China will start purchasing 500,000 tons of home-produced sugar for State reserves from Thursday, the National Development and Reform Commission (NDRC) said in a statement Tuesday, in an effort to stabilize sugar prices and protect the interests of 40 million farmers.
The base purchase price is set at 6,200 yuan ($980) per ton, the NDRC said, which is higher than the sugar spot price of 5,860 yuan per ton in Nanning, capital of Guangxi Zhuang Autonomous Region, the country's largest sugar production base.
This is the government's second State purchase of sugar this year.
Domestic sugar prices have dropped in the past few months, amid abundant global sugar supply, weakening demand from food manufacturers, and the fading effect of the last State purchase, analysts said.
The government purchased 500,000 tons of sugar in May, at a base purchase price of 6,550 yuan.
But the long-expected government intervention has not boosted market sentiment that much.
"The purchase of 500,000 tons will only help a small number of sugar producing companies, as the amount is small compared to China's annual output of sugar, which was 11.5 million tons between October 2011 and September 2012," Huang Guiheng, research director at Bric Global Agricultural Consultants in Beijing, told the Global Times.
Huang said domestic sugar mills are experiencing a hard time this year, as they are being squeezed by falling sugar prices and increasing production costs.
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