India will soon scrap an order that requires sugar mills to export excess supply after back-to-back droughts look set to turn the country into a net importer by October, two government officials said on Monday.
Late last year, the government asked mills to export as much as 3.2 million tonnes to deal with what was then a glut that dragged prices down and put mills under financial pressure.
To support the scheme and relieve that pressure, New Delhi agreed to pay farmers 45 rupees for every tonne of sugar cane they produced, representing about two percent of the costs incurred by mills.
When the compulsory export order is revoked, those direct payments would also cease, said the officials, who spoke on condition of anonymity because the decision has not been formally announced yet.
“We’ll soon take the order back, because we no longer need to export,” said one of the officials. “That was aimed at bringing our stock levels down to support prices that had nosedived.”
When asked about the timing of the move, the second official added: “It may take a few weeks”.
The officials said the decision to stop paying farmers under the scheme was made easier by the fact that the cane crushing season was coming to and end, and higher local sugar prices meant mills would have more money available to pay them.
Out of the 3.2 million tonne export target, mills had sold around 1.5 million tonnes on to world markets.
Without the production subsidy, Indian mills are expected to struggle to export profitably, potentially boosting global sugar prices and allowing rival suppliers like Brazil, Thailand and Pakistan to increase their shipments.
Indian domestic sugar prices have jumped 40 percent since the current season began on Oct. 1, 2015, partly in anticipation of a drop of more than 14 percent in sugar output for the season beginning October 2016.
As a result, stocks on Oct. 1, 2016, when the new season begins, are forecast to touch a five-year low of 7.3 million tonnes, down about 19 % year-on-year.
However, some experts question India’s sudden swing into deficit from a surplus late in 2015, when mills and the government were discussing ways to trim high stocks and boost local prices.