First time in 3 years, sugar mills sign export deals without govt sweetener

Indian sugar mills have for the first time in three years agreed export agreements without the support of government subsidies as they scramble to pay dues owing to farmers, four industry officials told Reuters.

So far they have contracted 10,000 tonnes of white sugar for exports in the new season that began on Oct. 1, which they face selling at a loss, potentially weighing on international prices.

India is the world's biggest consumer of sugar, but as the second biggest producer, produces more than required. The government uses subsidies to encourage exports and ensure mills make payments to cane farmers.

This year, disagreements among ministries has delayed the announcement of the export subsidy, helping to drive global sugar prices to the highest levels in nearly nine months.

"Mills have started selling sugar to exporters after waiting for the subsidy announcement for months," said Rahil Shaikh, managing director of MEIR Commodities India, noting India has not allocated an export quota for the 2020/21 season.

Three other sources that confirmed the export agreements could not be named because of their company policies.

They said the 10,000 tonnes of white sugar had been contracted to trading houses that are exporting the sweetener to Afghanistan for December shipments.

"When we compare overall export volume, 10,000 tonnes is a very small amount, but the deals are significant as it shows the desperation," a Mumbai-based dealer with a global trading firm said.

Many cash strapped mills could start supplying sugar to trading houses if the government delays the subsidy decision for another month, the dealer said.

SUBSIDY NEED

Indian mills, which are compelled by the government to buy sugarcane from farmers at a set minimum price, have for the last two years only been able to sell competitively to exporters with the help of subsidies.

In 2018 and 2019, India approved the sugar export incentive before the start of the season as New Delhi was pushing mills to sell sugar to clear dues owed to farmers.

In 2019/20, an export subsidy of 10,448 rupees ($141.23) a tonne helped India export a record 5.7 million tonnes of sugar.

India, which also sets a minimum selling price for sugar sales in the local market, has fixed prices at 31,000 rupees a tonne, but mills are selling sugar to exporters at prices as low as 28,500 rupees as they need funds to pay farmers, the officials said.

India has revived a proposal to get sugar mills to export 6 million tonnes of sugar by incentivising overseas sales in the 2020/21 season to cut surplus stocks at home and support local prices, two government sources said earlier this month.

Any further delay in the subsidy could lift overseas prices to a level where exports would be viable without the government incentive, said B.B. Thombare, president of the West Indian Sugar Mills Association (WISMA), but he said large-scale exports were not possible without government support.

India could export 2.5 to 3 million tonnes sugar without export incentives in 2020/21, the India head of a global trading firm said. He said a subsidy could lift exports above 5 million tonnes.

India consumes around 26 million tonnes of sugar annually, but an excess 16 million tonnes, or 62% more sugar is likely to be available this year, trade bodies estimate.

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