Pratik Parija and Thomas Kutty Abraham, Bloomberg
New Delhi: Sugar producers in India, the world’s biggest consumer of the sweetener, have asked the government to more than double the size of its stockpiles to arrest a slide in domestic prices amid record output.
Mills want the government to build a reserve of 5 million metric tons from 2 million tons at present, industry officials including S.L. Jain, director general of trade body Indian Sugar Mills Association, said.
“That’s the only way to help producers recover production costs,” said Vinay Kumar, managing director at the National Federation of Cooperative Sugar Factories Ltd. “Creation of 2 million tons buffer has not helped in a big way.”
Sugar output may climb to 28.79 million metric tons in the year to 30 September 2008, from an estimated 27.43 million tons this year, the Foreign Agricultural Service at the U.S. embassy in New Delhi said in a report last month. Domestic prices have fallen 28% in the past six months, mirroring declines in sugar traded in London in the period.
The bumper output has raised the pressure on the government to build stockpiles and give export incentives to prevent a glut Mills based in coastal states receive Rs1,350 ($33) a ton, while those located inland get Rs1,450 a ton.
Yet, only half of the estimated 1 million tons of sugar has been exported this year. With bumper harvests expected in other producing countries including Brazil and Thailand, importers are holding off fresh purchases in anticipation of a further decline in world prices, official said.
“Exports are subdued at the moment,” Kumar said. “Brazil is expecting a bumper crop and that may keep prices under check for a while.”
Bajaj Hindusthan Ltd, the nation’s biggest sugar producer, last month reported a third straight drop in quarterly profit. Shree Renuka Sugars Ltd, India’s third-biggest mill, reported profit halved from a year ago. Balrampur Chini Mills Ltd, the second-biggest, said second-quarter profit slumped 75%.
White sugar traded on London’s Euronext.liffe climbed 1.2% to $329.5 a ton yesterday. Prices have fallen by about a third in the past year amid forecasts global production is heading for a surplus for the first time in four years.
Global output may increase 5.8% in the year ending 30 September, resulting in a projected 8.5 million-ton surplus, said Peter Baron, chief executive officer of the International Sugar Organization, in an interview in Mumbai on 13 April. The surplus is 18% larger than forecast in February, Baron said.