Explained | Why India, world’s largest producer of sugar, has put brakes on exports

India has produced over 350 lakh tonnes of sugar this year. Despite being the highest producer and second-largest exporter of sugar, the government has announced restrictions on its export. Here’s why.

India has produced over 350 lakh tonnes of sugar this year. Despite being the highest producer and second-largest exporter of sugar, the government has announced restrictions on its export. Here’s why.

The story so far: A fortnight after it banned wheat exports, India announced restrictions on the export of sugar to keep a lid on prices in the domestic market. This is the first time in six years that the Centre has placed a restriction on sugar exports.

In an order issued by the Directorate of General of Foreign Trade (DGFT) earlier this week, the Centre said the export of sugar — raw, refined and white — will be placed under the “restricted” category from June 1 till October 31. The decision, the government said, was taken to maintain domestic availability and prevent a surge in prices amid rising global food and oil prices.

What are the restrictions?

India is the world’s largest producer of sugar and the second-largest exporter after Brazil. Till the recent order, sugar was freely exportable under the existing Export Policy. This meant that unlimited quantities of sugar could be exported without any government intervention. On May 24, the Centre placed restrictions on the export of sugar while stating that exports will be allowed with the “specific permission” of the Directorate of Sugar and the Department of Food and Public Distribution.

Citing the DGFT order, the government said in a statement that the season’s exports will be capped up to 100 lakh tonnes (LMT). The current sugar marketing season began in October last year and will end on September 30, 2022. 

Notably, the decision comes at a time when India recorded a record volume of sugar production and sale in world markets. “Taking into consideration unprecedented growth in exports of sugar and the need to maintain sufficient stock of sugar in the country as well as to safeguard interests of the common citizens of the country by keeping prices of sugar under check, Government of India has decided to regulate sugar exports w.e.f. 01 June 2022. Sugar mills and exporters need to take approvals in the form of Export Release Orders (EROs) from the Directorate of Sugar, Department of Food and Public Distribution,” the official notification by the Ministry of Consumer Affairs, Food & Public Distribution read.

Who can export sugar?

In a letter, the Ministry said exporters will have to apply for approval for dispatch from June 1. The ministry said that an Export Release Order or ERO will be issued on receiving an application, following which orders will be placed on the website of the Department of Food and Public Distribution. The validity of an issued ERO will be up to the date of the Let Export Order (LEO) under the contract agreement or 90 days, whichever is earlier, the statement reads.

Non-implementation of an ERO or non-export of sugar under ERO within the LEO date could result in a penalty under the Essential Commodities (EC) Act 1955 or the Sugar (Control) Order, 1966.

Sugar export curbs are not applicable to the EU, America

Export restrictions on sugar will not apply to the European Union (EU) under the CXL quota and the U.S. under the TRQ (tariff-quota route), the government has said.

TRQ is a quota for a volume of exports that enter the U.S. at relatively low tariffs. A higher tariff applies on additional imports after this quota is reached. India also has a quota arrangement for sugar export with the EU. Traders can export sugar at relatively low or zero customs duty by availing of a CXL concession. 

For the current sugar marketing season, the Centre permitted the export of 10,475 tonnes of white sugar to the U.S. and 5,841 tonnes to the European Union.

Understanding the relevance of the Centre’s move via production, exports, and consumption patterns

Explaining the rationale behind the decision to regulate sugar exports, the government said its decision was made after taking into consideration the “unprecedented growth in exports of sugar and the need to maintain sufficient stock of sugar in the country as well as to safeguard interests of the common citizens of the country by keeping prices of sugar under check”.

Insights gleaned from data

Sugar production in India: In the ongoing sugar marketing year, sugar production in India saw an increase of 14 per cent to more than 340 lakh tonnes (till April). The country is looking at a record produce of 355 lakh tonnes of sugar this season, according to the National Federation of Cooperative Sugar Factories Limited (NFCSFL). India produced 311 lakh tonnes in 2020-21, 259 lakh tonnes in 2019-20 and 322 lakh tonnes in 2018-19.

Sugar exports from India: Like production, sugar exports have also broken records this year. According to the Centre, sugar exports have gone from 0.47 LMT to 100 LMT in the last five years, an increase by more than 200 times. This season, Indian mills signed contracts for the export of 90 lakh tonnes of sugar. While 82 LMT sugar has been dispatched from mills, 78 LMT has already been exported. Last year, India exported 70 LMT of sugar against a target of 60 LMT.

Stocks of sugar and consumption: As per the Indian Sugar Mills Association (ISMA), India had an opening stock of 82 lakh tonnes in October last year. And domestic consumption is estimated to be around 278 lakh tonnes in the current season or around 22-25 lakh tonnes in a month.

With the Centre capping sugar exports at 100 lakh tonnes, India is likely to remain with a closing stock of 60-65 lakh tonnes. 

The government reasoning

“The decision will ensure that the closing stock of sugar at the end of sugar season (Sept 30, 2022) remains 60-65 LMT which is two-three months of stocks required for domestic use. Crushing in the new season starts in the last week of October in Karnataka and in the last week of October to November in Maharashtra and in November in Uttar Pradesh. So generally, up to November, supply of sugar takes place from previous year stock,” the government reasoned its decision. 

Placing restrictions on sugar exports will ensure a closing stock which can be supplied in the domestic market as per consumption patterns around that time to prevent a surge in prices due to lack of supply. Low stock at the start of the next sugar marketing season thus could pose an issue for the government since the months of October to December are primarily dedicated to the start of the sugarcane crushing process.  

Production, export data with estimated figures for current marketing season of sugar.

Production, export data with estimated figures for current marketing season of sugar.
| Photo Credit: Dept of Food & Public Distribution

Why are there curbs despite excess stock?

Spiralling prices of food and fuel pushed wholesale price-based inflation to a record high of 15.08 per cent in April. The rise in the prices of mineral oils, crude petroleum & natural gas, food articles, non-food articles, and food products was responsible for the high inflation rate last month. While there hasn’t been much impact on the retail prices of sugar, low production in Brazil this year suggests a possible shortage in the coming days.  

The Centre has maintained that it restricted sugar exports, although id did not impose a blanket ban, because it was not willing to take chances ahead of the festival season from October. “The global situation reflects a shortage of sugar, especially due to lower production in Brazil. This may trigger the demand globally and to safeguard domestic availability and interests, DGFT issued an order to maintain domestic availability and price stability of sugar in the country during sugar season 2021-22 (October-September),” the government said in its statement. 

Speaking to the media, Department of Food and Public Distribution Secretary Sudhanshu Pandey said ensuring sufficient availability of sugar for consumption at a reasonable rate remains the priority for the Centre. “During the festival period of October and November, the demand of sugar increases and therefore, the Centre is committed to ensuring availability of sugar for the lean period,” he said.

“…prices of sugar are under control. Wholesale prices of sugar in India are range bound between Rs 3,150 to Rs 3,500 per quintal while retail prices are also within control in the range of Rs 36 to 44 in different parts of the country,” the official said.

Why are farmers unhappy with the curbs?

Farmers aren’t convinced by the government’s reasoning that the export restrictions would maintain stable sugar prices in the domestic market. They believe that the government’s decision will prevent them from getting a better deal for their produce. 

Ajit Nawale, general secretary of the Maharashtra unit of All India Kisan Sabha, told The Hindu that it was clear from the government’s decision that farmers will have to bear the burden of inflation. “Traders will take this as a pretext to reduce the cost they pay to farmers [for sugar]. The government recently announced such decisions on wheat, sugar and onion. The message is clear that the Centre will not reduce prices of petrol or diesel to control inflation, but farmers will have to shoulder the burden of inflation,” he said. 

Saying that sugar mills in Maharashtra were struggling to complete crushing, he added that sugar mills and farmers will be in trouble due to the sugar export restrictions. The government has taken a pro-corporate stand, Mr. Nawale claimed.

Jitender Singh Hudda, a farmers’ leader from Uttar Pradesh, said the Centre’s move has taken away all opportunities to get a more competitive price for their produce. “This government is closing all opportunities for farmers. We would have gotten access to more markets and better prices because of the international situation,” he said.

“Sugar production is regularly surplus. They should have looked at the cultivate area before imposing restrictions. Monsoon reports were also normal. The quota release system is already in place for sugar mills. So domestic markets wouldn’t have been impacted at all,” he added.

Source link