New Delhi: After exports scaled a four-year high in the year through September, refiners are exploring new opportunities to buy raw sugar from overseas as the government mulls scrapping a tax on imported raw sugar, senior trade and industry executives said on Friday.
Mills and cooperatives in Maharashtra, the country's biggest producer, could gain as much as 13% if they import raw sugar at zero duty and sell it in the domestic market after refining it, without having to rely on local cane supplies, they said.
At Friday's price, the cost of Brazilian sugar at Mumbai port would be around R27,229 per tonne, including a landing charge of 1%.
After factoring in transportation, refining and other charges, the cost of white sugar production from the imported raw would be to the tune of R31,000 per tonne, compared to the current mill-gate price of R35,000 a tonne, the executives said. If the rupee appreciates further from the current level of 53.92 against the dollar, the returns would be even more.
“Until now, purchases from Brazil are not that lucrative despite the fall in prices this year, mainly due to the import duty. But if the 10% import duty and the additional duty of 4% on raw sugar are abolished, refiners would like to import in large volumes," said a senior trade executive, who didn't want to be named.
US raw sugar futures crashed 27% in 2011, the first annual fall in four years, and the prices have tumbled further by 15% so far in 2012 to 19.87 cents per pound. In comparison, sugar prices in India, the world's top consumer, started firming up, mainly since June, on fears that poor rains would hurt cane yield.
Wholesale prices have since risen by around 15% after remaining subdued for around a year on good stocks. Although good rainfall since August somewhat allayed apprehension of a drastic fall in sugar output and prevented any sharp upward spiral in the prices of the sweetener, imports are still lucrative if the government scraps the duty.
Food minister KV Thomas on Thursday said the government was considering imposing a 20% duty on refined sugar imports while scrapping a 10% tax on purchases of the raw sweetener from overseas. The aim is to promote domestic refiners while discouraging inflows of cheaper white sugar. Currently, the government levies a 10% import duty on refined sugar. The proposals would be placed before the Cabinet Committee on Economic Affairs in the next 10-15 days, he said.
However, senior industry executives apprehend raw sugar imports in large volumes would be counter-productive in the long run, as the country already has adequate sugar supplies. Since sugar sales in the open market are tightly regulated, cheaper dumping of the sweetener from abroad may hurt the ability of cash-strapped sugar manufacturers to pay farmers for their cane supplies.
"Since there is enough sugar in the domestic market, imports in large volumes would create a bigger surplus in 2012-13. Sugar companies would not be in a position to pay more to farmers, who could then be discouraged to plant the crop in 2013-14, affecting output," said Abinash Verma, director general of the Indian Sugar Mills Association.
The government and industry bodies expect sugar output to be in the range of 23 million to 24.5 million tonnes, compared with 26.2 million tonnes a year before. However, Thomas said domestic supplies won't be a problem, as the output would still cross the annual consumption of around 22 million tonnes, and the country also has carry-forward stocks of six million tonnes from 2011-12. The country had exported around 3.3 million tonnes of sugar in 2011-12, the highest since 2007-08.