India Likely Won't Export Sugar for Years as El Nino, Ethanol Squeeze Supply

Summary

• El Nino threatens lowest rainfall in 11 years
  
• Farmers switch from cane to less water-intensive crops
  
• India expands ethanol use despite tighter cane supplies
  
• Former top exporter may import amid acreage, yield concerns
  

MUMBAI, June 22 (Reuters) - India, once the world's second-largest sugar exporter, is expected to have little surplus for export for at least three more seasons as El Nino weather conditions threaten cane production and rising ethanol demand squeezes supply. The twin pressures are poised to keep millions of tons of sugar off the world market, tightening supplies for importers across Asia, Africa and the Middle East and supporting benchmark prices in London and New York.

A prolonged absence by India from export markets would remove a key balancing supplier as weather risks and biofuel policies reshape global sugar trade flows. Interviews with over a dozen trade and industry executives, government sources and farmers show that lower cane availability and rising ethanol demand will leave little for exports for several years, prompting dealers at global houses to warn head offices of shrinking opportunities in India, trade sources said.

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Government Expected to Curb Exports Season by Season

Sugar is politically sensitive in global top consumer India, where sweets are highly popular and many poorer households rely on it as a cheap source of calories.

"Supplies are already tight in India, and now El Nino is emerging as a major risk," said Rahil Shaikh, managing director of MEIR Commodities India, a Mumbai-based trader.

"If rains disappoint as forecast, cane planting will suffer and this will keep India out of the sugar export market for at least three years, while Brazil and Thailand could also see their crops affected by El Nino."

Top exporter Brazil is also diverting more cane for ethanol. Thailand, another major exporter, could also have its output hit by El Nino-curtailed rains.

India exported 6.8 million metric tons of sugar annually on average in the five seasons through 2022-23 - about 10% of global shipments. This year, after exporting around 800,000 tons, India banned shipments until September 30, the end of the season.

Mills need government approval to export sugar, and New Delhi is likely to withhold export permissions each season rather than announce a multiyear ban, government and industry sources with knowledge of the matter said.

Last month, a top minister in Prime Minister Narendra Modi's government told mills to prioritise domestic availability and not lobby for exports, the sources said on condition of anonymity because the discussions were confidential.

India's Department of Food, Civil Supplies and Consumer Affairs did not respond to a request for comment on the prospects for exports or its restrictions on exports.

El Nino Clouds Cane Outlook

El Nino conditions are forecast to weaken India's monsoon rains this year to their lowest in 11 years.

Below-average rains, coupled with June precipitation running more than 40% below average, have prompted farmers to delay planting.

"I had planned to plant long-duration cane varieties in June, but since everyone is talking about lower rains, I decided to put that plan on hold," said Sambhaji Patil, who decided to grow soybeans instead on 2 acres (0.8 hectares) in Sangli district of the western state of Maharashtra.

Nursery owner Suraj Chavan said demand for cane seedlings had fallen sharply in recent weeks.

Farmers are likely to switch to less water-intensive crops, which could drag down cane acreage and availability in the 2027-28 season, said Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories.

Local authorities have started promoting alternative crops such as soybeans, pigeon peas and other pulse varieties in most sugar-growing regions and have restricted water supplies for irrigation.

India was expected to produce 30.95 million tons of sugar this season, but output is now forecast at 27.9 million tons, below annual consumption of about 28.5 million tons, according to industry estimates.

As a result, inventories with mills at the start of the season on October 1 are likely to fall to about 3.5 million tons, the lowest in more than three decades, said MEIR's Shaikh.

At the same time, India is pushing for higher ethanol blending with petrol and wider adoption of flex-fuel vehicles to cut dependence on expensive imported crude.

Ethanol demand could more than double to some 30 billion litres (8 billion gallons) by 2039-40 from the current 12 billion to 13 billion litres as higher ethanol blending in petrol and adoption of flex-fuel vehicles gather pace, industry estimates suggest.

Sugar Imports Possible for First Time in Decade

"The trajectory for ethanol demand is incredibly strong," said Samir Somaiya, chairman and managing director of Godavari Biorefineries (GODA.NS), opens new tab. "The next phase of demand evolution will be driven by the commercial rollout of flex-fuel vehicles."

Top Indian carmaker Maruti Suzuki (MRTI.NS), opens new tab this month launched the nation's first flex-fuel passenger vehicle, while Hero MotoCorp (HROM.NS), opens new tab launched a flex-fuel motorcycle.

India this month eliminated the production tax on petrol blended with higher levels of ethanol and launched fuel with up to 85% ethanol to support adoption of flex-fuel vehicles.

Future government policies will likely support ethanol production over sugar exports, said B.B. Thombare, managing director of Natural Sugar in Maharashtra state.

India could eventually be forced to import sugar if El Nino-related weather disruptions sharply cut cane cultivation area and output, the government sources and industry officials said, with traders warning that supplies could tighten further in the 2027-28 season.

India last imported sugar in 2016-17 and 2017-18 after an El Nino-induced drought in 2015 cut cane planting. In 2009 and 2010, India's heavy purchases helped push global prices to nearly three times their previous levels.

"Because of a severe El Nino and rising demand for ethanol, not only would exports from India be wiped out, but imports into India in the coming years could also become necessary," said Mohan Narang, director of K.S. Commodities, a trading house in New Delhi.