July 9, 2013
NEW DELHI—India on Tuesday raised its import tax on sugar to 15% from 10% with immediate effect, aiming to stem a recent flood of cheap imports because of low global prices.
Global sugar prices are close to three-year lows as a result of production exceeding demand for the past three years and the prospect of another big surplus in 2013-2014. Sugar refiners in India, the world's second-largest producer and biggest consumer, have seen both their domestic and overseas sales hit by an inability to compete at these levels as they need to pay high government-set prices to sugar-cane farmers.
India imported about 700,000 metric tons of sugar so far in the marketing year that started in October 2012, according to the Indian Sugar Mills Association, the country's first imports in two years.
Domestic sugar prices are currently around 32,000 rupees ($524.50) per ton, or 17 cents a pound, while benchmark ICE sugar prices in New York are near 16 cents a pound. New York prices are now less than half of the levels seen in February 2011.
"Imports will stop at these prices," said Gautam Goel, managing director of Dhampur Sugar Mills Ltd., a large north India-based sugar mill, referring to the impact of the new tax. India's high stock levels mean there is no need to take foreign sugar, he added.
He and other industry executives say they are unable to sell down their abundant stocks at reduced prices, as they have to buy cane from growers at high state-fixed prices. The government raised the price of cane by 17% for the current marketing year to 1,700 rupees per ton, and it has announced a further 24% increase for the next marketing year.
Even so, some Indian mills have started selling at below-cost to compete with imports from countries such as Thailand and Brazil.
India is expected to produce 25 million tons of sugar in the current marketing year, three million tons more than forecast domestic consumption.
The Indian Sugar Mills Association, an industry body, wants the import tax on sugar raised even higher. It would need to be between 30% and 40% to completely halt imports, the association said in a news release.
There is a need to protect the Indian farmer and industry from cheap Brazilian imports because the cane price paid to farmers in Brazil is almost half of that paid to the Indian farmers, the association said.
The tax increase will improve sales by domestic millers and help them pay arrears to cane growers, said Vinay Kumar, managing director of National Federation of Cooperative Sugar Factories Ltd., a growers' association.
Indian sugar-cane farmers have a history of quickly switching to other crops whenever they feel their payments are delayed inordinately, leading to cycles of higher and lower sugar output.
India was a substantial exporter of the commodity until last year, as global prices were above domestic rates until then. But since the start of the current marketing year, exports have fallen to no more than 300,000 tons as a consequence of a very big Brazil harvest and falling prices, Mr. Kumar said.
A depreciation in the value of the Indian rupee against the dollar in recent months has so far not hit imports, as this has been offset by the lower international price of sugar.
Meanwhile, the Indian Sugar Mills Association said the country's sugar production in the next marketing year will likely decline by about 5% to 23.7 million tons because a drought last year had reduced the area under sugar cane.
Source:-online.wsj.com
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