Maharashtra plans to buy state's one-fourth sugar output to support prices

India's second-biggest sugar producer Maharashtra plans to buy a quarter of the state's output to arrest falling prices for the sweetener, a state minister told Reuters, a move that would require $1 billion and leave mills to cover storage costs.

The government purchase plan - which the state would need to approve in the next cabinet meeting - would help Maharashtra sugar mills pay dues to sugar cane farmers that have risen to more than Rs 30 billion ($470 million).

"We are planning to buy 25 percent of the sugar production of each mill. The government buying will reduce availability in the market and prices could rise," said Subhash Deshmukh, the cooperation and marketing minister for the state government.

India, the world's second-biggest sugar producer, requires mills to pay cane farmers within two weeks of harvest. Last year, the mills agreed to pay farmers 11 percent more for their cane for the 2017/18 marketing year than in the previous year.

But local sugar prices have fallen 17 percent since the start of the marketing year on Oct 1, making it difficult for the mills to make payments.

A few industry officials are sceptical about the plan, not least because of the cost to the state.

Maharashtra's sugar output is expected to double to 8 million tonnes in the 2017/18 marketing year ending on Sep. 30, according to the Western India Sugar Mills Association (WISMA).

That means the government would spend nearly Rs 64 billion - almost $1 billion - assuming it buys nearly 2 million tonnes from the mills, said WISMA President B B Thombre.

"Government intervention is required, but I don't think the state can allocate such a huge amount for sugar buying," said another industry official, who declined to be named as the government's plan has not been approved yet.

The mills have to store any sugar bought by the government in their warehouses until the state liquidates the stocks in the open market, Deshmukh said.

"The government will not pay for storage and it would be the mills' responsibility to keep the stocks in good condition," he said.

Some sugar dealers said Maharashtra's purchases could prop up sweetener prices across the country and help producers like Shree Renuka Sugars, Balrampur Chini Mills Ltd, Dwarikesh Sugar Industries and Simbhaoli Sugars.