India sets a limit on sugar exports, turns its back on free markets

26 May 2022 --- In the latest global trade protectionist move, India has preemptively set a limit on its sugar exports at 10 million tons per year. Even though the government admits that “prices of sugar are under control” and have been for the last 12 months.

India’s government alleges that the lower sugar production in Brazil – due to droughts – “may trigger the demand globally” and, therefore, has set too many eyes on the country’s sugar stocks.

This forward-thinking export limit is different from other trade restrictions applied by countries in the past weeks. Governments were faced with time-sensitive difficult decisions to protect domestic supplies due to grave shortages or ballooning inflationary pressures, triggering a rising food nationalism sentiment.

The world’s largest palm oil producer, Indonesia, suffered from shortages and skyrocketing prices, which recently led to an export ban that was removed shortly after once domestic stockpiles were replenished and prices were more under control.

Similarly, Malaysia has banned chicken exports to safeguard prices.

India alleges that lower sugar production in Brazil due to droughts may trigger higher demand globally.Very soft limit on sugar exports
The cap on sugar exports has been established at a higher number (10 million tons) than the one achieved with record exports last year – with 7 million tons exported. The country bagged US$2791 million with sugar exports in 2021. In a more recent April statement, India’s government set expectations to cash US$4.6 billion in 2022.

“India has consistently produced surplus sugar, comfortably exceeding the domestic requirements. The record exports would enable the sugar producers to reduce their stocks and benefit the sugarcane farmers, as the increased demand for Indian sugar is likely to improve their realizations,” says India’s Ministry of Commerce and Industry.

A contract for 9 million tons had been signed for the current sugar season, with 7.8 million having already sailed from India’s ports.

Sugar prices resist inflation
The FAO Food Price Index signals that sugar is the most defensive food commodity against inflation. Outperforming meat, dairy, cereals, and vegetable oils, the product categories currently under analysis by FAO.

However, sugar prices have increased 22% in one year. Still, an increase in the shadow of other commodities as sugar prices are 121.8%, compared to the average prices between 2014 and 2016, staying behind the 169.5% price surge of cereals or the 237.5% move of vegetable oils.

Wheat export ban, India’s first warning
In a shocking policy u-turn, India – as the world’s second-largest wheat producer – decided to halt its wheat exports to abate surging prices. This was a surprising announcement to many, as one month before Indian Prime Minister Narendra Modi said the nation could step in to plug the gaps in the global market.

Modi also recently stated that India would “supply food stocks to the world from tomorrow” if the World Trade Organization would permit it.

The sugar halt, while practically having little consequences in international trade and food markets, symbolizes the latest escalation of India with the WTO. Furthermore, it has ignored calls to cut restrictions in trade from the UN or the G7.

In December 2021, the WTO ruled against India’s sugar subsidies, deeming them to exceed the limits marked by the international trade organization.

By Marc Cervera