Sugar Exports From India Surge as Mills Rush to Pay Growers

Updated on

Sugar exports from India will climb more than forecast previously as mills accelerate sales to clear $2.8 billion debt to cane growers.

Shipments will surpass 1 million metric tons in the 12 months through September, said Yatin Wadhwana, managing director of Sucden India Pvt. Mills may export about 400,000 tons of mainly white sugar between now and September, he said. Wadhwana’s forecast for full-year sales compares with 800,000 tons predicted by the Indian Sugar Mills Association last month.

Inventories in India are poised to jump to a seven-year high after production outpaced demand for a fifth year and a slump in global prices slowed exports. With another bumper crop in the making and government threatening action against producers for not paying farmers, mills are selling below production cost to clear dues to growers. That may weigh on futures in New York which slumped to a six-year low this week.

“Mills are forced to sell at a loss because of government’s pressure to pay farmers on time,” Sanjeev Babar, managing director of Maharashtra State Cooperative Sugar Factories Federation, said by phone from Mumbai on July 20. “We don’t have enough money to run the mills.”

Factories owed farmers about 181 billion rupees ($2.8 billion) as of June 15, according to the mills association. Under the law, factories are required to pay farmers within 14 days of supplying cane, Babar said. Failure to pay up on time would entitle growers to 12 percent interest on dues and the government can seize sugar stockpiles and auction them to pay the farmers, he said.

Futures Tumble

Prices on the ICE Futures U.S. fell to as low as 11.35 cents a pound on Monday, the lowest level since January 2009. The contract for October delivery rose 1.1 percent to 11.55 cents a pound in New York on Wednesday while prices in Mumbai were 0.9 percent lower at 2,165 rupees per 100 kilograms (220 pounds).

Mills in Maharashtra state, the nation’s biggest producer, sold about 300,000 tons of white sugar in the past two weeks to mobilize money to pay farmers, Babar said. Mills there owed farmers 33 billion rupees as of June 15, he said.

“Mills were helpless due to the sword hanging on them in the form of cane payments,” said Kamal Jain, managing director of brokerage Kamal Jain Trading Services Pvt.

Factories sold sugar at prices between 19 rupees a kilogram to 19.50 rupees a kilogram, the lowest since May 2007, when the rate was 10.68 rupees a kilogram, Babar said. The production cost is as high as 34 rupees a kilogram, he said.

The slump in prices forced the government to subsidize exports and waive interest on bank loans to processors. Stockpiles of 10.2 million tons at the start of new crop season from Oct. 1, the highest since 2008-09, will add to supplies of about 27.25 million tons in 2015-2016 estimated in a Bloomberg survey last month.

(An earlier version of this story corrected to say farmers not mills are owed debt.)

Before it's here, it's on the Bloomberg Terminal. LEARN MORE