Sugar millers in India are urging the government to increase the benchmark price of the commodity to help them pay off about $2.7 billion they owe to farmers, according to a person familiar with the matter.

 

The Indian Sugar Mills Association sent a letter to the government asking for the minimum selling price to be raised to 35-36 rupees ($0.49-$0.51) a kilogram at factory gates from 29 rupees currently, said the person, who asked not to be identified as the information isn’t public yet. That will help mills improve their cash flow, the person said. Abinash Verma, director general of the association, couldn’t be reached immediately for a comment.

 

 

Sugar stockpiles in India, which is set to become the world’s biggest producer, almost doubled to 15.4 million tons as of Dec. 31 from a year earlier following bumper output, according to ISMA data. Higher local prices will prompt millers to sell more in the domestic market and potentially reduce exports, supporting global prices. The mills are also under pressure as cane growers seeking one-time payments from the processors held violent protests earlier this month as anger at the arrears grew.

 

Indian mills owed about 190 billion rupees to farmers as of Dec. 31. The dues may climb to as much as 350 billion rupees if their cash flow doesn’t improve, the person said.

 

The Struggle

Millers have been struggling to clear pending payments as their cost of production is higher than the government-set selling price, according to the letter seen by Bloomberg. An increase in the benchmark price will not only improve millers’ revenues but also boost the value of their stockpiles, which in turn may prompt banks to increase lending to sugar mills and increase cash flows by 200 billion rupees in the next three months, the letter said.

 

On exports, the government should penalize mills if they don’t export sugar as per the government-set quota, according to the letter. The country’s sugar shipments may total 3-3.5 million tons in 2018-19, according to the millers’ group, smaller than a government quota for 5 million tons.

 

Millers have contracted to ship about 1.4 million tons of sugar so far in 2018-19 to countries including Bangladesh and the Middle East region, according to Adhir Jha, managing director and chief executive officer of Indian Sugar Exim Corp.