India plans to introduce a 25 percent tax on sugar exports to maintain local supplies, the government said on Thursday, a move that could further push up global prices of the sweetener and boost shipments from Thailand.
Sugar output in India, the world’s no. 2 producer behind Brazil, is expected to decline this year due to a drought in major growing regions, while global prices have risen to two-and-a-half year highs.
Food minister Ram Vilas Paswan said the levy was aimed at curbing the country’s exports and would help keep local prices under control in the world’s top consumer of sugar.
“There is an increasing trend in the price of sugar in the international market. Traders may increase the export of sugar to make profit,” Paswan tweeted on Thursday evening.
Traders and experts said the new tax could push up global sugar prices, even though India was already expected to become a net importer in the year from Oct. 1 following back-to-back drought years.
“Since we are the world’s second largest sugar producer there could be a 5 percent impact on global prices but not more,” said Aurobinda Prasad, vice president research, Kotak Commodities.
India exported 2.9 million tonnes of sugar in 2015/16, accounting for 5.3 percent of world exports, according to U.S. Department of Agriculture (USDA) figures.
In a May report, the USDA already forecast sharply reduced exports from India this year of just 1 million tonnes, which would be the lowest since the 2009/10 crop year.
“With rising white sugar prices and the weakening rupee, Indian mills could have signed export deals with Sri Lanka. That won’t happen now,” said a Singapore-based trader.
Global sugar prices have also been buoyed by cold temperatures in parts of Brazil and growing demand.
“Markets were not expecting exports from India but the move to tax sugar exports will definitely have a temporary impact on global prices,” said a Delhi-based sugar industry expert.
He said the plan to tax exports is better than the country’s previous moves to ban overseas sales.
The move would help rival exporters Thailand and Brazil, said a Mumbai-based trader.
“Thailand will benefit more since it has been competing with India in the white sugar market. It also has freight advantages in catering to Asian consumers,” the trader said.