Indian Sugar Pricing Plan Seen Reviving Nation’s Mills

Sugar mills in India, the world’s largest grower after Brazil, are banking on a proposal to link the price of cane to the sweetener to reverse record losses.

An accord to tie cane prices to sugar rates from the 2014-15 season would be “historic” and encourage banks to extend credit to factories in Uttar Pradesh, India’s biggest cane producer, said Abinash Verma, director general of the Indian Sugar Mills Association. Mills agreed to resume output on Dec. 1 after a two-week protest shutdown when the Uttar Pradesh government said it would consider the pricing plan..

A panel headed by Chakravarthy Rangarajan, chief of the Prime Minister’s Economic Advisory Council, this year recommended linking cane prices to 70 percent of the value of sugar and by-products, while scrapping state controls on sale of sugar in the local market.

Government ‘Assurance’

The Uttar Pradesh administration has set up its own panel headed by the state’s chief secretary to “look at all the different modalities for fixing of cane price,” and the Rangarajan committee’s suggestions, said Rahul Bhatnagar, principal secretary for sugar in Uttar Pradesh. Any change will come into effect from the next crushing season, he said.

Balrampur Chini reported a record loss of 1.22 billion rupees ($19.6 million) in the three months ended Sept. 30, whileBajaj Hindusthan Ltd. (BJH), India’s biggest sugar producer, posted a 5.1 billion rupee loss in the quarter.

Prices Tumble

Sugar prices in India have tumbled 16 percent in the past year, prompting factories in the two top producing states of Maharashtra and Uttar Pradesh to sell below cost. The two states account for 62 percent of Indian output. Raw sugar in New York has fallen 14 percent this year. Futures for March delivery fell 0.9 percent to 16.81 cents a pound on ICE Futures U.S. in New York 2 December.

Sugar Inventories

It cost mills in India an average 36 rupees to produce 1 kilogram of sugar in Uttar Pradesh, while the mean selling price at the factory gate was about 31 rupees in 2012-2013, according to ISMA.

Mills in Uttar Pradesh owed farmers as much as 24 billion rupees for cane supplied last season and that figure may jump if sugar prices don’t improve, ISMA’s Verma said.

Inventories in India surged to a five-year high of 8.85 million tons at the start of this season, enough to meet demand for four months, according to the mills’ association. The reserve may expand to 10 million tons by the close of the season on Sept. 30, 2014 if the nation fails to export any sugar, it estimates.