Domestic sugar producers are seeking a sharper hike in sugar import duty, saying the 15% duty decided on Friday might not stop overseas purchases. Although a senior executive at a refining company says the hike in the duty from the current 10%, coupled with the depreciation of the rupee, will halt imports, executives at Uttar Pradesh-based mills say the duty isn't prohibitive and the subdued price trend overseas suggests imports may continue unabated as they are still viable.

A panel of ministers, comprising agriculture minister Sharad Pawar, finance minister P Chidambaram and food minister KV Thomas, took the decision to hike the duty on Monday to discourage cheaper inflows of the sweetener from overseas and enable domestic producers to clear cane arrears at the earliest. However, the Indian Sugar Mills Association (ISMA) had sought a 40% hike in the import duties on both raw and refined sugar.

Even if global raw sugar prices rise to 17 cents a kg, each tonne of sugar processed from imported raw sweetener would cost roughly R33,000 in the domestic market for domestic refiners closer to the port, factoring in the costs of purchase, revised duty, handling, transportation and refining, said an industry executive. This means raw sugar imports are still viable as the cost of producing white sugar from local cane in Uttar Pradesh is R35,000 per tonne, said one of the executives. Moreover, imports of refined sugar from Pakistan would also continue through Wagah border to Punjab as the neighbouring country is offering subsidy on sugar exports, he added. Raw sugar prices on the ICE were ruling at 16.44 cents per lb on Friday.

As much as 5,50,000 tonne of raw sugar has landed in the country while at least 1,00,000 tonne of white sugar, of the 1,25,000 tonne contracted, has come from Pakistan through the Wagah border. A subdued trend in sugar prices in the international futures markets suggests imports may rise in the coming days while another round of hike in cane prices in 2013-14 by states like Uttar Pradesh will make it even harder for mills to cope with the soaring cost of production, they said.

Sugar mills owed farmers a record R12,500 crore for cane purchases until April 15 as cane prices remained elevated while returns from sugar sales failed to keep pace, according to latest official data. A third straight year of surplus output, ample stocks and 6,50,000 tonne of sugar imports since the marketing year started in October have dragged down wholesale prices of the sweetener while key producer Uttar Pradesh raised cane prices by up to 17% to R280 per quintal for 2012-13. The hike in the state-fixed price for 2013-14 will be decided later.

Adding to their worries, the prospect of a fourth straight year of surplus output in 2013-14 indicates domestic prices may remain subdued in the coming months if imports continue unabated. "Our sugar stocks are ample and with forecast of a good monsoon, our production in 2013-14 is expected to be good as well. So a prohibitive import duty needs to be imposed," Abinash Verma, director-general of the Indian Sugar Mills Association, had said earlier this week.