Feb. 13 (Bloomberg) -- India, the world’s second-biggest sugar producer, will introduce a subsidy on raw exports to boost shipments amid a domestic glut, a government official said. Brazil and Thailand, the largest suppliers, opposed the move.
The cabinet approved a subsidy of 3,333 rupees ($54) a metric ton for February and March and will review the amount in April, the official, who asked not to be identified because he isn’t authorized to speak to the media, told reporters in New Delhi yesterday. That’s 67 percent more than the previous proposal of 2,000 rupees. India will subsidize as much as 4 million tons in the next two years, the official said.
Bajaj Hindusthan Ltd., Balrampur Chini Mills Ltd. and other producers are counting on government support to increase shipments and cut record losses. The subsidy will help the country compete with Thailand, said Michael McDougall, a senior vice president at Newedge Group in New York. Al Khaleej Sugar Co. will be among refineries that benefit, he said by phone.
“The incentive will surely help in reducing the sugar surplus in India,” said Ravi Gupta, a president of Shree Renuka Sugars Ltd., the nation’s top refiner. “India is quite well positioned to substitute raw imports by refiners with domestically produced raws.”
Raw sugar for May delivery was little changed at 16.10 cents a pound on ICE Futures U.S. in New York by 3:02 p.m. in Mumbai, after rallying 2.4 percent yesterday. Futures declined 1.9 percent this year and dropped 16 percent in 2013. White, or refined, sugar for May fell 0.5 percent to $444.30 a ton on NYSE Liffe in London. Prices fell 14 percent in 2013.
Brazil and Thailand are against the subsidy. The payment will have a negative impact on prices and distort the market, according to Rangsit Hiangrat, director general of Thai Sugar Millers Corp., yesterday.
The World Trade Organization considers all forms of export subsidies to be illegal and the Indian allowance will distort global trade, Unica, a Sao Paulo-based industry group representing sugar mills, said in a statement last week.
McDougall at Newedge Group said the subsidy should make Indian exports viable at about 16 cents.
“It has been talked about so many times and I think the impact is already in the market,” said McDougall, estimating there may be about 500,000 tons of shipments in two months.
White sugar in Mumbai jumped as much as 1.3 percent to 2,740 rupees per 100 kilograms today. Futures retreated 13 percent last year.
Bajaj Hindusthan and Balrampur Chini were among companies in Uttar Pradesh state that shut mills for two weeks in November, demanding aid to pay state prices to growers. Mills owed farmers about 100 billion rupees in cane arrears at the end of January, the Indian Sugar Mills Association said Feb. 3.
Bajaj, the biggest producer, advanced as much as 5.1 percent to 13.40 rupees and last traded at 12.93 rupees. Balrampur Chini, the second-largest, climbed 5 percent to 41.95 rupees and Shree Renuka advanced 1.8 percent to 20 rupees.
“This will give liquidity to the mills and will help them pay a part of the cane arrears,” said Abinash Verma, director general of the mills association. “The arrears have crossed 100 billion rupees. Since the window to produce raw sugar is very short, we would pray for an early notification of rules and procedure.”
Sugar output in India may total 25 million tons this season from 25.1 million tons a year earlier, while consumption will probably be 23 million tons to 23.5 million tons, according to the association. Stockpiles will surge to 10 million tons by the end of 2013-2014 if the nation fails to export any sugar, it estimates.
--Editors: Thomas Kutty Abraham, Ovais Subhani