targets, higher capacity utilisation of ethanol plants, and supporting the sugarcane industry in a much bigger way than just exporting sugar.

The government is aiming at 20 per cent blend ratio by 2025 which won’t be possible without the sugar industry supplying ethanol in a major way.

Opening up sugar exports, particularly the requested 1 million tonne quota, will offer minimal benefits to the industry. The quota distribution among 530 sugar mills, potential quota sales between mills, and the logistical aspects of garnering sugar from small manufacturers and exporting in volumes are major challenges. Additionally, global sugar markets will react negatively to news of Indian exports. World prices could collapse and domestic prices would inch up, diminishing any price advantage available for sugar exports.

Even with a price advantage of around $75/tonne prevailing today (at cost), the industry might benefit more by increasing ethanol supplies and negotiating higher prices for the same. This will provide long term and sustainable gains to the industry.

Sugar exports should, therefore, be considered only when there is excess sucrose production after meeting domestic consumption, ethanol blending, and food security needs.

The writer is Founder Director, GreenLeaf

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