El Nino phenomenon causes sugar prices to skyrocket worldwide

India and Thailand have faced their driest months as the El Nino weather patterns have taken a massive toll on crop harvests, especially in case of crops like sugar that have seen a major downfall in production globally, with prices skyrocketing since 2011

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The United Nations Food and Agriculture Organisation (FAO) has predicted world sugar production to experience a 2% decline, for the 2023-24 period. Countries in sub-Saharan Africa that are already struggling with food insecurity are likely to face the hardest blow. For example Nigeria, where sugar is used to produce bread – a cheap source of calories – will face shortages of both bread and bakers due to the alarming spike in sugar prices.

Moreover, along with the rise in sugar prices comes a fall in exports. As a result, both India and Thailand have decided to restrict their sugar exports. According to a report by IFPRI, the Indian government recently extended the curb on exports beyond its original 31 October end date. Also, in order to ensure domestic supplies and keep inflation in check, the Thailand government on 28 October, listed sugar as a controlled commodity. 

While the future of these export restrictions remain uncertain, it is interesting to note that high and low income countries will have large differences in demand. For example, while affluent nations having high obesity rates may take this in a positive light, the already poor households in developing nations that are largely dependent on sugar as a source of their daily nutrition, will continue to face larger food costs and increasing burden. 

According to a report by Money Control, the drop in sugarcane production is pushing mills to produce more ethanol to be supplied to oil marketing companies. Moreover, with sugar prices being well above mill production costs, diverting to ethanol production from sugarcane products helps sugar mills to maintain a steady income.