(Updates with comment from executive in sixth paragraph.)
Jan. 16 (Bloomberg) -- India, the world’s biggest sugar producer after Brazil, will subsidize shipments of raw sweetener to ease a domestic glut and help mills clear arrears of about $422 million to farmers before elections scheduled by May. Futures in New York slumped to a 43-month low.
The government will give incentives to export 4 million metric tons over two years, Food Minister K.V. Thomas told reporters in New Delhi after a meeting of a panel of ministers. The Food and Finance Ministries will work out details and the Cabinet may consider the proposals in its next meeting, he said.
Raw sugar tumbled to the lowest since June 2010 in New York today on concern increased Indian supplies will widen a global glut. Futures have slumped 25 percent since reaching a one-year high on Oct. 18, as supplies from Brazil to India and Thailand expand. India may struggle to export any significant quantity as domestic prices are higher than global rates, said Yatin Wadhwana, managing director of Sucden India Pvt.
“Exporters will need substantial amount as subsidy for exports to take place because world prices have dropped quite a bit in the last two months,” Wadhwana said in a phone interview today. “There’s a surplus globally.”
Raw sugar for March delivery fell to 15.10 cents a pound on ICE Futures U.S. in New York, the lowest price for most active futures since June 21, 2010. White sugar in Mumbai, which climbed to a one-month high today, is about $40 a ton more expensive than the $414.80 a ton on NYSE Liffe in London.
“The market is saying it’s already oversupplied,” said Tom McNeill, a director at Green Pool Commodity Specialists Pty. “It doesn’t need further supplies. Most of Indian decision is already built into the prices unless an unexpectedly large subsidy is announced.”
Global inventories will rise to a record as consumption trails production in the marketing period ending in 2014 for most countries, the U.S. Department of Agriculture forecast in November. Stockpiles in India jumped to 8.85 million tons on Oct. 1, the highest in five years, according to the Indian Sugar Mills Association.
Mills are seeking to increase exports to trim record losses as cane costs climb and prices decline. Bajaj Hindusthan Ltd. and Balrampur Chini Mills Ltd. were among companies in India’s Uttar Pradesh state which shut mills for two weeks in November demanding aid to pay state-set cane prices to farmers.
The factories are hurt by a rule that allows states to fix cane rates to help about 50 million farmers to earn more as they form a powerful voting bloc. Mills in Uttar Pradesh, the biggest cane grower, began crushing on Dec. 1 after the government said it will review cane pricing methodology next season and consider linking the rates to sugar price.
Indian refiners, which procure raw sugar from local market and export the processed sweeter will also be given the subsidy, Thomas said yesterday. The country will promote raw sugar as a new product in the global market to make incentives compliant with World Trade Organization rules, he said.
Factories owed about 26 billion rupees ($422 million) in arrears to farmers as of Nov. 15, according to the mills association. The Cabinet last month approved interest-free loans of more than 60 billion rupees for mills to pay dues to farmers.
Sugar output in India may total 25 million tons this season, compared with 25.1 million tons a year earlier, while consumption is seen at 23 million tons to 23.5 million tons, according to the mills association.
--Editors: Thomas Kutty Abraham, Ovais Subhani