Drought to cut India's 2012/13 sugar exports

A farmer carries sugarcane from a field on the outskirts of Jammu April 9, 2012.

MUMBAI (Reuters) - India's sugar exports in the 2012-13 season are likely to fall around a million tonnes on the year to 2 million tonnes as a drought hits the crop in top producing state Maharashtra and domestic consumption rises, the Indian head of ED&F Man said.

The exports, while lower than the 3 million tonnes of the 2011-12 season to end-September, would mark the third consecutive year that India has produced more sugar than it has consumed.

India, the world's second-biggest sugar producer, can have a significant impact on world prices. It last imported sugar after the worst drought in nearly four decades in 2009-10, driving global raw sugar futures to a 30-year peak.

The current drought has come during cane planting and will affect yields, bringing down output in the world's second-largest producer in 2012-13 to 24.5 million to 25 million tonnes, Rahil Shaikh, managing director of ED&F Man Commodities India, told Reuters in an interview on Friday.

That compares with his 2011-12 estimate of 26 million tonnes.

"I think India will continue exports (in 2012-13), provided the monsoon remains normal," he said.

India's agricultural output heavily depends on the monsoon rains, which fall across the country from June to September. The Indian government on Thursday forecast monsoon rainfall in the coming season should be within average.

RAW SUGAR PREFERRED

Indian sugar mills are likely to continue producing raw sugar for export for the next season if they are confident that exports will continue, Shaikh said.

Most overseas buyers prefer raw sugar to the low quality of refined sugar that comes out of Indian mills, he added. Indian millers are geared mostly to produce white sugar for domestic consumption and rarely produce raws.

"It is easier for Indian millers to sell raws on the international market," said Rahil, who has been trading Indian sugar for nearly two decades and forecast in July 2011 that India would export 3 million tonnes in the 2011-12 year.

"There are many buyers for raws ... It is difficult to sell lower quality Indian whites quickly."

India sugar millers are likely to produce around 1.2 million tonnes of raw sugar for export in the 2011-12 year ending in September, up from just 200,000 tonnes on the previous year, encouraged by the government's export policy, he said.

India has exported around 1.55 million tonnes of the sweetener out of the 2 million tonnes the government has already licensed in the 2011-12 season, he added. That included 520,000 tonnes of raw sugar, he said.

The government agreed to allow exports of another 1 million tonnes in March, giving a total for the season of 3 million tonnes, but has yet to finalise those shipments.

The delay in agreeing on shipments has hurt India's millers as international prices for the sweetener have fallen, he said. They may struggle to sell the full volume, he added.

"Prices are higher in the local market than the international market, he said. "But still some mills will export depending on their (cash) requirements."

Sugar sales in the local market are regulated by the federal government. Every month the government allocates a quota for each mill for sales in the open market. Some Indian millers are ready to sell sugar at a lower price in the world market as they need the cash to pay arrears owed to farmers for cane.

The country is likely to have sugar stocks of 5 million tonnes when the 2012-13 season starts in October, unchanged from the current year, he said.

(Editing by Jo Winterbottom and Jane Baird)