Source: Zhitong Finance
Affected by insufficient rainfall, India's sugar production in the 2023-2024 season will be lower than sugar consumption for the first time in 7 years, and the reduction in cultivation area may even force the world's second-largest sugar producer to import sugar in the next season.
Traders said that due to insufficient rainfall, India's sugar production in the 2023-2024 season will be lower than sugar consumption for the first time in 7 years, and the reduction in cultivation area may even force the world's second-largest sugar producer to import sugar in the next season.
According to data from the Sugar Industry Association of India, in the first two months of the 2023-2024 squeezing season, which began on October 1, sugar production fell more than 10% from the same period last year to 4.32 million tons. This has heightened expectations that India will ban sugar exports during the 2023-2024 season. Earlier reports indicated that India, which is extremely sensitive to food inflation, may ban sugar exports as the 2024 general election approaches. This will be the first time since 2016 that India has restricted sugar exports.
Although the Indian government has stated that once reliable production estimates are obtained, it will decide to export. However, traders said production is expected to be lower than consumption, so it is certain that India will not allow sugar exports. A trader said, “Normally, the sugar industry will ask the government to allow exports, yet this year, even institutions in this industry are not promoting exports.”
The decline in sugar production is mainly driven by a decline in production in Maharashtra and Karnataka, two major sugar producing regions, which account for nearly half of India's sugar production. The data showed that this year's monsoon was the weakest since 2018, with only 56% of normal rainfall in the sugar cane growing areas of Maharashtra and Karnataka. In addition, the dry weather caused insufficient water storage in the reservoirs, and the local government reduced the amount of water used in the reservoirs for irrigation in order to preserve drinking water.
According to a media survey of Indian farmers, rainfall in Maharashtra and Karnataka and insufficient water storage in reservoirs have caused many farmers to grow crops that require less water than sugar cane and mature faster, such as sorghum and chickpeas.
India's sugar production for the 2022-2023 pressing season, which ended in September, was 33.1 million tons. The Sugar Industry Association of India said in August that India's sugar production in the 2023-2024 season may drop to 31.7 million tons. Traders are more cautious. They believe that India's sugar production for the 2023-2024 season will be between 29 million tons and 30 million tons, given India's recent restrictions on sugar cane production in an attempt to increase the supply of sugar, a move that may prompt some farmers to give up growing sugar cane.
Meanwhile, Rahil Shaikh, managing director of MEIR Presents India, pointed out that due to population growth and income growth, sugar consumption in India during the 2023-2024 season is expected to increase 5% over the same period last year to around 29.2 million tons.
India's sugar production for the 2023-2024 pressing season may fall short of expectations, and India may be forced to import sugar for the first time since 2017. After global sugar prices hit multi-year highs last month, this is likely to push up global sugar prices even further, and Brazil, the biggest sugar exporter, is likely to be the winner.
Some market participants pointed out that the area of sugar cane cultivation in Maharashtra and Karnataka is shrinking. This may cause India to buy sugar in the global market. The amount that needs to be imported depends largely on the area of sugar cane cultivation.
More importantly, India's sugar production is likely to be even lower during the 2024-2025 squeezing season, which begins in October 2024. According to rough estimates from the three traders, India's sugar production for the 2024-2025 season is between 25 million tons and 26.9 million tons. The continued decline in sugar production may force India to become a net importer of sugar as early as the first half of 2025, and this will be a major reversal.