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India facing fears of too much sugar, prices suffering

Worldwide sugar futures climbed 1.5% to $434.90 per ton the first week of February – the highest prices in over three years, according to the Economic Times. However, Indian sugar mills are struggling to take advantage of this attractive price tag due to an oversupply of sugar domestically and a shipping container shortage.

Despite the lack of shipping holds for Indian sugar, mills operating in the second-biggest global sugar producing country have agreed to export contracts for 1.5 million tons of sugar for the 2020/21 year that began on Oct. 1, Reuters reported. These contracts, however, underscore the struggle that India is facing. The Economic Times reported that in January this year, the nation had only exported 70,000 tons of white sugar as compared to the 370,000 it sent overseas in 2020.

With a lack of shipment capabilities, the local oversupply of sugar has further underpinned the rising global prices as countries rely on exports from Afghanistan, Sri Lanka and East Africa. At the same time, even with over a million tons signed up for export, India continues to face an oversupply that has caused prices to balk the global trend and fall domestically. The Indian Sugar Mills Association said that the 2020-21 production year will produce 10% or 30.2 million tons more than last year.

The Indian government has a goal of exporting a total of six million tons this year, but when the season began on Oct. 1, there were already 10.7 million tons in sugar reserves. In consequence, Indian sugar mills are pivoting to diversify their production and clinching ethanol contracts.

Ethonol capacity in India hovers at around 3.5 billion liters, but due to Indian mills looking to proactively use their sugar supply, that production level may soar to 7.1 billion liters in 2021, the Financial Express reported using data from the Indian Sugar Mills Association.

To combat a widespread shift to ethanol production, the Indian Sugar Mills Association is working to increase the subsidy offered to mills exporting sugar, both raw and white. Reuters reported that in mid-December sugar export subsidies were 5,833 rupees ($79.53) per ton, making revenue for exports higher than from domestic sales to benefit cash-strapped mills.

While the prices for what mills must pay farmers for sugar cane are fixed by the government, the cash-strapped mills are continuing to struggle to pay amid a prolific sugar cane season and a continued lack of shipping capabilities.