India sugar cane price row to delay crushing start to December.

Nov 21 Most sugar mills in India are likely to remain idle for at least the next two weeks - extending a delay to the start of crushing - after the government refused to be drawn into a price dispute.

New Delhi has also held off from announcing any measures to help its ailing sugar industry, such as a hike in import duty on raw sugar, leaving mills' profits squeezed between high domestic cane prices and cheap imports.

The dispute between mills and farmers is delaying raw sugar shipments from the world's second-biggest producer and could harden local sugar prices, in turn helping to support global levels.

Farmers are demanding a hike in the cane price to compensate for a rise in fuel and fertiliser prices while millers want to reduce prices in sync with falling sugar prices.

"At the current cane price, crushing is not viable. It means increasing losses," said an official with Bajaj Hindusthan Ltd , a leading producer that posted a net loss of 5 billion rupees ($80 million) in the September quarter.

Uttar Pradesh state, the country's biggest cane producer, on Wednesday kept the minimum cane price mills must pay to farmers at last year's level of 280 rupees per 100 kg. The official at Bajaj Hindusthan said that current sugar prices mean mills can't afford to pay more than 225 rupees for cane.

India is set to produce surplus sugar for the fourth straight marketing year, which started on Oct. 1. These surpluses have depressed local prices and crimped the ability of mills to pay farmers enough for their cane.

LOAN WOES TOO

Banks lend to mills based on white sugar prices and mills' profit margin, which has evaporated due to higher cane prices. Banks are not prepared to provide loans if cane prices stay high, said Abinash Verma, director general of the Indian Sugar Mills Association.

While the federal government has said it is considering measures to help the industry, Farm Minister Sharad Pawar said on Wednesday the cabinet will only take a final decision in 8-10 days.

"Mills are putting pressure on the government to give financial support. Once the government announces relief measures, mills will start crushing some time in the first week of December," said a Mumbai-based dealer with an overseas trading house.

"This delay can ultimately push back raw sugar shipments by two to three weeks in some cases," the dealer said, adding that buyers were accepting the delay.

Some sugar mills in Maharashtra have started crushing and producing raw sugar instead of white to fulfil export obligations.

"Mills that have started operations are producing raw sugar as it can be quickly sold to exporters. Mills need money to make cane payments," said Kamal Jain, a Pune-based broker.

Indian sugar dealers have signed contracts to export nearly 500,000 tonnes of raw sugar between December to February.

The delay in crushing, however, is unlikely to dent the country's ample sugar production.

"Even if some farmers divert cane for jaggery production due to the crushing delay, that loss would be compensated by a higher recovery rate," said Ashwini Bansod, a senior analyst at Phillip Commodities India Pvt Ltd.

Jaggery is a coarse, dark sweetener. The sugar recovery rate is higher during December to March than in October-November as the temperature drops. ($1 = 62.5450 Indian rupees) (Reporting by Rajendra Jadhav; Editing by Jo Winterbottom/Ruth Pitchford)

Source : reuters.com