Drop in global raw sugar price makes imports viable even at 40% duty

Mills seek hike in duty with likely robust domestic production and with retail prices under control

Sugar prices in the domestic market remain subdued with the government allowing duty-free imports of up to 500,000 tonnes of raw sugar by refineries and mills. Another reason for the suppression is that the global price of raw sugar has fallen sharply, making imports viable even at 40 per cent duty.

However, while traders will not have to pay duty on imported sugar that arrives in the current month, they may have to pay 5 per cent IGST for stocks arriving in July.

A trade representative says that under the current market situation, it is doubtful that the entire 500,000-tonne quota of duty-free raw sugar will the exhausted. The wholesale market has seen a one-rupee-per-kg moderation in domestic prices after the quota was announced, despite closure of crushing season. This is because supply from the mills has increased, according to the trade representative.

In the international market, the benchmark sugar no. 11 contract price shed 30 per cent in little less than four months and was trading at 14.1 cent per pound. A few days back, it was trading below the 14 cent level. If prices remain low, imports would make their way to India even after a duty of 40 per cent is applied. The duty is likly to be applied as domestic production is estimated to rise by 25 per cent to about 25 million tonnes in sugar season 2017-18 (Oct-Sept), from 20.3 million tonnes the last season, said an industry executive.

T Sarita Reddy, president, Indian Sugar Mills Association (Isma), said: “We have represented that the import duty be raised to 60 per cent. With a 11 per cent increase in the (Centre's recommended) Fair and Remunerative Price (the floor set by it) for sugarcane, even 18-19 mt production can be a bumper one. And, if the imported sugar arrives, farmers will find it difficult to receive payment for sugarcane.”

This isn't only issue that impacts both, the sugar industry and the farmers. Another problem area is the 18 per cent GST fixed on the by-product ethanol, which is used as a green fuel for blending with petrol. Thi sis because the price of ethanol was cut last year from Rs 48 a liter to Rs 39 and with 18 per cent GST it is unviable for sugar mills to sell it to oil marketing companies. ISMA has urged the PMO to cut GST on ethanol to 5 per cent.

Since the price of sugarcane, the raw material, will go up by 11 per cent following an increase in FRP, ISMA has proposed a hike in ethanol prices sold to OMCs for blending with petrol.