Cane pricing dispute may delay India's sugar exports

A second tranche of sugar exports from India could be delayed because of a dispute over cane pricing that is preventing the government from getting clarity on final production figures needed to decide how much overseas sales to allow. The dispute may not affect a first decision on exports that is likely next week given high inventory and an ample summer-sown crop, but further sales will depend on how fast farmers and millers agree on cane prices and high food inflation easing.
"The government will definitely see how the cane crushing pans out in the country before allowing the second tranche of exports," Vinay Kumar, managing director of the National Federation of Co-operative Sugar Factories, a producers' body of 250 sugar mills, told Reuters. "For the first tranche, the government can easily permit exports of 500,000-1 million tonnes."
But New Delhi will remain cautious before allowing the second tranche because there was a wide gap between initial estimates for sugar production and the actual output in 2008/09 and 2009/10. India had to import sugar during these two years. "Food inflation is still a concern. This year we have good production, but what about next year? We don't know about next year's monsoon rains and cane area," said a managing director at a co-operative sugar mill based in Maharashtra. "If anything goes wrong, people will start blaming the government. So obviously it will allow exports cautiously. It will make sure that in 2012/13 there would not be any shortage."
Indian farmers are demanding up to 300 Indian rupees per 100 kg for cane against the federal government-set price of 145 Indian rupees. States are free to set their prices higher. Cane growers have conducted rallies and blocked roads with burning tyres in the western Maharashtra state, and their protest looks set to intensify.
Crushing by most millers in top sugar producing Maharashtra state could be delayed by at least one month. Industry says the government is unlikely to decide on any second tranche of exports before mid - January. The Maharashtra government is negotiating with farmers and mills but crushing is unlikely to peak before December. In northern Uttar Pradesh state, the second biggest producer, the state has yet to fix the cane price as the gap between what farmers are demanding and mills are offering is very large. Lower sugar prices make it unfeasible for millers to pay higher prices for cane, while farmers insist the cost of production has jumped on a rise in labour wages, fertiliser and electricity costs.
Most mills in Uttar Pradesh are unlikely to begin crushing before mid-November and the dispute may even force some mills to start crushing only in December. India allowed 2.6 million tonnes of exports in 2010/11, including 1.5 million tonnes exports under the open general licence (OGL) scheme in three tranches. Indian Sugar Mills Association (ISMA) estimates there is scope to export up to 4 million tonnes in the current sugar season that began on October 1.
The government says the country has surplus for exports, but refrains from giving the quantity available for shipments. India consumes around 22-23 million tonnes of sugar a year. The crushing delay may also affect sugar recovery from cane and thereby output, which industry estimates to exceed 26 million tonnes in 2011/12, while the government puts it at around 25 million tonnes.
Sugar recovery rate usually remains high during winter and falls in summer. If the monsoon kicks in early, or states receive more unseasonal rains during crushing, then mills may be forced to stop or suspend operations for a few days. In the 2006/07 season, mills in Maharashtra and Karnataka had failed to crush all the available cane during the season.
The delay in a second tranche of exports could support global prices because floods in Thailand have delayed crushing there. India and Thailand were expected to be key suppliers before the new crushing season begins in Brazil, the world's largest exporter, in April. The key November sugar contract on India's National Commodity and Derivatives Exchange ended 0.5 percent higher at 2,793 rupees ($56.83) per 100 kg on Thursday, while December white sugar futures on Liffe rose 0.97 percent to $686.9 per tonne at 1214 GMT.