India, the world’s second-biggest sugar producer, extended its export restrictions in a renewed bid to protect domestic supplies, a move that’s likely to tighten the global market and raise costs for the food industry.
The government will continue its curbs on overseas shipments of the sweetener beyond Oct 31, according to a notice from the Directorate General of Foreign Trade on Wednesday, confirming a Bloomberg News report last week.
India introduced a quota system in 2022 - 2023 and limited sugar exports to about 6 million tons after late rains cut production, compared with an unrestricted 11 million tons a year earlier. It’s unclear at this stage the size of the quota, if any, for overseas shipments that will be allocated to millers for 2023 - 2024.
Raw sugar futures are hovering near their highest level since 2011 on concerns about faltering supplies from India and Thailand. While the ban may cool India’s domestic prices, it’s a blow to global manufacturers of everything from fizzy drinks to chocolate and baked products.
The Indian government is taking no chances with inflation. Several states are heading for polls in the coming month ahead of the national election in 2024, when Prime Minister Narendra Modi will seek a third term. The nation recorded its weakest monsoon in five years and any drop in agricultural output will heap pressure on authorities to control food prices.
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“I very much doubt that the government will allow any export quota this season as the crop is expected to be lower this year due to deficient rains in main growing areas,” said Kona Haque, head of commodities research at ED&F Man.
Raw sugar futures in New York climbed as much as 0.7% to 27.67 cents a pound while the white variety advanced over 1% in London after the announcement by the Indian government.
India’s sugar production is likely to fall 3.4% from a year earlier to 31.68 million tons in the year that began on Oct 1, according to the Indian Sugar Mills Association.
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The restriction doesn’t apply to sugar being exported to the European Union and the US under some quota systems, according to the notification.
Domestic sugar prices have gained about 3% so far this year, according to data compiled by the food ministry. The government indirectly controls costs as it regulates the volume millers can sell each month.
According to a Bloomberg survey of 14 analysts, traders and millers last month, most said India may not export any sugar this season due to lower output. Two respondents said shipments could total at least 2 million tons.
India also restricted shipments of organic sugar, according to the notification.
