Cane price dispute may hamper India sugar export efforts

Last Updated: Fri, Oct 25, 2013 04:50 hrs

* Mills, farmers at loggerheads over minimum cane prices

* Regional political parties seek higher cane prices, with eye on polls

* India has targeted up to 3 mln T sugar exports this year

By Rajendra Jadhav and Mayank Bhardwaj

MUMBAI/NEW DELHI, Oct 25 (Reuters) - A dispute over sugarcane prices between Indian farmers and mills may curb sugar exports from the world's second-biggest producer, delay crushing in the new season and even trigger bankruptcies.

Farmers in the top Indian sugar producing states of Maharashtra, Uttar Pradesh and Karnataka are demanding more money for their cane while millers, already cash-strapped, want to reduce prices in sync with falling sugar prices.

Key state governments, which set cane prices in India, haven't been able to finalise the minimum price for the new season which has begun in October as they try to accommodate competing interests.

They have a tough balancing act to perform this year as regional political parties are pressuring them to raise cane prices to keep farmers happy ahead of local and national elections in the next few months.

A prolonged dispute could mean a missed sugar exports opportunity for India, which had stocks of 8.8 million tonnes on Oct. 1 and is eyeing exports of up to 3 millions tonnes this year. International demand and prices are firm and a key competitor, Thailand, has not started exports in a big way.

Indian traders have struck export deals for about 175,000 tonnes of raw sugar for December-January delivery so far, but exports are unlikely to pick up if mills are forced to buy cane from farmers at higher price. Less exports from India may offer a respite to the over supplied global market.

"It is not possible even to pay last year's price for cane, any hike is impossible...Why should we start mills, when we are going to end with higher losses and debt?" C P Patodia, chairman of the Uttar Pradesh Sugar Mills Association, told Reuters.

Uttar Pradesh, India's second-biggest producing state, fixed the minimum price for cane at 2,800 rupees ($45.58) a tonne in the previous season, but mills ended up with 30 billion rupees in losses and 24 billion rupees owed to farmers, he added.

Mills in Maharashtra and Karnataka, the biggest and third-largest sugar producing states, respectively, also paid around the same price for cane last year.

This year farmers from these three states, which account for around three quarters of the country's sugar output, are demanding 3,000 to 3,800 rupees per tonne.

"There is robust exports demand for raw sugar, but most mills can't commit supplies as they are not sure about the production cost," said an official with a global trading house that last week struck a deal to export 25,000 tonnes raw sugar.

India managed to export only about 300,000 tonnes sugar in the 2012/13 year that ended on Sept. 30, compared with 3.3 million tonnes in the previous year as higher cane price lifted sugar production cost and made shipments uncompetitive.

"In the overseas market raw sugar prices are rising. Indian mills need to take advantage and sign deals before supplies start from Thailand," the official said, referring to the world's second-largest exporter.


Mills are hoping state governments will cut cane prices, but since sugar is a politically sensitive commodity, the chances are remote. Farmers also insist mills pay more as their production cost has also increased.

The row over cane prices erupts regularly around this time, just before the start of the crushing from November, but this year it is fiercer and tougher to break as politicians have become more deeply involved.

Sugar prices in India are hovering around 2,900 rupees per 100 kg, down from around 3,400 rupees in October 2012, reflecting an increase in supply.

Regional parties want a cane price hike to keep farmers happy ahead of local and national elections, in a country where more than half the 1.2 billion population is dependent on agriculture.

"Labour wages, diesel and electricity prices have gone up. Production cost has risen roughly 20 percent. Mills should compensate the rise in production cost," said Raju Shetty, a farmers' leader from Maharashtra and a member of Parliament.

Mills point to their plight.

"With production costs only going up and revenue only coming down for the mills, the very survival of the Indian sugar industry is at stake," said Abinash Verma, director general of the Indian Sugar Mills Association. (Editing by Lewa Pardomuan and Muralikumar Anantharaman)

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