India to consider building sugar stockpile to cut market surplus

By Mayank Bhardwaj

NEW DELHI (Reuters) - India will examine the feasibility of building government stocks of sugar to cut a surplus of sweetener in the market, the food minister said on Monday, a move that would prop up local prices and help money-losing mills pay dues to cane growers.

"Mills, farmers and sugar producing states have suggested to create buffer stocks of 3 million tonnes, or 10 percent of output, which we will consider after consulting the prime minister," Ram Vilas Paswan told a news conference.

Buffer stocks refer to government-held purchases.

Five straight years of surplus output has hammered local sugar prices, hitting mills' financial health to an extent that they now owe more than $3 billion to cane growers.

Paying off those arrears would help mitigate farmers' problems after untimely rains and hailstorms blighted their crops in most parts of northern India. Farmers have already suffered as a result of falling global commodity prices.

Although Paswan did not give details, some industry experts said the government could buy sugar from the open market and store it at its own expense.

India, where sugar output usually yo-yos, has created buffer stocks in the past to stave off a free fall in prices.

Earlier Paswan said he would propose raising the import tax on sugar to 40 percent from 25 percent as a preventive measure to protect farmers from any cheap imports and help improve price prospects.

The minister on April 8 told Reuters he would also consider an incentive for white sugar exports to trim stocks and help beleaguered mills make money.

India already gives a subsidy of 4,000 rupees ($64) a tonne for exports of raw sugar.

Output in India, the world's biggest producer behind Brazil, is estimated to rise to 26.5 million tonnes in 2014/15 from 24.4 million tonnes in the previous year.

Stocks on Oct. 1, when the next sugar season will start, are likely to touch 9.5 million tonnes, up from 7.2 million tonnes on Oct. 1, 2014, Paswan said.

(Editing by Mark Potter)