* Indian decision could put pressure on global prices
* Incentive for raw output valid until March 31
* Move seen helping local mills to reduce losses
(Adds industry body chief's quote, details)
By Ratnajyoti Dutta and Nigam Prusty
NEW DELHI, Feb 12 India granted a subsidy for
raw sugar output to tackle a chronic surplus of the refined
product, in a move that is likely to boost exports of raws by
the second-biggest producer after Brazil and put downward
pressure on world prices.
By encouraging output of raw sugar over white, the 3,333
rupees ($53.52) a tonne subsidy should help cut oversupply of
refined sugar, which has piled up unsold at Indian mills after
four straight years of surplus production and unattractive
prices domestically and abroad.
The incentive is valid until March 31 and will be reviewed
for subsequent months, two senior government officials, who
declined to be named, said after a cabinet meeting on Wednesday.
Indian mills traditionally produce white sugar but a global
glut has made exports difficult. A rise in sugar refining
capacity in Asia and Africa has now given an opportunity to
The market has been expecting the announcement for several
weeks but it was delayed due to disagreement among ministers
over the extent of the subsidy for sugar mills.
Exports of raws from the South Asian nation will eat into
the share of top suppliers Brazil and Thailand.
Extra supplies could put added pressure on the benchmark raw
sugar price in New York, which fell to a 3-1/2-year low
of 14.7 cents a lb on Jan. 28 and was trading on Wednesday
around 15.5 cents a lb.
Dealers said the Indian announcement had little immediate
effect on prices as it had been expected and was already
factored into prices.
Deterred by low global prices, mills have sold only about
700,000 tonnes of raw sugar for export so far in the 2013/14
season, despite industry expectations of 4 million tonnes.
Traders said the approved incentive would contribute about
12.6 percent towards the cost of domestically produced raw sugar
which is estimated at around $426 per tonne.
The incentives should not attract the attention of the World
Trade Organisation (WTO), which allows subsidies for production
of half processed products like raw sugar but prohibits any
direct incentives for exports to finished products, a senior
government official has said.
In the past three years, cane prices - set by the government
- have risen 70 percent, while sugar prices have gone up by only
8 percent, attracting complaints from mills.
"Market sentiment should now improve as domestic sugar
prices will stop falling, helping sugar mills to reduce some of
their losses," Abinash Verma, head of the Indian Sugar Mills
Association (ISMA) said in statement.
Stocks of white sugar have piled up at mills as farmers
produced bumper cane crops, with inventory of 8.8 million tonnes
on Oct. 1, when the sugar season began. Output may be 25 million
tonnes in 2013/14 against demand of 22-23 million tonnes in the
world's biggest consumer of sugar.
India could find a buyer in Indonesia, as the United States
Department of Agriculture believes the world's biggest sugar
importer will consume 5.2 million tonnes of the sweetener in
2013/14, up about 1.3 percent year-on-year.
India is the only top producer to subsidise sugar but it is
now gradually removing props for the industry. The government
has supported sugar production because it was concerned about
shortages, which in 2009/10 forced it to buy expensive imports.
In December, the government approved a scheme of
interest-free loans to help mills pay government-set prices to
(Editing by Mayank Bhardwaj and Anthony Barker)