India is planning to dump a mountain of sugar on the world, and traders say the controversial move could knock the wind out of a global sugar market that is already grappling with a glut.

Five years of bumper crops have led to a giant sugar stockpile in India. The country’s sugar refineries have been sitting on the sugar, waiting to slowly sell it in the Indian market, where they get a higher price thanks to import restrictions and government support.

But in a move aimed at appeasing the South Asian nation’s politically powerful sugarcane farmers, New Delhi is demanding that refiners release at least 4 million tonnes of that sugar onto international markets by September next year.

If that much sweetener hits the world, it could drop sugar prices by 15 per cent, traders say. Sugar prices hit seven-year lows in August before regaining some ground in recent months.

“The possible additional tons of stocks that India looks like it will now export to the global market will dampen global prices,” said Tom McNeill, director at Green Pool, an Australia-based sugar and biofuels consultancy.

The news has already hurt sentiment, but traders say they are waiting to see if the sugar really leaves India and whether the market will be in better shape by then.

Lower prices are good news for consumers and food and beverage companies but bad news for the world’s big refiners and exporters like Brazil, Thailand and Australia, which is the world’s second largest exporter of raw sugar.

“Further supplies from India could mean trouble for other producers,” said David Sadler, a sugar analyst with London-based brokerage ADM Investor Services.

India is the world’s second-biggest consumer and producer of sugar after Brazil, but it rarely exports much thanks to robust local demand and government controls. Historically, it has usually exported about a million tons of sugar a year.

An outflow of 4 million tonnes from India could flood the global market, representing about 8 per cent of the total 50 million tonnes of sugar traded last year.

India is pushing mills to sell sugar on the international market and use the proceeds to clear the huge debts they owe farmers for sugar cane. New Delhi has offered to give refiners a bonus for every tonne of sugar they export. It has also given sugar mills an ultimatum, saying they have to reach the target of 4 million tonnes of exports by the end of September 2016. The country’s Department of Food and Public Distribution suggested mills would be punished if they didn’t meet the target but didn’t specify how.

Many countries protect their sugar farmers and support sugar prices with subsidies and price controls. Unworried about demand, the farmers are producing more sugar than their countries, or the world, needs.

Global sugar refiners have called for rolling back all sugar subsidies in favour of a free market. The lobbying group Global Sugar Alliance, which represents refiners in most of the world’s biggest exporting countries, says it will be using this week’s World Trade Organisation talks in Nairobi to campaign against subsidies.

“The price of sugar globally has gone down every time (the Indian government) made an announcement” about interfering with the sugar market, said Greg Beashel, chief executive officer of Australian marketing body Queensland Sugar Ltd. “These seemingly innocuous statements are causing prices to dip worldwide, and that’s a real concern that the market can be manipulated.”

Weakening local currencies and government measures in Brazil and Thailand have boosted output and exports in those countries just as China and Indonesia are importing less as their economies slow. Global stocks of the sweetener are estimated to be around 40 million tonnes, according to the US Agriculture Department.

The Thai government controls its country’s sugar production and distribution by subsidising its farmers, spending more than $US1 billion a year while requiring them to export up to 80 per cent of the production. Brazil spends more than $US2.5 billion on supporting sugar production through loan programs.

The Indian government guarantees a minimum price for sugarcane farmers. However, the sugar refiners — which have to buy the cane at the artificially high prices that are well above global averages — are buying less because they have such large stockpiles. The government is hoping that, if it can get rid of the sugar excess through exports, the refiners will start buying again. India’s sugar stockpiles have climbed to 9.6 million tonnes.

“The idea is to move the entire surplus out of the Indian system,” said Yatin Wadhwana, country head of Sucden India, one of the world’s top sugar traders.

Wall Street Journal