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Mills in India Should Link Cane Price to Returns, Panel Says

Sugar mills in India, the world’s biggest producer after Brazil, should link the cane price paid to farmers to returns from the sale of sweetener, molasses and fuels to sustain output, a government panel said.

Mills should pay 70 percent of all revenues to farmers, the panel headed by C. Rangarajan, chairman of the prime minister’s economic advisory council, told reporters in New Delhi today. The government must end controls on mills’ sale of sugar in the domestic market and stop buying the commodity from producers at below market prices to supply to the poor, it said. The government has given no time frame for the changes.

Linking the cane price to revenues in India, the world’s largest consumer, may help stabilize production and make the nation a regular exporter. The government overhauled economic policies in September to lure more foreign investment, limit its budget deficit and steady the nation’s currency. Mills will add about 30 billion rupees ($570 million) to their net income annually should the government stop buying the commodity at subsidized rates, said Abinash Verma, director general of Indian Sugar Mills Association.

“By linking the sugar cane price with the price of sugar and other byproducts mills will be able to get a fair return and the farmers will get a fair return,” Verma said. “This will control the cyclicality in production of sugar cane.”

Exports, Imports

The panel was set up in January to examine issues related to the industry, including ending state controls. The federal government sets quarterly limits on sales by each mill to cap prices, while state administrations fix cane rates to help farmers, a powerful voting bloc. Producers must sell 10 percent of their output typically at below market rates to the government for resale to the poor.

Outright bans and quantitative curbs on exports and imports of sugar should be avoided, while imposing a tax of 5 percent to 10 percent on inbound and outbound shipments, Rangarajan said.

“Such a trade policy will be neutral to consumers as well as producers, and low rates of duty will ensure that no one is unduly favored with high protective walls of import or export duties,” the panel said in its report. “It will promote efficiency in production and consumers will also pay a reasonable price in line with global prices.”

The recommendations will now be studied by the federal and state governments, Food Secretary Sudhir Kumar told reporters. The changes will be implemented soon, he said.

The changes to sugarcane pricing and scrapping of rules on exports and imports need to be introduced over a two-to-three year period, while the so-called levy sugar mechanism and controls on open market sale should be removed immediately, the panel said.

India’s biggest mill, led a rally among producers in Mumbai trading. Bajaj advanced as much as 3.3 percent to 33.35 rupees, Balrampur Chini Mills Ltd., the second-largest producer, climbed as much as 4.9 percent to 72.20 rupees and Shree Renuka Sugars Ltd., the largest refiner, surged as much as 3.3 percent to 37.90 rupees.

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