Will India see a spike in sugar prices amidst global supply shortage?
Hold onto your sweet tooth because the sugar industry in India is in hot water. As the second largest exporter of sugar in the world, it’s an important industry linked to the livelihood of about 50 lakh sugarcane farmers and 5 lakh people through sugar mills.
But there’s trouble brewing as sugar production has been declining, and it’s starting to impact prices globally. If sugar production decreases, it will also impact the supply chain, and it is unclear how the prices may fluctuate.
What’s Happening?
Sugar prices are soaring and hitting levels that haven’t been seen in a decade. Last week, the price of sugar in the international market reached its highest point in 10 years, with the raw variety reaching its uppermost levels in 6 years. According to Moneycontrol, the reasons behind this spike are numerous, with experts pointing to India’s reduction in sugar exports as a major factor.
With damage from rain to the sugarcane crop and increased use of sugar for ethanol production, the supply of sugar has been severely reduced. And not just India is feeling the pinch – Brazil and Europe have also reported lower production levels. The impact is being felt globally, with sugar prices reaching new heights.
When it comes to sugar prices in India, production is a major factor that determines the cost. Thankfully, India has consistently performed well in sugar production, keeping prices in check. With such a strong production record, it’s no wonder that sugar prices in India have remained relatively stable.
What Has Led to a Drop in Sugar Production?
The sugar industry in India heavily relies on the states of Uttar Pradesh, Maharashtra, and Karnataka, which are major players in the production and export of sugar. Of these states, Maharashtra is particularly important, as it fulfils a large portion of the country’s sugar needs and also exports to other countries. Unfortunately, bad weather conditions, such as excessive rain, have impacted the sugarcane crop, significantly decreasing production.
Given the decrease in sugar production in India, the central government has taken steps to curb sugar exports to maintain a sufficient supply for domestic consumption.
The Indian Sugar Mills Association (ISMA) lowered its sugar production estimate for 2022-23 by 6.84% in January. They have also estimated the sugar production for 2022-23 to be 340 lakh tonnes, which took into account the diversion of 45 lakh tonnes of sugar for ethanol production. This estimate was lower by 2.5 million tonnes compared to the previous estimate of 36.5 lakh tonnes.
To address this issue, the central government has limited sugar exports to 6 million tonnes, recognising that a further reduction in the supply of sugar could lead to a spike in prices and potential shortages.
What’s in it for Investors?
India’s sugar industry is safe from excessive price volatility from the customers’ point of view because we are one of the world’s largest producers and consumers of sugar.
Uttar Pradesh, Karnataka, and Maharashtra mainly contribute to India’s sugar production, accounting for over 80% of the total share. This means the industry is less prone to global obstacles than other countries.
Additionally, the Indian government is taking measures to stabilise the domestic price of sugar, which is a positive sign for investors.
Furthermore, the demand for sugar-based products, such as cold drinks and other beverages, is expected to increase in the near future. The upcoming wedding season is also expected to grow the industry.
What’s Next?
As per a report from Moneycontrol, India’s sugar exports may be reduced from 6 million tonnes to 4 million tonnes. Meanwhile, experts believe that the current sugar stock in India is sufficient, thereby indicating less possibility of a price increase in the domestic market.
On the other hand, the sugarcane harvesting season has started in some regions of Brazil, which could ease the upward pressure on sugar prices in the international market.
It remains to be seen how the sugar supply and demand dynamics will evolve in the coming months, especially with regard to the impact of weather and other factors on sugar production in India and other major sugar-producing countries.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
