India May Consider Ending Four-Decade Old Curbs on Sugar Mills

India, the world’s biggest sugar producer after Brazil, will consider scrapping state curbs on sale of the sweetener by mills in the local market for the first time in four decades, Food Minister K.V. Thomas said.

The food ministry will soon send the proposal to the cabinet that may also end the practice of the government buying sugar from mills at below market rate to supply to the poor, Thomas said in an interview in New Delhi today. The move to end government curbs, introduced in 1972, is based on a report by a panel headed by Chakravarthy Rangarajan, chief of the Prime Minister’s Economic Advisory council, he said.

Bajaj Hindusthan Ltd. and Balrampur Chini Mills Ltd., the nation’s biggest mills, and other producers, will earn about 27 billion rupees ($508 million) annually should the government stop buying the commodity at subsidized rates, said Abinash Verma, director general of the Indian Sugar Mills Association. Producers are riled by a government policy that sets limits on sales by each mill for every four-month period to cap sugar prices, while states fix cane rates to help 50 million farmers, a powerful voting block, earn more.

“Scrapping of levy sugar and freeing sugar sales will alleviate arrears and farmers will be paid on time,” said Vivek Saraogi, managing director of Balrampur Chini Mills Ltd. “There will be sustainable production.”

Mills in the northern state of Uttar Pradesh owe as much as 29.87 billion rupees to farmers after cane prices were raised by as much as 17 percent to a record for the 2012-2013 crop, according to the mills association. Producers will lose about 60 billion rupees as they sell sugar below production cost because of a surge in imports, Verma said this month.

Shares Rally

Shares of sugar producers rallied in Mumbai today. Bajaj Hindusthan rose 2.4 percent to 23.40 rupees, Balrampur climbed 4.2 percent to 45.70 rupees, while Shree Renuka Sugars Ltd., the top refiner, rose 3 percent to 29.30 rupees.

The Rangarajan panel asked the government to link the cane price paid to farmers to returns from the sale of sweetener, molasses and fuels to sustain output. Mills should pay 70 percent of all revenue to farmers, it said on Oct. 12.

Production in India, also the largest consumer, will fall next season from 24.3 million tons in 2012-2013, according to the mills association. Drought in the states of Maharashtra and Karnataka, which together account for 45 percent of output, will encourage farmers to cut plantings, M. Srinivaasan, president of the association said.

The cabinet today raised the benchmark sugar cane price by 24 percent to 210 rupees for the 2013-2014 crop season, Thomas said.

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