Import duty hike to support near term domestic sugar prices: ICRA

India Infoline News Service | Mumbai | July 13, 2017 16:13 IST

The Central Government has recently increased the import duty on sugar from 40% to 50% following the recent decline in the global sugar prices and improved outlook for domestic sugar production for the coming sugar season SY2018.

The Central Government has recently increased the import duty on sugar from 40% to 50% following the recent decline in the global sugar prices and improved outlook for domestic sugar production for the coming sugar season SY2018. In ICRA’s view, this move is likely to support the domestic sugar prices in the near term. Global sugar prices have largely followed expectations on global supplies. The lower sugar import demand from India, coupled with an expectation of a global surplus in 2017/18 on account of increased production from Brazil and India, has resulted in a decline in the global sugar prices from around USD 540-USD 550/MT in January-February 2017 to USD 510/MT in March 2017 and further down to USD 445/MT in May 2017..
 
Says Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, “the recent hike in the import duty to 50% is a positive for the industry which is likely to support the domestic prices in the near term. This in turn will help sugar mills clear cane arrears to farmers. It may be noted that given the recent increase in the fair and remunerative (FRP) cane price for the coming season, a significant fall in domestic sugar prices, was a possibility had further imports (in addition to the recent 0.5 million MT duty free imports) been  allowed, same could have adversely impacted the margins and the liquidity of sugar mills.”
 
Earlier, in April, 2017, the Central Government had allowed duty free raw sugar imports of 0.5 million MT till June 12, 2017 with an aim to check the rise in domestic sugar prices by maintaining adequate domestic sugar supplies. This move has had a limited impact on sugar prices, which continued to remain firm on account of the tight stock situation in the domestic market.
 
As for sugar production in the country, it is set to increase by 16% - 20% in SY2018, to around 23.5 million MT to 24.5 million MT. This growth will be driven largely by the increase in sugar production in Maharashtra and Uttar Pradesh. The closing stocks for SY2018 are likely to be around 4.0 - 4.5 million MT, which would be sufficient before the production of the following season comes into the market, limiting the need for sugar imports into the country.

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