MUMBAI/NEW DELHI - India will soon bring in rules to force sugar mills to export millions of tonnes of surplus supplies to prop up local prices, a move that could drag down global rates, which have hovered near 8-1/2 month lows.
The country is likely to produce a record 29.5 million tonnes of sugar in the 2017/18 season that ends on Sept. 30, up 45 percent from the previous year, hammering local prices down by more than 15 percent in the past six months.
The government would first scrap the 20 percent sugar export tax and then ask mills to compulsorily export 2-4 million tonnes of the sweetener to suck the extra supply out of the country, said three government sources involved in decision making.
The sources did not wish to be identified because they are not authorised to talk to media. Three industry officials also confirmed the move.
In India, the federal government fixes the price that sugar mills must pay every year to cane farmers, but some state governments invariably raise the rate to court growers, a large voting bloc.
Mills complain that a sharp drop in local prices erodes their profitability and makes it difficult for them to pay cane growers on time. Farmers get restive if cane arrears accumulate, forcing the government to step in to help the sugar industry to quell anger among cane growers.
Sugar mills currently owe 140 billion rupees to cane farmers as lower sugar prices created a liquidity shortage, the government told parliament this month.
Currently global sugar prices are not attractive enough to export, so mills may have to sell their extra stocks at a loss and lower inventory at home would eventually help mills because domestic rates would go up, the sources said.
Sugar output in Thailand, the world's biggest exporter of the sweetener behind Brazil, is likely to touch a record 12-13 million tonnes in the 2017/18 season.
If the global market is not viable for Indian exporters, the government could even think of giving incentives to mills sell on the world market, said one of the sources.
The government could impose a tax of the sale of sugar and use this fund to give incentives for exports, the sources said.
Once the government decides on the quantity to be shipped out, mills would get their specific quota for overseas sales.
Each mill will be asked to export a fixed quantity in proportion to its average output in past three yeas.
In 2015, India, which was sitting on large stockpiles of sugar, told mills to export 3.2 million tonnes of sugar, but rescinded the order after 1.5 million tonnes was sold.
Although India has managed to contain the boom and bust cycle, sugar output still varies, a key reason behind global price volatility as New Delhi swings from exports to imports.
India could find it difficult to export large quantities of sugar this season as most mills have already produced the refined white variety by now.
Although India's sugar season runs from October to September, cane crushing gathers momentum by December and tapers off by March and April.
The world market needs more raw sugar than refined, so exports from India would be rather limited this year, said Rohit Pawar, chief executive of Baramati Agro.