India imposes sugar stock limits, might raise sugar cane price

(Reuters) - India will impose limits on the amount of sugar that can be stocked and may raise the price millers have to pay farmers for cane by up to 50 percent to tame prices and help lift sugar production out of this year's expected slump.

After a meeting of the cabinet, Home Minister Palaniappan Chidambaram said formal notification of the stock curbs, which would initially apply for four months, would most likely take place on Tuesday.

"This is expected to help in the efforts being taken to tackle the problem of rising prices and improve availability of sugar," a government statement said.

Chidambaram said the cabinet did not discuss cane prices for the crop year to September 2010, but the farm minister, Sharad Pawar, earlier said the government was considering measures that would please farmers.

Traders expect a significant rise in the cane price, which has not been changed in the past two years, during which high production depressed sugar prices and lowered output.

India, the world's second-biggest producer and largest consumer of the sweetener, has been forced to import raws, mainly from Brazil, this year to make up for the shortfall. That has tightened global supplies.

Expectations of lower output has pushed sugar prices in the physical markets of the western state of Maharashtra, the top producer, to 2,154 rupees ($43.3) per 100 kg, up from 1,680 rupees per 100 kg six months ago.

Traders now say soaring prices due to domestic shortages will prompt the government to raise the cane floor price, which in turn should speed up a cyclical upturn in the industry.

"Cane is a concern. Farmers will get a good price. Farmers will like it," the farm minister, Sharad Pawar, told reporters on the sidelines of a conference.

Farmers make up a large constituency of voters and the government and opposition parties are gearing up for a general election due by mid May.

An official of the Indian Sugar Mills Association, an apex body of private sugar firms, said the government was considering several measures to boost output, and may raise cane prices by up to 50 percent.

In the current crop year, farmers were assured 81.18 rupees ($1.6) per 100 kg, by the federal government. However, some state governments tried to woo farmers ahead of local polls by paying more, upsetting millers and landing the issue in the courts.

Legal wrangling delayed payments to farmers and cane crushing.

The farm ministry has forecast 2008/09 sugarcane output will fall 17 percent to 290.45 million tonnes from last year.

Lower cane availability and falling yields will cut sugar output by a third to 18 million tonnes this crop year, trade estimates forecast. Excessive use of pesticides has lowered sugar yields, experts say, while the lower prices of the last two years pushed farmers into planting more lucrative crops.