India is considering a proposal to make export of sugar mandatory for mills to trim the biggest stockpiles in seven years, two government officials said.
The government will subsidize the shipments by paying a part of the losses incurred by mills on exports, said the officials, who asked not to be identified as the plan has yet to be approved. The subsidy may be given directly to the farmers, who supply cane to the mills and have yet to be paid, they said.
Indian inventories are poised to jump to 10.2 million metric tons after production outpaced demand for a fifth year and a slump in global prices slowed exports. With another bumper crop in the making, a surge in Indian exports may weigh on futures in New York which slumped to the lowest since 2008 on Tuesday.
“This will make the world market prices even more depressed at the cost of producers in Thailand, Brazil and other countries,” Carsten Fritsch, a Commerzbank AG analyst in Frankfurt, said by phone on Wednesday, referring to Indian exports.
While an export subsidy is a short-term measure, increasing the level of ethanol blended with gasoline will reduce surplus sugar in the country in the long run, the officials said. The government already subsidizes raw sugar exports at 4,000 rupees ($63) a ton.
The Food Ministry is also considering an increase in blending of ethanol with gasoline to 6 percent starting Oct. 1, and to 10 percent in the following years, the officials said.
India is exploring options to export sugar to Indonesia, Malaysia, and some African nations in lieu of vegetable oil and pulses, another government official told reporters in New Delhi on Wednesday.
“Global inventories are at record levels after several years of high production surpluses,” Fritsch said. “I don’t think it will be helpful to add to this global surplus by subsidized exports. This will keep sugar prices depressed for longer.”
Sugar prices tumbled 24 percent this year as global supplies outpaced demand for five straight years. Futures for October delivery traded 0.4 percent lower at 10.97 cents a pound on the ICE Futures U.S. on Wednesday.
Sugar production in India is estimated to total 28 million tons in the year starting Oct. 1, exceeding demand for a sixth year, according to the Indian Sugar Mills Association. Factories owed farmers about 173 billion rupees as of July 15, Food Minister Ram Vilas Paswan said in parliament on Tuesday.