Govt to raise sugarcane price by 33%

Written by Reuters | New Delhi | Updated: Jun 26 2009, 06:02am hrs
The Centre on Thursday agreed to raise the minimum price that mills must pay farmers for sugarcane by a third to a record high, aiming to expand planting producer and trim record high imports.

The government will increase the price to Rs 107.76 per 100 kg in the new season from October, versus Rs 81.18 per 100 kg in 2008-09, cabinet spokesman and home minister P Chidambaram said. It was at the high end of the market's expections.

But US sugar futures dipped just 0.4% on Thursday after rising over 40% this year, as some traders feared the move was too late to increase cane planting that is almost complete in most regions and fretted over a lower-than-expected monsoon that could also curtail crops.

The price is higher than what we had recommended. The production of sugarcane should definitely go up compared to last year. But by how much That can only be guesswork now because the monsoon's progress is very, very uncertain, said SL Jain, director general, Indian Sugar Mills Association.

India is the world's biggest sugar consumer, its second-biggest producer and normally a net exporter, but it was forced into record imports this year after a freeze on domestic prices discouraged farmers from growing cane, causing output to halve as they shifted to more lucrative rice or wheat.

ICE sugar futures, which have surged this year as India's unexpected demand tighted the market, hit a three-year high on Wednesday after the government said this year's monsoon rains would deliver only 93% of the long-term average, coming in below normal for the first time in four years.

The decision comes at the tail end of the planting season and should encourage more farmers to plant sugarcane instead of other crops, but some analysts opined it may already be too late.

This delayed decision won't improve supply in the next cane year as sowing of cane in India has almost been completed, said Ajeet Kumar, research analyst with SMC Indiaonline.