India’s cheap imports upset sugar balance
• Foreign cane risks squeezing local growers and mills
India, the world’s biggest sugar consumer, could soon ramp up imports of the sweetener as a sharp drop in global prices and a stronger rupee make overseas purchases viable despite stiff tariffs, industry players say.
Rising demand from India, which typically churns out its own sugar to use in everything from fizzy drinks to snacks, could support benchmark global prices that have been trading near 16-month lows. However, it would put pressure on Indian prices, potentially making it difficult for sugar-processing mills to pay farmers the rates stipulated by the government.
At prevailing international prices, “refiners can import sugar for domestic consumption and make a profit”, said Rohit Pawar, CEO of Baramati Agro, which operates sugar mills in the state of Maharashtra.
Dealers estimate the cost of sweetener produced from raw sugar shipped in from abroad, including the 40% import duty, is 32,000 rupees ($496) per tonne, about 8% cheaper than local sugar at 34,600 rupees.
A stronger rupee also makes the dollar-denominated price tag on overseas cargoes more affordable for Indian mills. The rupee has risen more than 5% against the dollar in 2017.
That comes after the government in April allowed the dutyfree import of 500,000 tonnes of sugar by the end of June to keep a lid on prices after local production fell by a fifth from a year ago.
Nearly 60,000 tonnes of that had yet to land in the country and the government was likely to extend the duty-free import period by up to two months, said a government official, who declined to be named.
“Right now refiners are processing
duty-free imports. From the next month, they could start importing [duty-paid] sugar for local consumption,” said a sugar
miller based at Kolhapur in Maharashtra. He did not want to be identified.
Traders said predicting the
scale of potential imports was tricky. “It is difficult to estimate how much Indian refiners will import ... [while] paying tax,” said
a New Delhi-based dealer with a global trading firm.
“The market has not anticipated additional imports. Once imports start, local prices could crash and could make larger imports unviable.”
Local sugar prices have already fallen to their lowest level in three months in the wake of the duty-free imports and because of a cooler summer than usual, which curbed appetite for cold treats such as ice cream.
“There is a need to raise import duty on sugar to 70%. Otherwise imports will pull down prices further and make it impossible for mills to pay the government’s fixed cane price,” said Baramati Agro’s Pawar.
India has increased by nearly 11% the price sugar mills must pay cane growers in the next season, beginning in October.
The government official said that there was no immediate plan to raise import duties on sugar and wheat.
“Mills cannot pay higher prices for cane unless they manage to sell sugar at higher prices,” said Sanjeev Babar, MD of the Maharashtra State Co-operative Sugar Factories Federation. “There is a need to stop imports as next season we will be self-sufficient in sugar production,” he said.
India’s 2017-18 sugar output is expected to jump a quarter from the previous year to 25million tonnes.