India plans to restrict sugar exports to stabilize prices in the domestic market.

India's plans to restrict sugar exports for the first time in six years to prevent domestic price increases have been revealed. According to Reuters and sources within the government and the industry, the country intends to limit exports to 8 million tonnes in the current season. An official announcement is expected early next month.

News of the restriction is affecting sugar producers' stocks. Dhampur Sugar Mills (DAMS.NS) and Balrampur Chini (BACH.NS) fell by 5%, while Dwarikesh Sugar (DWAR.NS) lost 6%.

According to a senior government official requesting anonymity, record sugar production is depleting stocks due to exports. He believes that unrestricted exports could lead to a shortage and sharp price hikes during the festive season.

Three different sources report plans to restrict exports to 8 million tonnes, with one mentioning the possibility of an export duty. India's Ministry of Commerce and Industry has not yet commented on the situation.

Restricting export volumes for the marketing year until the end of September could lead to the completion of exports in May, as mills have already contracted to export 7 million tonnes. Based on deals for March totaling about 1 million tonnes, it is expected that mills will sign contracts for another 1 million tonnes in April.

A reduction in production in Brazil, the largest sugar producer, and stable oil prices, which boost ethanol production from sugarcane, have led to an increase in global sugar prices. Limiting exports by India, the world's second-largest sugar exporter, is likely to further drive price increases.

Initial forecasts suggest that domestic sugar stocks could drop to a five-year low of 6.8 million tonnes by October 1 due to exports. However, with the rise in global prices, these forecasts now appear more optimistic.

The government aims to start the new season with initial stocks ranging from 6 to 7 million tonnes, which will be sufficient to meet demand in the 4th quarter. Demand typically surges in December due to weddings and festivals like Diwali and Dussehra.

This is India's first sugar export restriction since 2016 when a 20% tax was imposed. Previously, the government subsidized mills to compensate farmers for sugarcane due to excess sugar stocks.

However, a significant export volume exceeding 14 million tonnes over two years has shifted New Delhi's priorities towards meeting local sugar demand.

"New Delhi aims to produce enough sugar to meet domestic demand and maximize ethanol production from surplus sugarcane. Do not rely on exports as global sugar prices are unstable," says a politician who wished to remain anonymous.

The government is also concerned about food inflation, especially in light of price hikes in essential goods such as edible oils and grains resulting from the Russia-Ukraine conflict.

According to a dealer from an international trading firm in Mumbai, in the past, the government avoided importing sugar at higher prices after record exports, but he doubts the government will avoid imports if they are truly needed.