NEW DELHI: India will soon scrap an order that requires sugar mills to export excess supply, two government officials said on Monday, after back-to-back droughts look set to turn the country into a net importer next season and open the door to rival suppliers.
Late last year the government asked mills to export as much as 3.2 million tonnes to deal with what was then a glut that dragged prices down and put mills under financial pressure.
To support the scheme and relieve that pressure, the government agreed to pay farmers 45 rupees for every tonne of sugar cane they produced, representing about two per cent of the costs incurred by mills.
When the compulsory export order is revoked, those direct payments would also cease, said the officials, who spoke on condition of anonymity because the decision has not been formally announced yet.
“We’ll soon take the order back, because we no longer need to export,” said one of the officials. “That was aimed at bringing our stock levels down to support prices that had nosedived.” When asked about the timing of the move, the second official added: “It may take a few weeks”.
The officials said the decision to stop paying farmers under the scheme was made easier by the fact that the cane crushing season was coming to an end, and higher local sugar prices meant mills would have more money available to pay them.
Out of the 3.2 million tonne export target, mills had sold around 1.5 million tonnes on to world markets.
Without the production subsidy, Indian mills are expected to struggle to export profitably, potentially boosting global sugar prices and allowing rival suppliers like Brazil, Thailand and Pakistan to increase their shipments.
Indian domestic sugar prices have jumped 40pc since the current season began on Oct 1, 2015, partly in anticipation of a drop of more than 14pc in sugar output for the season beginning October 2016.
The El Nino weather phenomenon, which brings dry conditions to many regions, has stoked the worst drought in decades in some parts of India, with thousands of small-scale sugarcane growers in Maharashtra state failing to cultivate crops for the next marketing year.