Sugar MSP hiked by 6.9%; sweetener companies’ share rally

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Updated: February 15, 2019 11:26:07 AM

The factory-gate selling price for millers was raised to 31 rupees (44 cents) per kilogram from 29 rupees at present, according to a government notification on Thursday.

A rise in the state-controlled price may prompt millers to sell more locally and reduce exports.

India, which vies with Brazil as the top sugar producer, increased the minimum selling price of the sweetener by 6.9 per cent to help mills pay farmers on time. Shares of sugar mills jumped.

The factory-gate selling price for millers was raised to 31 rupees (44 cents) per kilogram from 29 rupees at present, according to a government notification on Thursday. The benchmark price is effective immediately, Food Minister Ram Vilas Paswan said at a press conference in New Delhi.

A rise in the state-controlled price may prompt millers to sell more locally and reduce exports, supporting the global market. Sugar stockpiles in India, where production is set to exceed local demand for a second year, almost doubled to 15.4 million metric tons as of Dec. 31 from a year earlier following bumper output, according to the Indian Sugar Mills Association data.

The move is also expected to help millers, who are under pressure to clear dues to cane growers. Mills owed 201.7 billion rupees to farmers as of Feb. 13, Paswan said.

Timely payments will encourage farmers to expand the area under sugarcane and prevent them from switching to other crops.

Shares of sugar mills jumped on Friday, with Bajaj Hindusthan Sugar Ltd. climbing as much as 4.5 per cent, Balrampur Chini Mills Ltd. increasing as much as 4 per cent and Shree Renuka Sugars Ltd. gaining 4.4 per cent.

“There is a concern and fear among the export houses that there can be some defaults of deals by sugar mills because of an expected increase in minimum selling price,” Praful Vithalani, chairman of the All India Sugar Trade Association, said before the announcement. It will be “difficult for India to export” an estimated 3-3.5 million tons in the year ending Sept. 30, he said.

The sugar association had asked the government to increase the minimum sale price to 35-36 rupees a kilogram. India’s sugar production is likely to drop to 30.7 million tons this year from an all-time high of about 32.5 million tons estimated for 2017-18, according to the sugar group. Sugar export contracts for this season total 1.8 million tons so far, said Vithalani.

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