Complete ban on sugar exports unlikely – Systematix

A complete ban on sugar exports next year, as suggested by many news reports, is unlikely, said broker Systematix Institutional Equities in an update on Friday.

It was commenting on media reports that the government may impose a ban on sugar exports in the year starting October 2023 to ensure that sugar prices remain sweet ahead of the general elections scheduled for May 2024.

But, said the broker, such a move is unlikely to be absolute as the country will already had 6.2 million tonnes of buffer stock at beginning of the new sugar year (October), and that this is enough to meet demand for two months.

On top of this, the country is likely to produce around 4 million tonnes of excess sugar in the new year, as the total production would be around 31.7 million tonnes against a demand of 27.5 million.

Not allowing any export would crash sugar prices, which would hurt farmers — another electoral constitutency.

“Thus, we believe, the government may consider evacuating the surplus in international markets, to retain sugar prices above Rs 36/kg level. However, in our view, GoI could also delay its decision to allow exports this year, likely announcing the same only by Jan-Feb 2024, as production volumes would
become clearer by then,” the broker noted.


The broker also pointed out that the Indian government seems to be focused on achieving its goal of achieving 20% blending of domestic petrol with ethanol or bio-generated ‘petrol’.

This, it said, promises to keep a floor under sugar prices, as sugar is also produced from the same material as most of the ethanol manufactured in India – sugar cane.

“In the last two weeks, oil marketing companies have hiked the price of ethanol twice, as the government does not want its target of achieving 12% blending to be derailed in any way, after FCI suspended the supply of subsidised rice. Distilleries are now forced to source damaged/broken rice from open markets, where prices have spiraled by 20% MoM to Rs 24/kg.

“This rendered the production of ethanol using damaged rice unviable, forcing distilleries to curtail their production. Hence, GoI proactively upped the price of ethanol first by Rs 4.74/liter and further by Rs 3.71/litre, once it sensed that the initial hike was inadequate in offsetting the higher cost of damaged rice. This measure instils confidence in government’s commitment to achieving 20% blending,” the broker said.

The diversion of sugar to ethanol production in India has even had an impact on international sugar prices, pointed out the broker.

“Prior to the implementation of Ethanol Blending Policy (EBP) in 2018, India carried substantially higher sugar inventory, which led to international prices crashing to 12 US cents per pound (Rs 20-22/kg), much lower than the cost of producing sugar…International sugar prices over the last six months have been hovering at 23.5-24.5 US cents per pound, which translates into a price of Rs 44-46/kg.

“Lower sugar production in Brazil and Thailand and less participation by Indian companies in the export markets have largely led to international prices staying firm. Increased diversion of sugar towards ethanol has caused sugar inventory in India to normalise, thereby shrinking exports. With more sugar being diverted towards ethanol each year, we expect export prices to stay firm,” it noted.

As an offshoot, if India manages to achieve E20 (or Ethanol 20%) blending with petrol by 2025, it would help the country in saving around Rs 300 bn ($3.7 bln) of foreign exchange per annum,” it noted.

The number of petrol pumps selling biofuels has tripled from 29,897 in FY17 to 67,641 in FY22 and all vehicles currently sold in the market support E20 fuel.