Indian cane farmers owed $2.8 billion as sugar prices fall - trade body

By Rajendra Jadhav

MUMBAI (Reuters) - India's cane farmers are owed 200 billion rupees ($2.8 billion) by sugar mills in the world's second-biggest producer of the sweetener as refined sugar prices have fallen below the cost of production, a leading trade body said on Monday.

Farmers in key cane-growing states are protesting the delay in cane payments from the mills, and that may force the government to provide more incentives to the ailing industry ahead of general elections due by May.

India, also the world's biggest consumer of sugar, has been trying to encourage its cash-strapped mills to export their excess refined product, but shipments have lagged because of a decline in global prices, putting even more pressure on the South Asian country's domestic market.

"Ex-mill sugar prices across the country are ... in the range of 29 to 30 rupees per kg, which is about 5 to 6 rupees below the cost of production," Indian Sugar Mills Association (ISMA) said in a statement on Monday.

Mills cannot pay farmers for their cane promptly unless sugar prices recover, the association said.

In July, India raised the mandatory cane price that mills must pay farmers by 8 percent for the 2018/19 marketing year that started on Oct. 1, but in recent months refined sugar prices have declined due to ample stockpiles still left from last year's record harvest.

The minimum selling price (MSP) for sugar needs to be raised from 29 rupees per kg to 35 to 36 rupees to ensure mills recover their costs, the ISMA said.

Mills have produced 18.52 million tonnes of sugar so far in the current marketing year, up more than 8 percent from a year earlier, it said.

The country is likely to produce 30.7 million tonnes of sugar in the current year, down from 32.5 million tonnes 2017/2018, due to lower cane yields and diversion of cane for ethanol production, ISMA said.

India's sugar demand is pegged at about 26 million tonnes, and the government has set an export target of 5 million tonnes and provided incentives for overseas sales.

But "sugar exports are also not happening at the desired pace. Several sugar mills are either not voluntarily willing to export sugar against their allocated export quotas or do not find it viable ... to do so," the trade body said.

The lower shipments from India could help support global prices that fell more than 20 percent in 2018.

Fewer exports could also increase Indian stockpiles ahead of the next marketing season.

($1 = 71.6700 Indian rupees)

(Reporting by Rajendra Jadhav; Editing by Tom Hogue)