El Niño and ethanol exert double pressure; India's sugar exports may stagnate for at least three years.

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India is facing a double shock in sugarcane supply. Once the world’s second-largest sugar exporter, the country is expected to have almost no sugar available for export for at least the next three crushing seasons, profoundly reshaping the global sugar market supply landscape.

According to a Reuters report on Monday, El Niño weather conditions threaten to bring India’s monsoon rains this year to the lowest level in 11 years. At the same time, the Indian government is vigorously advancing its ethanol-blended fuel policy. The combined impact of these pressures is erasing millions of tons of sugar from the international market.

Rahil Shaikh, Managing Director of MEIR Commodities India in Mumbai, said, “If the rains are as disappointing as expected, sugarcane cultivation will be severely affected, which will force India to withdraw from the sugar export market for at least three years.”

This situation puts direct pressure on sugar importing countries in Asia, Africa, and the Middle East, and will support benchmark sugar prices in London and New York. In an even more extreme scenario, if El Niño leads to a sharp reduction in sugarcane planting area, India may even be forced to restart sugar imports—for the first time in nearly a decade.

Government Controls Exports Season by Season; Multi-Year Ban May Continue in the Form of "Tacit Approval"

Sugar is highly politically sensitive in India. India is the world’s largest sugar consumer, with a deeply ingrained sweet food culture, and a large number of low-income families rely on sugar as a source of cheap calories.

According to Reuters, citing informed government and industry sources, New Delhi is unlikely to announce a multi-year export ban, but instead prefers to refuse export permits seasonally. Last month, a senior minister in Prime Minister Modi’s government made it clear to sugar mills that they must prioritize domestic supply and must not lobby for export quotas. The above sources requested anonymity as the negotiations are confidential. India’s Ministry of Food, Public Distribution, and Consumer Affairs has not commented on the export outlook or relevant restrictions.

In the five crushing seasons ending in 2022-23, India averaged annual sugar exports of 6.8 million tons, about 10% of the world’s shipments. This season, after exporting about 800,000 tons, India announced an export ban, which will continue until the end of the crushing season on September 30.

El Niño Hits Sugarcane Regions; Stocks May Drop to Thirty-Year Low

El Niño weather conditions are expected to bring India’s monsoon rainfall this year to the lowest level in 11 years. Rainfall in June was already more than 40% below average, causing farmers to generally delay their planting plans.

Sambhaji Patil, a farmer in the Sangli region of Maharashtra, said he originally planned to plant long-duration sugarcane varieties in June, but as everyone is warning of less rain, he has decided to postpone his plan and has switched to planting soybeans on his 2-acre land. Nursery operator Suraj Chavan also reported that demand for sugarcane seedlings has fallen significantly in recent weeks.

Prakash Naiknavare, Managing Director of the National Federation of Cooperative Sugar Factories, pointed out that farmers may switch en masse to crops that use less water, which will drag down the sugarcane planting area and supply in the 2027-28 crushing season. Local governments have been promoting alternative crops such as soybeans and pigeon peas in major sugar-producing areas and limiting irrigation water supply.

On the production side, India’s sugar output forecast for this season has been revised down to 27.9 million tons from 30.95 million, lower than the annual consumption of about 28.5 million tons. Shaikh of MEIR expects that when the new season starts on October 1, sugar mill stocks will fall to about 3.5 million tons, the lowest level in over thirty years.

Ethanol Policy Accelerates, Intensifying Long-Term Supply Pressure Over Sugarcane

Parallel to the decline in sugarcane, the Indian government’s strong support for the ethanol industry has further squeezed the sugarcane supply available for sugar production.

This month, India removed the production tax on high-blend ethanol gasoline and launched fuel with ethanol ratios as high as 85% to promote the popularity of flex-fuel vehicles. Maruti Suzuki, India’s largest car manufacturer, this month launched the nation’s first flex-fuel passenger car, and Hero MotoCorp also released a flex-fuel motorcycle.

Samir Somaiya, Chairman and MD of Godavari Biorefineries, said, “The demand trajectory for ethanol is extremely strong, and the next phase of demand evolution will be driven by the commercial rollout of flex-fuel vehicles.” Industry estimates show that with higher ethanol blending and faster adoption of flex-fuel vehicles, India’s ethanol demand may more than double by 2039-40 from the current 12-13 billion liters to about 30 billion liters.

B.B. Thombare, Managing Director of Natural Sugar in Maharashtra, said that future government policy will tend to support ethanol production rather than sugar exports.

Risk of Import Resumption Looms, Global Sugar Prices May Gain Long-Term Support

With multiple pressures combined, the likelihood of India resuming sugar imports is rising. The last time India imported sugar was in the 2016-17 and 2017-18 crushing seasons, when the 2015 El Niño-induced drought sharply reduced sugarcane plantings. In 2009 and 2010, India’s large-scale purchases drove global sugar prices to nearly triple previous levels.

Mohan Narang, Director of K.S. Commodities in New Delhi, warned, “Due to the severe El Niño conditions and continued increase in ethanol demand, not only will India’s exports disappear, but imports may also become a necessity in the coming years.”

Trade sources revealed that the Indian teams of major global traders have begun warning their headquarters that supply opportunities from India are shrinking. Meanwhile, Brazil is also diverting more sugarcane to ethanol production, and Thailand's output may also be affected by El Niño, putting several pillars of global sugar supply under simultaneous pressure and prolonging tight market conditions.

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