Sugar mills ask Centre to more than double reserves

Sugar producers in India, the world's biggest consumer of the sweetener, have asked the government to more than double the size of its stockpiles to arrest a slide in domestic prices amid record output.

Mills want the government to build a reserve of 5 million tonnes from 2 million tonnes currently, industry officials including S L Jain, director general of Indian Sugar Mills Association, said.

"That's the only way to help mill owners recover production costs," said Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories. "Creation of a buffer of 2 million tonnes has not helped in a big way."

Sugar output may climb to 28.79 million tonnes in the year to September 30, 2008, from an estimated 27.43 million tonnes this year, the Foreign Agricultural Service at the US embassy in New Delhi said in a report last month. Domestic prices have fallen 28 per cent in the past six months, mirroring declines in the sugar traded in London in the period.

The bumper output has raised the pressure on the government to build stockpiles and give export incentives to prevent a glut. Mills based in coastal states receive Rs 1,350 ($33) a tonne, while those located inland get Rs 1,450 a tonne.

Yet, only half of the estimated 1 million tonnes has been exported this year. With bumper harvests expected in other producing countries including Brazil and Thailand, importers are holding off fresh purchases in anticipation of a further decline in world prices, official said.

"Exports are subdued at the moment," Kumar said. "Brazil is expecting a bumper crop and that may keep prices under check for a while."

Bajaj Hindusthan, the nation's biggest sugar producer, last month reported a third straight drop in quarterly profit. Shree Renuka Sugars, India's third-biggest mill, reported profit halved from a year ago. Balrampur Chini Mills, the second-biggest, said second-quarter profit slumped 75 per cent.

White sugar traded on London's Euronext.liffe climbed 1.2 per cent to $329.5 a tonne yesterday. Prices have fallen by about a third in the past year amid forecasts that global production is heading for a surplus for the first time in four years.

Global output may increase 5.8 per cent in the year ending September 30, resulting in a projected 8.5 million-tonne surplus, said Peter Baron, chief executive officer of the International Sugar Organization, in an interview in Mumbai on April 13. The surplus is 18 per cent larger than forecast in February, Baron said.