Government Contemplates Measures to Stabilize Domestic Sugar Market

India, the world's largest consumer of sugar, is deliberating a potential curtailment of ethanol production sourced from sugarcane as the nation grapples with acute shortages of the sweetener. While authorities are actively exploring a proposal to limit the utilization of sugar-cane juice for biofuel in the ongoing season, no final decision has been reached, insiders with knowledge of the matter revealed, requesting anonymity due to the confidential nature of these discussions.

The prospect of scaling back ethanol production aligns with the government's overarching strategy to regulate domestic food prices, a crucial agenda, especially in the lead-up to the upcoming national elections where Prime Minister Narendra Modi seeks a third term. As part of these efforts, India has heightened restrictions on rice exports and extended limitations on overseas sugar sales.

Market Turmoil and Weather Woes

The news of potential restrictions sent shockwaves through the Indian sugar industry, triggering a substantial decline in the stocks of major companies. Balrampur Chini Mills Ltd. recorded a staggering 7.6% tumble in Mumbai, compounding a prior loss exceeding 7%. Likewise, Shree Renuka Sugars Ltd. and Bajaj Hindusthan Sugar Ltd. experienced declines of 5.5% and 7.4%, respectively. This market downturn closely followed an almost 8% plunge in New York sugar futures, marking the sharpest drop in a decade.

The grim state of affairs stems from unfavourable weather conditions adversely impacting cane crops in India. Scarce rainfall has prompted the world's second-largest sugar producer to extend constraints on sugar exports beyond the initial October 31 deadline. Experts suggest that the proposed restriction on ethanol output could act as a buffer, preventing a further decline in sugar reserves within India.

Impact on Sugar Production and Inflation Control

Preliminary estimates by the National Federation of Cooperative Sugar Factories Ltd. indicate a concerning dip in sugar production. Figures reveal a more than 10% reduction, tallying 4.32 million tons in the initial two months of the current season, commencing from October 1. Further data projections suggest a diversion of approximately 4 million tons of sugar towards ethanol production in the 2023-24 period. Consequently, net sugar production is anticipated to plummet to 29.15 million tons from the previous year's 33.1 million tons.

While this proposed measure could potentially aid in curbing food inflation, insiders caution about its limited efficacy. Notably, some ethanol has already been sold in a prior tender, necessitating its production despite potential restrictions on output.

The deliberations surrounding the curtailment of ethanol production underscore the complex balancing act India faces between addressing immediate shortages and sustaining its biofuel initiatives. As discussions continue behind closed doors, the country's sugar landscape remains under scrutiny, poised at the intersection of economic stability and agricultural sustainability.