Sugar Price Drop May Delay Payment to Growers, Indian Mill Says

Sugar makers in India, the world’s biggest user, may face difficulty in paying cane suppliers after local prices fell below the cost of production, according to Balrampur Chini Mills Ltd., the nation’s second-biggest miller.

“Arrears will mount as most mills are losing bank financing,” Managing Director Vivek Saraogi said in an interview at his office in Kolkata yesterday. “Prices should trend upwards on an ex-mill basis because right now prices are below cost for most mills.”

Sugar prices have fallen 6 percent in India on forecasts of a gain in output for the second straight year and restrictions on exports, while prices in London climbed the highest level in 22 years early this month on concern that global supplies will lag behind demand after a storm inAustralia and drought in Russia crimped harvests.

India’s sugar consumption may total 23 million metric tons in the year ending Sept. 30, Saraogi said. That’s more than the 22.1 million tons forecast by the Indian Sugar Mills Association this week. Output may total 24.5 million tons, he said.

The country will have a surplus of about 1 million tons for exports and a delay in government approval for selling overseas is hurting farmers, Saraogi said. India in December allowed shipment of 500,000 tons and then kept the plan on hold amid rising food prices. The government will look into allowing exports, Food Minister K.V. Thomas said Feb. 23, without giving a timeline.

An index measuring wholesale prices of farm products including lentils, rice and vegetables rose 11.49 percent in the week ended Feb. 12 from a year earlier, the commerce ministry said yesterday. It gained 11.05 percent the previous week.

“Sugar is the only product with negative inflation over the last year,” Saraogi said. “Still, the government wants to dither on policy-making, which is hurting the farmers’ cause.”

Balrampur is selling at an average 28 rupees (62 cents) a kilogram and pays growers 205 rupees per 100 kilograms, he said.

The company’s shares, which have shed 25 percent this year, rose as much as 2.1 percent to 68 rupees before closing at 66.90 rupees in Mumbai. The company said Feb. 22 that its board approved a plan to buy back shares at up to 85 rupees apiece.

(Source: http://www.bloomberg.com/news/2011-02-25/sugar-price-drop-may-delay-payment-to-growers-indian-mill-says.html)