Global Meeting To Push For Sugar Reforms.

NEW DELHI: Reform of India's tightly controlled sugar sector will top the agenda of an international conference kicking off on September 5, as traders and analysts call for changes to allow the country to become a regular exporter, competing with top producer Brazil.

The New Delhi government, keen to ensure cheap availability of the sweetener and to restrain high food inflation, currently sets the price mills must pay to farmers and buys 20 per cent of their output at a big discount for its welfare schemes.

It also decides how much sugar will be sold in the open market and at times imposes limits on stocks that large buyers can hold -- all measures which some industry players say forces India into a damaging cycle of boom and shortage.

"The main focus of the conference will be to add momentum to the call for lifting restrictions on India's sugar sector. There is a window of opportunity now to throw the shackles off the Indian industry and allow it to compete freely in the global market," said Jonathan Kingsman, head of Lausanne-based Kingsman SA consultancy, which organises the conference.

Kingsman will also lower his forecast for the likely global surplus in 2011/12 from May's 10.575 million tonnes on September 5 because of a reduction in his estimates for Brazil's output.

He said India, the world's top sugar consumer and second-biggest producer, needs to take advantage of higher output prospects currently, which allay fears of any spike in local prices, to lift the government curbs now.

That should enable the country to stabilise output and emerge as a regular, if small, exporter in a global market currently dominated by Brazil and Thailand.

India banned unregulated sugar exports in 2009 during a drought and has just allowed 1.5 million tonnes of Open General Licence (OGL) sales for 2010/11.

The conference runs from September 5 to September 7 and speakers include Plinio Nastari, chief executive of Datagro Brazil, Manoel Vicente Bertone, secretary at Brazil's Ministry of Agriculture, and Cyrus Raja, general manager of Al Khaleej Sugar Company.

India's domestic spot sugar prices eased 1 per cent in the last month, outstripped by a rise of around 2.45 per cent in benchmark New York prices.

Many experts say higher minimum cane prices set by the government raise cultivation and therefore sugar output, reducing retail prices of the sweetener. With falling sugar prices, mills delay payments to farmers.

Farmers in turn, to protect their income, shift to other crops in future years, leading to scarcity -- and high prices.

"The only way to break this cycle is to deregulate the sector. It makes sense to do away with the curbs when your production is on a higher trajectory. It cannot be better timed. We are going to discuss all that," said Yatin Wadhwana, managing director of Sucden India, a speaker at the conference.

India is expected to produce 26 million tonnes of sugar in the season from October 2011, up 7.4 per cent year-on-year, said Abinash Verma, director-general of the Indian Sugar Mills Association, a producers' body.

Indians, famed for having a sweet tooth, consume around 23 million tonnes of sugar annually, so there is usually a surplus.

This year, mills have called repeatedly for exports to be allowed, anxious not to miss out on high global prices as China turned to Brazil to fill a supply gap caused by drought.

Kingsman thinks China's imports in 2012 will be 2.45 million tonnes, up from 2.325 million tonnes this year. A Reuters poll suggests China's sugar imports in the crop year to September 2012 could be 2.475 million tonnes.

India has put off reform of its sugar industry for decades, seeing it as strategic for providing a ready source of food energy for its half a billion poor and a way to woo cane farmers -- a major vote bank in key producing states like Uttar Pradesh.

Since 2005/06, the federal government has raised the floor price for cane 82.4 per cent to 145 rupees per 100 kg. But state governments often force mills to pay a premium over the federal government's floor price.

In 2010/11, Uttar Pradesh, the biggest cane grower, ensured that mills pay cane growers 205-210 rupees per 100 kg, compared with 139.12 rupees per 100 kg fixed by the federal government.

Some analysts and industry experts say free market price discovery would be more efficient in bringing stability to production and reducing global price volatility.

"India represents a big swing factor in the global sugar market -- swinging from huge deficit to large surplus from one season to the next," said James Kirkup, head of sugar brokerage at ABN AMRO Markets (UK) Ltd in London.

After exporting close to five million tonnes of sugar in 2007/08, India suffered an acute shortage the following year and had to import 4.3 million tonnes, hoisting benchmark New York prices to a 30-year high of $30.10 per lb.

Stabilising output through reform of the domestic sector should help India at least double OGL exports in 2011/12, Verma and Kingsman said higher sugar output will help India at least double its unrestricted exports.

"With the rise in the cost of production in Brazil, India can now have a bigger slice of the global market. Sugar from India, particularly from Maharashtra and Karnataka, is globally competitive," Kingsman said.

India's exports will still be small in comparison with Brazil and Thailand which between them sell around 32 million tonnes overseas.

Source : economictimes.indiatimes.com