Too Much Sugar in India Has Mills Banking on Export Subsidy

A bigger harvest will boost India’s 7.5 million ton stockpiles and hurt prices that capped a fourth year of losses in 2014, the longest run since 1962. While subsidized shipments will help mills that that are forced to buy cane at prices set by the government, they will suppress world prices further as Indiaexports threaten to exacerbate a global glut, according to Green Pool Commodity Specialists Pty, a researcher.

“The global market is simply too low to consider exports of raws from India without subsidy,” Tom McNeill, a director at Brisbane, Australia-based Green Pool, said in an e-mail. “The market will be pressured if India decides to put a subsidy.”

Futures fell 1 percent to 15.76 cents a pound by 6:08 a.m. on ICE Futures U.S. in New York, the first drop this week. The International Sugar Organization estimates that there will be a global surplus of 473,000 tons in the year that started Oct. 1.

Suspending Aid

Mills may export 1.5 million tons of raw sugar this season with a subsidy of 4,000 rupees ($65) a ton, the survey shows. Shipments have stopped in October after the government suspended incentives for overseas sales. Spot prices of refined sugar were at 27,500 rupees a ton as of Jan. 22, according to the National Commodity & Derivatives Exchange in Mumbai.

Mills can’t plan raw sugar production without a decision on the subsidies, the association said. The government is working on a subsidy proposal, Food Minister Ram Vilas Paswan said Jan. 21 in New Delhi, without giving details.

India needs to ship 1.5 million tons to 2 million tons with incentives to help producers pay farmers on time and repay loans to the banks, the association said on Jan. 16.

Bajaj Hindusthan Ltd. (BJH), India’s biggest producer, made six straight quarterly losses through Sept. 30 while Balrampur Chini Mills Ltd. (BRCM), the second-largest, failed to make profit in five of the last six. Shree Renuka Sugars Ltd. (SHRS), the biggest refiner, also reported six straight losses through Sept. 30, data compiled by Bloomberg show.

Paying Farmers

“Sugar prices at the mill gates are so low, the lowest in the last three years,” Abinash Verma, director general of the association, said by phone on Jan. 21. “That makes the mills unable to even afford to pay the cane price set by the government to the farmers on time.”

The government set a subsidy for production and exports of raw sweetener in February. The incentive of 3,371 rupees ($54) a ton wasn’t extended beyond September, the Food Ministry says. It had earlier announced plans to subsidize exports of 4 million tons of raw sugar during the 2013-2014 and 2014-2015 seasons.

India shipped 1.2 million tons of raw sugar in the year ended September including 700,000 tons with state incentives, according to the association. The country sold a total of 2.12 million tons in 2013-2014, the group estimates.

Sugar prices have fallen below the cost of production across India due to weak demand and mounting stockpiles, the association said Jan. 16. The government should buy at least 2.5 million tons from mills to absorb the surplus that may jump to 10 million tons by Sept. 30 without exports, M. Srinivaasan, joint managing director of Sakthi Sugars Ltd., said by phone from Bengaluru, formerly known as Bangalore, on Jan. 19.

“If the situation is not rectified immediately and the sugar prices remain at such low levels, cane price arrears to the farmers will exceed 130 billion rupees in March and April,” Verma said.

To contact the reporters on this story: Pratik Parija in New Delhi at pparija(at)bloomberg.net; Prabhudatta Mishra in New Delhi at pmishra8(at)bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4(at)bloomberg.net Thomas Kutty Abraham, Ovais Subhani