The Indian government plans to create a two million tonne sugar buffer, and give transport incentives to mills to help exports with the country heading for a bumper output, a senior trade official said. India is set to produce more than 25 million tonnes of sugar in the current season that ends in September, up 30% from the previous year and higher than earlier estimates, industry officials said.
“The cabinet has considered the two million tonne buffer for one year to help mills faced with a glut to clear payments to farmers on time,” the official, who did not want to be identified, told Reuters.“I am not aware of any decision yet,” the official said.
Another government official said the cabinet had approved the decision in principle but a notification was being held back because of elections in some states.
The government cannot take any politically popular decisions before elections without the approval of the election commission. The key sugar-producing state of Uttar Pradesh goes to polls in April.Share of sugar companies were up 4-8% after a newspaper reported the government had approved the creation of a buffer.
The industry had been lobbying the government to create a buffer to ease the pressure on mills from falling prices and on storage costs.India, which annually consumes about 19 million tonnes of sugar, had only produced 19.3 million tonnes last year after floods and bad weather in some growing regions.
The higher output this year could put more pressure on prices, which have fallen by Rs500 to Rs1,300 per 100 kg over the last six months, traders said.
The fall in output last year had pushed domestic prices up 20%, and the government slapped a ban on exports in August.India lifted the ban in January but a drop in global prices to $300 a tonne from $400 about six months before made exports unprofitable.
The trade official said the buffer would be maintained by the factories but the government would defray the cost of interest, storage and insurance.The government also plans to subsidise internal transport, freight and handling charges for exports of sugar, the official said.
This will be at a flat rate of Rs1,350 per tonne for sugar factories located in coastal states and Rs1,450 for units in the northern states, he said.Industry officials said the decisions would help in avoiding the build-up of cane price arrears, stabilise sugar prices and liquidate excess stocks of sugar.
“This will help neutralise the loss on exports, increase liquidity of mills and help timely payments to sugarcane farmers,” said Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories.Kumar said it would also boost market sentiment and lift depressed domestic prices.