India has raised the price sugar mills must pay to cane growers from the next season starting October, government sources said on Tuesday, boosting sugar output prospects in the world's biggest consumer of the sweetener. The possibility of higher output is also likely to boost the government's confidence about stocks and prompt it to allow unrestricted exports of 500,000 tonnes of sugar which has been awaiting clearance for about two months.
Higher supplies from India will ease global prices which rose by about a fifth this year on supply worries from Australia. In the current season to September, the minimum cane purchase price had been fixed at 139.12 rupees ($3) per 100 kgs. The new price is about 4.2 percent higher.
"This is a welcome step even though mills have been paying much higher than the minimum price," said Vinay Kumar, managing director of the National Federation of Co-operative Sugar Factories, a producers' body of 250 mills. He said this higher minimum price would encourage growers to plant cane in higher area and would result in higher production in 2011/12.
Kumar said mills have paid an average price of 200 rupees per 100 kg to growers in the current sugar season. Last week, producers' body Indian Sugar Mills Association estimated the country's sugar output at 25 million tonnes for 2010/11, slightly higher than the government estimates of 24.5 million tonnes. India produced 18.8 million tonnes in 2009/10, after a bad monsoon hit cane production in 2009.
ISMA president Narendra Murkumbi said allowing more exports would help trim huge opening stocks for the next season which was also poised to be a year of higher output. Trade and industry bodies have been seeking more quantity for exports under Open General Licence (OGL) to exploit high global prices and pass on the benefit to cane growers as local prices have fallen about a third in past one year amid improved supply prospects.
As a fallout of falling local prices, Indian mills' outstanding payments to cane growers rose to 40 billion rupees ($886 million) until December 31. On Tuesday, London's May white sugar futures fell $7.7 or 1.1 percent at $699.10 per tonne, while New York's raw sugar futures traded down 0.43 cent or 1.7 percent at 27.32 cents a lb.