Raw sugar export subsidy ruled out for now, focus on white exports

Indian raw sugar export subsidies will not be renewed before state elections finish next month and mills are focused instead on exporting white sugar, trade and government sources said.

India has been pushing mills to sell sugar on the international market and use the proceeds to clear huge debts they owe farmers for sugarcane.

The world's number two producer announced new rules last month making it compulsory for sugar producers to increase exports to at least 4 million tonne in the present crushing season to cut stockpiles.

The raw sugar market has been on tenterhooks for any sign India might renew export subsidies, which expired on Sept 30, as they would potentially boost global supplies and cap a rally in prices last week to a 7-1/2-month high.

"The government can't take any decision until Bihar elections are wrapped up next month due to an election code of conduct," said an Indian government official.

The official, who declined to be named, was referring to elections in Bihar, India's third most populous state, that are seen as a key test of Prime Minister Narendra Modi's popularity. The election process is expected to be finished by mid-November.

Under the code of conduct, the government cannot announce policies during the vote that might be seen as appeasing voters.

Raw sugar futures surged to 14.43 cents a pound on Friday, the highest since February, but remained well short of the 17 cents a pound level considered by many traders as a likely trigger for raw sugar export offers from Indian mills.

"Until we have clarity on the export subsidy, we will not produce raw sugar," said Balasaheb Patil, chairman of Sahyadri co-operative sugar factory in Maharashtra.

A Mumbai-based dealer with a global trading firm said: "Even after the rally in raw sugar there is no parity (incentive) for mills. Still their production cost is higher."

"Without subsidy, mills will try to export whites, not raw sugar," the dealer said.

A few mills have contracted to export 12,000 tonnes of white sugar for October shipment at about $410 per tonne free-on-board (FOB) as they need money to start crushing in the new season that started on Oct. 1, Indian trade sources said.

European traders said Indian white sugar was competing against Brazilian and Thai supplies in Asian markets.

Claudiu Covrig, senior agriculture analyst at data provider Platts, said Indian raw sugar would become competitive in the Middle East and Africa if authorities introduced a subsidy greater than 5,000 rupees per tonne.

The previous subsidy of Rs 4,000 per tonne expired on Sept. 30.

"So this year they will need higher support than last year to be competitive as Brazil really is the most competitive producer in the world," Covrig said.