New Delhi: The government on Friday said it would amend a new sugarcane pricing rule, bowing to protests held in the capital by farmers demanding higher prices for their produce.

The government would delete the contentious part of the new cane pricing rule, Union railways minister Mamata Banerjee told reporters after a meeting of senior ministers.

Cane farmers believe the new cane price rule, which puts the onus on state governments if they decide to raise the cane floor rates fixed by the Union government, will curtail their bargaining power.

“We have agreed to farmers’ demand in larger interest," Banerjee said, adding the government would introduce a new legislation in parliament on Monday to change the rule.

Farmers from Uttar Pradesh (UP), which produces almost half of the country’s cane, have been on warpath for about three weeks to press for higher prices, forcing Prime Minister Manmohan Singh to consider changes in fixing cane prices.

The truce would pave the way for crushing, which had been delayed, said Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories Ltd.

The severe protest has hampered crushing in the state raising fears of more imports by India, a major factor in helping global sugar prices double this year.

“The delay of almost six weeks has tightened supplies further. Everyone was depending on UP mills to start on time to tide over the situation," Yatin Wadhwana, head of Sucden India, told Reuters.

India, the world’s top consumer and the biggest producer behind Brazil, has placed an import order of a record 5 million tonnes of raws, pushing New York-traded raw sugar to 28-1/2-year highs.

ICE benchmark March raw sugar futures on Thursday fell 0.56 cent to settle at 22.74 cents per lb on investor sale caused in part by a rebounding dollar.

Traders say indications of lower output and a delay in crushing would put further upward pressure on global prices.

“Had mills been crushing in UP for six weeks now, supplies would have improved by at least 150,000 tonnes. When stocks are low, any delay adds to shortage," Wadhwana said.

Union agriculture minister Sharad Pawar early this month said India would consume up to 7 million tonnes more sugar than it would produce in 2009-10 and the imported raw sugar being processed in the new season would not be enough to bridge the deficit.

India’s sugar year runs from October to September.

Analysts, who expect the country to import 2-3 million tonnes more, say purchases would largely depend on output in the year to September 2010.

The US Department of Agriculture on Thursday forecast India’s sugar output at 17.3 million tonnes in 2009-10, while industry and government officials see production at 16 million tonnes, largely due to fall in cane area in UP.

Lower cane production clipped sugar output by 43% to 15 million tonnes in 2008-09, prompting the government to abolish import tax on sugar in early 2009.

“Sixteen million tonnes will not be enough. To add to our woes, delay in crushing in UP has squeezed supplies further," said said Veeresh Hiremath, a senior analyst with commodity brokerage Karvy Comtrade.

About six of 150 sugar mills in the state have started crushing cane, said CB Patodia, chairman of the Uttar Pradesh Sugar Mills Association.

“We believe the issue will be resolved soon and expect crushing to gain momentum in 3 to 4 days," he said.