Sugar mills may increase domestic sales to cool prices

India, the world’s second-biggest sugar producer, may ask mills to increase domestic sales as it seeks to cool prices that have climbed to a three-year high amid declining production.

Sales in the quarter ending June may exceed the 5 million metric tonne quota set for the three months ending March, said a government official, who didn’t want to be identified. Mills sold 4.4 million tonnes in the April-June period last year.

While sugar producers can sell 90 percent of their output at market rates, the government fixes the quantity and time of the sale every month. Mills must sell 10 percent to the government at below-market prices for resale to the poor.

Sugar prices at Vashi, a Mumbai suburb and India’s biggest market for the commodity, have risen 39 percent in the past year on forecasts of lower production. Prime Minister Manmohan Singh’s government, seeking re-election, last week imposed limits on the amount of sugar traders can hold in 30 days. The curbs, aimed at cooling prices, will stay for four months.

India’s benchmark wholesale-price index has slowed to the lowest in more than six years. Still, food inflation is not easing as rapidly, the finance minister’s top economist Arvind Virmani said earlier this month.

Rising food costs can mar poll prospects in a country where more than half the people survive on less than $2 a day. In 1998, the Bharatiya Janata Party lost power in the capital New Delhi when a shortage of onions sent prices soaring.

India’s sugar output may not exceed 15.5 million tons, down from 16 million tons estimated in February, because of smaller harvests in the main growing areas and shifting of cane to make gur, a traditional unrefined sugar, S L Jain, director general of the Indian Sugar Mills Association said in an interview today.

Production was 26.4 million tonnes last year.

The government allowed producers duty-free purchases of raw sugar abroad for processing and sale locally provided they export a similar quantity of white sugar at a later date. The benefit may be extended to imports of white sugar if prices rise further, the government official said today.

Mills may import 1.5 million tons of raw sugar, unchanged from an earlier forecast, to fill a gap in output, Jain said. That compares with 2 million tonnes estimated by Agriculture Minister Sharad Pawar. Mills have already contracted about 770,000 tonnes, Jain said.