New Delhi: In an attempt to boost domestic sugar supplies and keep prices in check, the government is considering imposing an effective ban on exports of the sweetener and levying customs duties on imports of raw sugar that have not been re-exported.
The decision taken last month by an empowered group of ministers (eGoM) headed by finance minister Pranab Mukherjee, is now being put before the cabinet committee on economic affairs for endorsement.
Allowing exports of almost 1 million tonnes (mt) would severely deplete the availability of sugar in the domestic market, leading to a further spurt in prices over already high prices, says a note circulated for the eGoM meeting on 14 December. A copy of the note was reviewed by Mint.
Poor monsoon: Farmers in a village in Uttar Pradesh. India is buying sugar for a second year after a weak monsoon widened a supply deficit. Harikrishna Katragadda / Mint
Sugar prices more than doubled in 2009 as excess rain in Brazil and drought in India decreased sugar cane output. India, the world’s top consumer of the sweetener, is buying sugar for a second year after the weakest monsoon since 1972 widened a supply deficit.
Immediate delivery price at Vashi in Mumbai, the country’s biggest wholesale market for the commodity, gained 3.5% to Rs3,869.20 per 100kg on Tuesday, the latest available prices, the highest level since at least 25 July 2005, according to Bloomberg data.
The government, which has pending requests for release orders that are mandatory for sugar exports, is concerned that allowing exports will lead to a further rise in the domestic prices of sugar.
As an alternative to a ban, the eGoM suggested deferring exports by 14 months, up to 31 March 2011. This applies to sugar companies that had imported raw sugar between 2004 and 2008 under what is called a tonne-to-tonne basis. This effectively means that such companies have an obligation to export the same amount of refined sugar that they imported in its raw form.
The temporary abolition of the export obligation will, however, come at a price. Sugar companies that had imported sugar earlier will have to pay a custom duty that could be as high as 60%, according to two different officials in two sugar companies.
The eGoM note said that if sugar mills are not given permission to export, they could approach the courts and take orders for exports.
The government banned sugar exports between June 2006 and January 2007 when the country reaped a bumper crop of around 28 mt. With demand hovering around 18 mt then, the government raised the anger of sugar companies that wanted to export and make the best of high international prices of sugar.
Sugar companies are not too concerned now because there is less of a difference between domestic and international sugar prices.
“There are too many hassles in export sugar now as one has to obtain a release order from the government before exporting. Then there is hardly any difference between the domestic and international prices. So we could not care less now. However, if the ban is for a longer time and domestic prices of sugar fall, there could be concerns,” said a senior executive at a leading north India-based sugar company who did not want to be identified.
He added, however, that there is scope to export sugar to Pakistan, where prices are reigning at Rs80 a kg. “Pakistan is just waiting to buy sugar internationally.”
Supply of sugar in 2009-10 has been pegged at 16 mt, 7 mt less than demand. The eGoM noted that contracted imports during the current sugar season (October 2009-September 2010) are expected to be around 4.47 mt.
According to Narendra Murkumbi, chairman of Shree Renuka Sugars Ltd, this is no time to export because it makes sense to remain in the domestic market. “Besides, as far as Renuka is concerned, there is no export obligation due,” said Murkumbi.
According to Jayant Manglik, president, Religare Commodities Ltd, a wholly owned subsidiary of Religare Enterprises Ltd, dealing with exchange-based commodity trading, domestic prices of sugar are only expected to rise given the supply constraint.
With domestic sugar prices higher than international prices, “it makes no sense to export”, Manglik said.
Bloomberg and Reuters contributed to this story.