New Delhi, 11 March 2011

India is likely to produce 25 million tonnes of sugar in the new season that began in Oct. 1, a producers' body said this week, slightly lowering its previous forecast as unseasonal rains trimmed cane yields in a key state.

The Indian Sugar Mills Association (ISMA) had earlier estimated 2010/11 output at 25.5 million tonnes.

The government currently estimates 2010/11 output at 24.5 million tonnes -- up from 18.8 million tonnes in 2009/10 when India was hit by the worst drought since 1972.

"We are sticking to our earlier estimate of 9.4 million for Maharashtra; while in Uttar Pradesh, production would be slightly lower at 6.4 million tonnes against the previous forecast of 7 million tonnes," ISMA President Narendra Murkumbi said.

The trade body has slightly lowered its consumption forecast to 22 million tonnes from 22.5 million tonnes estimated in June.

The western state of Maharashtra and northern Uttar Pradesh are the top two sugar producers in the country, which is the world's biggest consumer of the sweetener and the number 2 producer after Brazil.

The trimmed forecast could prompt New Delhi to delay or deny approval for unrestricted exports, as the federal government tries to balance its battle to contain double-digit food inflation with industry's desire to take advantage of high international prices.

The country has flip-flopped on these exports. In December, a minister said mills could export 500,000 tonnes of sugar under Open General Licence (OGL). But the government, bowing to public pressure over food prices, has referred the issue to a panel of ministers.

The delay in supplies from India may bolster New York raw sugar futures which rose to their highest level in three decades last week after a massive cyclone hit Australia, one of world's top exporters, deepening concerns about global supplies.

"India can easily export 1 million tonnes under OGL. The government must immediately allow 500,000 pending exports," Murkumbi said, echoing a call from his director general Avinash Verma earlier this month.

Last week, an industry body in Maharashtra cut its output forecast for the country to 24 million tonnes.

Though prices in international markets are hitting multi-year high, in India, they have dipped due to an estimate of surplus output and government restrictions on the trade.

The falling price was worrying for the industry and will lead to cane arrears as they were already hitting the cash flow of mills, Murkumbi said.

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