Explained: Sugar export curbs and their impact

News: The government has decided to “restrict” the export of sugar, effective from June 1.

The curbs, the first such move in four years, have been ordered to maintain “domestic availability and price stability of sugar”, the government said.

India is the biggest producer of sugar and the second-largest exporter after Brazil.

Govt has also scrapped all duties and cesses on crude soyabean and sunflower oil imports. While the move to make imports duty-free makes sense, the same does not hold for export bans and restrictions

What are the latest curbs?

The government has moved export of sugar from the ‘open category’, which requires no government intervention, to ‘restricted’ category.

This means that export of sugar is allowed only with specific permission from the Directorate of Sugar, Department of Food and Public Distribution (DFPD), Ministry of Consumer Affairs, Food & Public Distribution.

Also, the curbs come into effect from June 1 and will continue till October 31, or until further orders.

Unlike wheat, where export has been banned, sugar would continue to be exported, but from June 1, permission would be required to send the shipments out.

Why India’s sugar exports have boomed?

Thanks to the bumper crops over the last four seasons, exports have boomed. The Centre also extended subsidies to millers to push sales abroad.

What also helped exports grow over the last few seasons is the fact that Brazil produced more ethanol than sugar given the exceptional rise in fuel prices.

This, and drought hitting other big sugar producers like Thailand helped India venture in countries which otherwise were dependent on Brazilian sugar.

Why the curbs, now?

Exports, industry insiders say, can continue unabated given the international demand. But for the government, a possible worry is low stocks at the beginning of the next season. This can lead to supply constraints for around three months.

The sugar season officially starts in October, but picks up momentum only after December. If there is scarcity of back-up stocks during this period then prices can escalate in the domestic market. At a time when tackling inflation stays a major priority, the government can ill afford that risk.

The present curbs would ensure the government keeps a check on sugar stock real-time to ensure that there is no shortage at the start of the next season.

What is the industry view on the latest restrictions?

The first reaction to this curb was a Rs 50 per tonne drop in the ex-mill prices, which was on expected lines.

Most millers said the curbs would not affect them much and exports would continue without hassle.

Way forward

Since there’s not much that the Reserve Bank of India can do about fuel and food inflation, a lot depends on the government’s fiscal and supply-side management measures.

But such measures should not be turning the back on reforms.

Export curbs and stocking limits (imposed last year on the pulses trade) will make farmers and agri-businesses wary of expanding acreages or investing in supply chain infrastructure and developing markets.

The government needs to realise that enabling supply response, and not creating policy uncertainty, is the only durable solution to supply-side inflation.

Source: This post is based on the article “Explained: Sugar export curbs and their impact” published in The Indian Express on 26th May 22, and on the article “Sugar low: Enabling supply response, not creating policy uncertainty, is the only durable solution to supply-side inflation” published in “The Indian Express” on 26th May 22.

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