India's sugar will no longer come to Nepal, fear of price increase in the market

India has again banned the export of sugar to third countries including Nepal. This decision, which came into effect on Wednesday, has reawakened the concern that there will be a disruption in supply to the Nepali market and a food security crisis. A similar ban imposed by India in 2023 was partially lifted a year and a half ago. According to Indian media, the ban was imposed to control domestic prices due to fears that the possible impact of 'El Nino' ​​could lead to drought, reduce agricultural production and reduce the next season's growth. The Directorate General of Foreign Trade under the Ministry of Commerce and Industry of India has revised the export policy of raw, white and processed sugar from 'restricted' to 'prohibited'. However, this rule will not apply to quota-based exports to the European Union and the United States. This ban will remain in effect till 30 September 2026 or until further notice.

India, the world's leading sugar exporter after Brazil, had earlier allowed mills to export 1.59 million tonnes of sugar. Indian traders have already contracted the export of 800,000 tonnes of sugar and the shipment of 600,000 tonnes has also been completed. Nepali officials said the decision re-exposed Nepal's sensitivity to India's protectionist trade policies. Netra Prasad Subedi, joint secretary of the Ministry of Industry, Commerce and Supply, said that the news of the ban on sugar exports came while the new rules on tea exports were being discussed. He said, "We will discuss the sugar ban with stakeholders and clarify Nepal's needs." According to Subedi, compared to rice, sugar can be imported from alternative sources if needed. When a similar ban was imposed in 2023, Nepal had planned to import sugar from Pakistan to meet the festival demand. "If there is no alternative source, we can coordinate with India through the Government-to-Government (GTOG) process," he added.

Meanwhile, Nepal has already requested India to import 80,000 tons of chemical fertilizers through the GTOG mechanism due to the shortage in the world market due to the ongoing conflict in West Asia. Although Nepal's share in India's total exports is small, traders and experts say that India's protectionist trade policy will directly affect Nepal. In September 2023, India stopped the shipment of sugar to Nepal for the first time in seven years, saying that sugarcane production had decreased due to low rainfall. The ban was extended until October 31. As it was the main festival season in Nepal, the price of sugar skyrocketed at that time.

Before Dasain 2023, the price of sugar rose sharply. Until a few weeks ago, sugar, which was available at Rs 88 per kg, reached up to Rs 160 in the black market due to shortage. While Nepal sought permission to import 60,000 tons of sugar to meet the demand of the festival, India approved only 25,000 tons through National Cooperative Exports Limited. On 20 January 2025, India relaxed the ban, allowing sugar mills to export up to one million tonnes. This decision was made to support the internal price which is lower than the cost of production. India's protectionist policy is not limited to sugar.

On 20 July 2023, India banned the export of non-Basmati white rice to ensure food security due to 'El Nino'. As Nepal, the main importer of Indian rice, was badly affected by the policy, the price increased in the market. Later, in the same year, India allowed 95,000 tonnes of rice to be sent to Nepal under a quota system to ease the shortage of non-Basmati white rice. After the ban, the price of rice in Nepal set a new record in 2024. According to the market analysis of the National Consumer Forum, there was an increase of up to 800 rupees in a 25 kg bag at that time. The forum attributed the rise in rice prices to India's export ban. As a result, food inflation in Nepal continued to rise due to high prices of rice and other essential commodities. Retail traders say that before the ban, rice types like 'Pearl Jira Masino' were sold at around Rs 1,600 per 25 kg sack, but later its price increased to Rs 2,400.

India further tightened the ban in August by imposing a 20 percent export duty on Usina rice. Trade expert Ravi Shankar Sainju says that any ban imposed by India on food grains will immediately affect Nepal as it is dependent on the southern neighboring country. "Importing food and goods from other countries is expensive due to transportation costs, which puts pressure on foreign exchange reserves," he said, "therefore, Nepal needs to be cautious. Also, there should be separate talks on issues related to food security." Sainju said the latest sugar ban indicates that other food items may also be banned in the coming months.

Nepal's largest trading partner is India, which accounts for more than 60 percent of Nepal's total trade. Bilateral trade was over $8 billion in the financial year 2023/24. Meteorologists in South Asia have estimated that Nepal, which has had above average rainfall for the last three years, may receive below average rainfall this year. Analysts predict that if the drought situation worsens, India may resort to exporting more agricultural produce to protect its domestic supply.

Experts have warned that there may be challenges to food security in Nepal due to low rainfall, lack of chemical fertilizers and rising fuel prices. "The combination of low rainfall, lack of chemical fertilizers and high fuel prices could be fatal for the agricultural sector," said Devendra Gauchan, an agriculture and food expert. Gauchan, who is also a member of the National Planning Commission, added, "We need a mechanism to deal with it immediately. The government should come up with a plan." Monsoon rains are very important for Nepal's Rs 66 trillion economy. It supplies about 80 percent of the water required for agriculture and also recharges reservoirs and groundwater levels. According to Kumar Rajbhandari, Deputy Chief Executive Officer of Salt Trading Corporation, the country has about 2,000 tonnes of sugar. According to Salt Trading, the country has a monthly demand of 20,000 to 25,000 tonnes of sugar, which goes up to 30,000 tonnes during the festive season. The annual demand is around 3 lakh tonnes.

According to Rajbhandari, there is a shortage of around 1 lakh tonnes of sugar in Nepal annually and that will be met through imports. India has imported 17,185 tons of sugar worth 1.13 billion rupees in the first nine months of the current financial year after India imposed a quota system. Last fiscal year, Nepal imported 25,862 tons of sugar worth 1.83 billion rupees. The Salt Trading Corporation was earlier importing sugar under concessional customs duty regime. However, Rajbhandari said that after the government cut the subsidy, the corporation started buying sugar from domestic producers and selling it in the market. Salt has been buying sugar from private producers at Rs 89 to Rs 95 and selling sugar at Rs 98 per kg in the retail market.

Until a few years ago, 155,000 tons of sugar was produced in Nepal annually. However, due to sugar mill owners not paying the farmers on time, the attraction towards sugarcane cultivation has decreased, and sugar production has also decreased to 120,000 tons.