Sugar output could slip if price row drags on

Reuters
A farmer carries sugarcane from a field on the outskirts of Jammu
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A farmer carries sugarcane from a field on the outskirts of Jammu April 9, 2012. REUTERS/Mukesh Gupta/Files

By Mayank Bhardwaj

NEW DELHI (Reuters) - India's sugar output could slip 2.4 percent or more this season if a standoff between millers and farmers over prices delays the start of cane crushing for a further 10 days, according to the government and the main industry association.

India's mills normally start crushing cane around November 1 but most are still idle this year as farmers hold out for higher cane prices and millers say they cannot afford to pay because domestic sugar prices are so low.

While stocks remain comfortable and output is still likely to exceed demand, the slide could crimp exports from the world's second-biggest producer and give some support to sagging global and domestic prices.

The delay in crushing already means India's sugar production could slip 2.4 percent to 24.4 million tonnes in the year to September 2014, Food Minister K.V. Thomas said.

Abinash Verma, director general of the Indian Sugar Mills' Association, added it could be cut even more if crushing is delayed by another 10 days.

Production would still exceed estimated annual demand of about 23 million tonnes. Also, with nearly 8 million tonnes of carryover stocks from the previous season, India does not have to resort to imports.

Buying on global markets by India after a severe drought in 2009 pushed prices to record highs.

QUESTION OF SURVIVAL FOR MILLS

"This is a question of the survival of mills and it will be suicidal for companies to operate at the current cane price," Verma told reporters.

Uttar Pradesh state, the country's biggest cane producer, has set a cane price of 280 rupees per 100 kg, unchanged from last year. Domestic ex-mill sugar prices have fallen 8 percent to 2,900 rupees per 100 kg.

"Mills are in deep losses because in the past three years cane prices have risen 70 percent, while sugar prices have gone up by only 8 percent," Verma said.

He said the government must link cane prices with that of sugar, as recommended by R. Rangarajan, the prime minister's economic adviser, who suggests that 70 percent of prices realised from sugar and sugar products to be given to cane growers.

Worried over the delay, the Utter Pradesh state government has told mills to start crushing by December 7 or face legal action.

The federal government, which sets base prices for mills to pay farmers that can then be revised by state authorities, could step in to subsidise mills and curb losses, Thomas said.

"We are willing to consider all possible assistance to sugar mills so that cane crushing can start as soon as possible," Thomas told reporters.

The industry has been demanding subsidies for exports, interest-free loans for mills, creation of buffer stocks and an increase in import duty to help mills.

Farmers want cane prices increased to compensate for a rise in fuel and fertiliser costs, while millers want a reduction.

With general elections due in early 2014, the state government of Uttar Pradesh is wooing cane growers by throwing its weight behind farmers, a major voting bloc.

To end the deadlock, Thomas said a government committee to consider the demands of mills will meet soon.

In Uttar Pradesh and the other leading sugar producing state, Maharashtra, only a handful of mills have started work.

Indian sugar dealers have signed contracts to export nearly 500,000 tonnes of raw sugar between December to February. Late crushing is unlikely to delay shipments by more than a few weeks, dealers said.

(Editing by Jo Winterbottom and Anthony Barker)

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