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Sugar rush: India eyes export bonanza on tight global markets.
Dec 01, 2022

India’s sugar sector, often plagued by volatility, is set to rule the world export market for the second year in a row.

In the 2021-22 sugar season (October to September), the country exported a record 11.3 million tonnes. The government said this earned the country about Rs 40,000 crore worth of foreign exchange. Buoyed by this trend, the government on November 5 announced that mills can export 6 million tonnes (mt) in SS23, which means by May 2023. However, industry observers say, the country has an opportunity to export 9 mt.

The sugar bonanza has been going on for a while. In the 2020-21 sugar season, India exported 7.2 mt, 22% up from 5.9 mt in 2019-20. The country's export in 2019-20 was up 55%, from 3.8 mt in the 2018-19 season.

The exports have grown 291% from FY 2013-14 to FY 2021-22, according to a Commerce Ministry release in April.

Khushbu Lakhotia, Associate Director, India Ratings & Research (Ind-Ra), says India has emerged as a leading exporter of sugar in the past few years, accounting for over 10% of the global trade of 55-65 mt.

This trend has emboldened industry stakeholders to push the envelope further.

The estimate of 9 mt was arrived at by weighing many aspects, say officials of the Indian Sugar Mills Association (ISMA). Sonjoy Mohanty, the Director-General of the association, explains how they did the maths.

The current year’s opening balance was 5.5 mt, and the industry is expecting 36.5 mt of sugar production in the current season (up to September 30, 2023). 'Our estimate for domestic consumption is around 27.5 mt, which means around 9 mt of sugar is excess. We can export that. So, we have requested the government to allow us to export 9 mt of sugar,' Mohanty says.

Industry observers point out that this would earn the country a substantial chunk of foreign exchange and give us an enviable spot in the world sugar market.

The Ministry of Commerce and Industry did not respond to queries while this story was being published.

International Factors

India is already the world’s biggest producer of sugar and the second biggest exporter. It has emerged as a leading exporter of sugar in the past few years, accounting for over 10% of the global trade of 55-65 mt. Industry officials say the industry's robust performance was also aided by the lower exports from Thailand and weather issues in Brazil, driving international prices to multi-year highs. Indian sugar is highly sought after in many Asian, African, and Middle Eastern countries. It faces stiff competition from Brazil, which remains the largest exporter of the commodity and has 35-45% of the global trade.

However, the situation could become favourable for Indian exporters as Brazilian sugar supplies are likely to be delayed, chiefly due to lower output and other factors, according to various estimates.

In May, Brazilian sugar mills reportedly cancelled some export contracts and diverted the output to ethanol, as high energy prices made that more profitable. Besides this, heavy rains in the country’s cane belt caused a sharp fall in the crushing in September, said a Reuters report quoting Brazilian Sugarcane Industry and Bioenergy Association. This led to a 27% decline in production. Adverse weather such as frost and drought had affected sugar output in the South American nation last year as well. This gave Indian exporters an advantage last year and hopes of more gains this year.

ISMA remains bullish on exporting more this year, too. It points out that Brazilian supplies will hit the global market by May next year, as the season there begins in April and goes on till March. In the current year (up to March-April 2023), Brazil’s production will be around 32 million tonnes, the apex body says. This is the same as last year.

Promising Signs

Studies indicate India can gain a lot in such a situation. The country’s sugar exports can reach 10 million tonnes in SS22 on lower output in Brazil, according to a report by Ind-Ra in May. It added that the new opportunity gap could result in India’s share rising to around 15% in the world sugar market.

Surendar Singh, an Associate Professor at the FORE School of Management, says the situation gives Indian mills a clear advantage. 'There is a relaxation in sugar exports and the world's largest producer and exporter of sugar, Brazil, is facing multiple challenges. Covid restrictions and lockdowns in many parts had led to a significant drop in sugarcane sowing. Back-to-back droughts for two years have severely impacted the newly planted fields. This affects supply from Brazil.'

Mohanty is confident the global situation will allow them to export 6 million tonnes by the time Brazilian supplies hit the global market. 'In India’s SS21-22, at the end of April, over 7 mt of sugar was exported. By March, 6 mt had already been exported. So, this time, achieving such numbers is very much possible. Also, we get to hear from informal reports that contracts worth Rs 32-40 lakh have already been inked by Indian players in the international market. By March or April, we can achieve a big number.'

Based on the previous season’s export figures and the unfulfilled demand thereafter, industry observers say we have already met the target in terms of promises. Well-established exporters with bases in other countries would have already booked half or more of the quota, says a Mumbai-based B2B exporter and intermediary active in sugar exports.

Traders are rushing to book export deals before the output arrives in the global market, confirms Vijay Kalantri, Chairman, MVIRDC World Trade Center Mumbai. He asserts they are expecting a record production of over 40 million tonnes this season.

The size of the global sugar export opportunity for India is at least 4.5 mt during January-March 2023 (based on last year’s export by Brazil). For the entire year, the export opportunity is 24.5 mt, he says.

Singh of the FORE School of Management also says he has heard about Indian suppliers getting orders in advance.

Play to the Strengths

Irrespective of all these, there are a few factors that make Indian supplies cost-effective in the global market. The country’s sugar exporting community has not seen any significant change and so there is some stability there. 'Compared to Indian supplies, Brazilian supplies are competitive only when bulk procurement contracts are closed. The minimum quantity should be 12,500 mt monthly for annual contracts. Indian sugar is sold as container loads, which means the price is not dependent on a fixed quantity and can be shipped in smaller quantities, as opposed to Brazilian exports. This supports micro and small global importers and fulfills a larger demand base,' says the Mumbai-based sugar intermediary, who requested anonymity.

In the sugar export policy for 2022-23, the government asserts that it has announced a mill-wise export quota for all sugar mills with an objective system based on the average production in the past three years and average sugar production of the country in the past three years. The government’s rationale for having a tightly controlled export policy is that it ensures price stability in the sector. By restricting sugar exports, domestic prices will remain under control and not see any major inflationary trends.

But stakeholders should also be aware of global factors that can also affect exports. The way the government controls the sugar market can have some ramifications for exports.

According to Harsh Wardhan of the Indian Council for Research on International Economic Relations, government policies can cut both ways. The main priority is meeting domestic demand and so the slant is in that direction. So high government intervention can hurt market-driven exports. Exporters are at the mercy of policymakers and the quota that is decided by the government. This makes it difficult for exporters to respond to market dynamics and swiftly to cater to demand-supply gaps in case of events such as a delay in Brazilian crops, he says.

Also, India’s sugar price is usually higher than the international price when compared with prices of Brazil and Thailand stocks.

Industry observers say tranche-based exports are fine during price surges, production crashes and stock depletion. But if India wants a sugar sector that can keep a sustainable lead in the global market, the export quotas should be more stable.

economictimes.indiatimes.com

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