(Bloomberg) -- India, the world’s top sugar producer after Brazil, will spend 15.4 billion rupees ($231 million) this year to subsidize a part of cane payments made by mills to farmers amid falling prices of the sweetener.
India’s cabinet approved a payment of 5.5 rupees per 100 kilograms of sugar cane to the farmers in the year that began on Oct. 1, Ravi Shankar Prasad, law and information technology minister, said in New Delhi on Wednesday. The subsidy will be given directly to them on the behalf of mills, he said. The government, which sets sugar cane prices, has asked the mills to pay 255 rupees per 100 kilograms of sugar cane to farmers this year.
The government’s assistance is likely to help sugar mills that have been suffering from a 25 percent slump in local prices in the past 12 months following a bumper crop and an 11 percent increase in cane prices. The move may lessen their losses this year as they have been allocated mandatory quotas to export even if they fetch lower prices than production costs. India’s sugar output will likely climb to a record 31.5 million tons this year as timely showers helped boost yields, according to the Indian Sugar Mills Association.
“This subsidy will reduce a small part of the losses that the mills are incurring,” said Abinash Verma, director general of the association. "This can be taken as a first step toward various initiatives that the government has to take very soon to further help the industry and farmers.”
The government has permitted sugar mills to export white sugar until Sept. 30 under a plan to enable them to purchase equivalent quantities without paying import tax within two years from Oct. 1, 2019. Separately, it has asked the mills to collectively ship 2 million tons overseas under another program that allocates mandatory export quotas to mills.
"The mills will be able to export a portion of the 2 million tons before Brazil and the rest complain to the WTO," Michael McDougall, a broker for ED&F Man Capital Markets in New York, said in an email reply. "India’s sugar sector is in trouble and this will only be a band-aid, not a solution," he said referring to the government’s cane subsidy decision.
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