India is expected to ban mills from exporting sugar in the next season beginning October, halting shipments for the first time in seven years, as a lack of rain has cut cane yields, three government sources said.
India's absence from the world market would be likely to increase benchmark prices in New York and London that are already trading around multi-year highs, triggering fears of further inflation on global food markets.
"Our primary focus is to fulfil local sugar requirements and produce ethanol from surplus sugarcane," said a government source who asked not to be named in line with official rules.
"For the upcoming season, we will not have enough sugar to allocate for export quotas."
India allowed mills to export only 6.1 million tonnes of sugar during the current season to 30 September, after letting them sell a record 11.1 million tonnes last season.
In 2016, India imposed a 20% tax on sugar exports to curb overseas sales.
Monsoon Rains Impact
Monsoon rains in the top cane growing districts of the western state of Maharashtra and the southern state of Karnataka - which together account for more than half of India's total sugar output - have been as much as 50% below average so far this year, weather department data showed.
Patchy rains would cut sugar output in the 2023/24 season and even reduce planting for the 2024/25 season, an industry official, who declined to be named, said.
Local sugar prices jumped this week to their highest level in nearly two years, prompting the government to allow mills to sell an extra 200,000 tonnes in August.
"Food inflation is a concern. The recent increase in sugar prices eliminates any possibility of exports," said another government source.
Retail inflation in India jumped to a 15-month high of 7.44% in July and food inflation to 11.5% - its highest in over three years.
India's sugar production could fall 3.3% to 31.7 million tonnes in the 2023/24 season.
"We've allowed mills to export large volumes of sugar during the past two years," said the third government source. "But we also have to ensure sufficient supplies and stable prices."
India surprised buyers last month by imposing a ban on non-basmati white rice exports.
New Delhi also imposed a 40% duty last week on exports of onions as it tries to calm food prices ahead of state elections later this year.
A Mumbai-based dealer with a global trade house said lower output in Thailand was also expected to reduce shipments and major producer Brazil would alone not be able to fill the gap.