India could soon boost exports of raw sugar at the expense of top suppliers Brazil and Thailand as the government looks likely to give cash-strapped mills financial help for production so they can pay farmers. 

India’s 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 the country an opportunity to export raws. But higher supplies of raw sugar from India, the world’s biggest consumer and second-largest producer of the sweetener, will put further pressure on global prices, which are currently hovering at a 3-1/2-year low. 

Now, trade and government officials say New Delhi could announce tax breaks for mills as early as this week. “Mills can offer discounts and seal export deals if the government provides them some kind of financial support for raw sugar production,” said Kamal Jain, managing director of Pune-based brokerage Kamal Jain Trading Services. 

Subsidies for exports could attract the attention of the World Trade Organization (WTO) but government officials maintain that any incentives on production would not violate WTO rules. High production costs for refined, or white, sugar because of government-set prices for cane squeeze companies if they export at big discounts. Stocks, meanwhile, are piling up in warehouses at mills as farmers have produced bumper cane crops. 

In October, stocks totalled 8.8 million tonne and this season, which runs to September 30, 2014, should see a fourth straight year of surplus production – and falling local prices. This month, in a tortuous spiral of subsidies, the government agreed to give mills interest-free loans to help pay government-set prices to cane growers. With tax breaks, mills would produce raw sugar, cutting their white sugar output and reducing stockpiles. “Exports are unviable,” said a Mumbai-based dealer with an international brokerage.