India approves subsidy for raw sugar exports

India, the world’s biggest sugar producer after Brazil, will introduce a subsidy on raw sweetener exports to boost shipments amid a domestic glut, a government official said.

The cabinet approved a 3,333 rupees ($54) a metric ton subsidy for exports in February and March and will review the amount in April, the official, who asked not to be named because the person isn’t authorized to speak to the media, said in New Delhi yesterday after the cabinet meeting. That’s 67 percent more than the 2,000 rupees previously proposed by the Food Ministry. India will subsidize as much as 4 million tons in the next two years, the official said.

Bajaj Hindusthan Ltd., Balrampur Chini Mills Ltd. and other mills are counting on government support to increase shipments and trim record losses as cane costs climb and prices drop. The subsidy will help spur exports from India and help the country compete with supplies from Thailand, Michael McDougall, a senior vice president at Newedge Group in New York, said by phone yesterday. Refineries including Dubai-based Al Khaleej Sugar Co. will benefit from Indian supplies, he said.

“The incentive will surely help in reducing sugar surplus in India,” said Ravi Gupta, a president of Shree Renuka Sugars Ltd. (SHRS), the nation’s top refiner. “India is quite well positioned to substitute raw imports by refiners with domestically produced raws.”

Raw sugar for May delivery advanced 2.9 percent to 16.19 cents a pound on ICE Futures U.S. in New York. It’s down 1.5 percent this year and fell 16 percent in 2013. White, or refined, sugar for delivery in May traded 2.6 percent higher at $445.30 a ton on NYSE Liffe in London. It’s down 0.6 percent this year and declined 14 percent in 2013.

The subsidy will have a negative impact on world prices and will distort the market, Rangsit Hiangra, director general of Thai Sugar Millers Corp., said yesterday.

The World Trade Organization considers all forms of export subsidies to be illegal and the Indian allowance will distort global trade, Unica, a Sao Paulo-based industry group representing sugar mills, said in a statement last week.

Newedge Group’s McDougal said the subsidy should make Indian exports viable at about 16 cents a pound.

“It has been talked about so many times and I think the impact is already in the market,” McDougall said, estimating there may be about 500,000 tons of shipments in two months.

Bajaj Hindusthan (BJH) and Balrampur Chini were among companies in Uttar Pradesh state that shut mills for two weeks in November, demanding aid to pay state-determined cane prices to growers. Mills owed farmers about 100 billion rupees in cane arrears at the end of January, the Indian Sugar Mills Association said Feb. 3.

Bajaj, the nation’s biggest producer, fell 2.3 percent to 12.75 rupees yesterday. Balrampur Chini, the second-largest, dropped 0.1 percent to 39.95 rupees and Shree Renuka declined 3.2 percent to 19.65 rupees.

“This will give liquidity to the mills and will help them pay a part of the cane arrears,” said Abinash Verma, director general of the association. “The arrears have crossed 100 billion rupees. Since the window to produce raw sugar is very short, we would pray for an early notification of rules and procedure.”

Sugar output in India may total 25 million tons this season, compared with 25.1 million tons a year earlier, while consumption is seen at 23 million tons to 23.5 million tons, according to the association. Stockpiles will surge to 10 million tons by the end of 2013-14 if the nation fails to export any sugar, it estimates.-Bloomberg