India may raise cane price to boost sugar output

NEW DELHI (Reuters) - India may raise the price mills must pay farmers for sugarcane by up to 50 percent for the crop year to September 2010 to drag sugar production out of this year's expected slump, government and trade officials said.

Traders see 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 sweetner, has been forced to import raws, mainly from Brazil, this year to make up for the shortfall. That has tightened global supplies.

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.

The cabinet is expected to take a decision on the floor price, a key consideration for farmers when choosing which crop to plant, but it was not clear when an announcement would be made.

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.

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 per 100 kg, up from 1,680 rupees per 100 kg six months ago.