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Sugar millers in India are urging the government to increase the benchmark price of the commodity to help them pay off about $2.7 billion they owe to farmers, according to a person familiar with the matter.
The Indian Sugar Mills Association sent a letter to the government asking for the minimum selling price to be raised to ₹35-36 ($0.49-$0.51) a kilogram at factory gates from ₹29 currently, said the person, who asked not to be identified as the information isn’t public yet. That will help mills improve their cash flow, the person said. Abinash Verma, director general of the association, couldn’t be reached immediately for a comment.
Sugar stockpiles in India, which is set to become the world’s biggest producer, almost doubled to 15.4 million tonnes as of December 31 from a year earlier following bumper output, according to ISMA data.
Higher local prices will prompt millers to sell more in the domestic market and potentially reduce exports, supporting global prices. The mills are also under pressure as cane growers seeking one-time payments from the processors held violent protests earlier this month as anger at the arrears grew.
The mills owed about ₹190 billionto farmers as of December 31. The dues may soar to ₹350 billion if their cash flow doesn’t improve, the person said.
The struggle
Millers have been struggling to clear pending payments as their cost of production is higher than the government-set selling price, according to the letter seen by Bloomberg.
An increase in the benchmark price will not only improve millers’ revenues but also boost the value of their stockpiles, which, in turn, may prompt banks to increase lending to sugar mills and increase cash flows by ₹200 billion in the next three months, the letter said.
On exports, the government should penalise mills if they don’t export sugar as per the government-set quota, according to the letter.
The country’s sugar shipments may total 3-3.5 million tonnes in 2018-19, according to the millers’ group, smaller than a government quota for 5 million tonnes.
Millers have contracted to ship about 1.4 million tonnes of sugar so far in 2018-19, including to Bangladesh and the Middle East region, according to Adhir Jha, MD and CEO of Indian Sugar Exim Corp.
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