India likely to make mills export sugar stocks

New Delhi, August 5

India is likely to bring in rules to make it compulsory for sugar mills to export millions of tonnes of surplus supplies to support local prices, sources said, in a move that could quell growing anger among farmers but add to a glut on global markets.

A final decision rests with Prime Minister Narendra Modi, who discussed the politically sensitive issue at a weekend meeting with ministers, officials and sugar mill bosses, said the two government sources.

The proposal, which could mean mills selling at loss, comes at a time when the world sugar market is grappling with a flood of supplies and prices at six-and-a-half year lows.

The mandatory export rule, which could be introduced from the start of the next crop year on October 1, would apply only when output was higher than local demand, said the officials, who are directly involved in formulating the policy.

If approved, India could overtake Australia as the world’s third-largest exporter behind Brazil and Thailand.

Food ministry Spokesman NC Joshi declined to comment.

Shares of Indian sugar companies such as Bajaj Hindusthan Sugar Ltd, Shree Renuka Sugars Ltd, Simbhaoli Sugars Ltd and Bannari Amman Sugars Ltd jumped as much as 12 per cent after the Reuters report.

Apart from boosting farm exports, government-backed overseas sales of sugar could also help mills clear about $2.5 billion they owe to 50 million cane growers — a group equivalent in size to the population of Spain and concentrated in politically important states like Uttar Pradesh and Maharashtra.

Last year, Modi won nine out of 10 seats in Uttar Pradesh, which sends the highest number of lawmakers to parliament, as rural voters were swayed by a pledge to keep crop prices high.

But mills have been struggling to pay the fixed price to cane farmers, who have been losing patience as the amount of money they are owed piles up.

India, the world’s largest sugar consumer and biggest producer after Brazil, has been producing more sugar than it needs for the past five years and the trend is likely to continue.

At last Saturday’s meeting, there was also discussion on an additional tax, which the government calls a cess, on sugar to prop up domestic prices that are the lowest in six years, said the officials.

“Mandatory exports may force mills to sell sugar at a loss now, but they would (eventually) gain because lower domestic stocks mean higher domestic prices, which will get a leg up because of the cess,” said one of the sources.

India’s mills are expected to produce 28 million tonnes in next season, when inventories will climb to 10.3 million tonnes, up from 7.5 million tonnes at the start of the current season. Indians consume 24 to 25 million tonnes of sugar a year, thus could easily export five to six million tonnes yearly even after stocking up for emergencies, analysts said.