Colombo: Sri Lanka, South Asia’s biggest sugar importer, may boost purchases next year after the government cut import tax to stem inflation and drought damaged the local crop.
Imports may exceed the government’s estimate of 550,000 tonnes for this year, said Chaminda Nawarathne, manager at CW Mackie & Co., the nation’s biggest supplier of the commodity to industrial customers.
Higher purchases may help India, the world’s second biggest sugar producer, cut record reserves that have made the sweetener the worst performing agricultural commodity in the past year. Sri Lanka can save freight by buying from neighbour India than from traditional suppliers in Brazil, Australia and Thailand.
“India remains the best bet as they have a surplus and prices are lower compared to other suppliers,” Nawarathne said.
Sri Lankan buyers are paying between $275 (Rs10,808) a tonne and $300 a tonne for refined Indian sugar, compared with $325 a tonne quoted by Thai suppliers, because of the island nation’s proximity to mills in Tamil Nadu and Karnataka, D.L.D. Jayantha, deputy general manager, Pelwatte Sugar Industries Ltd, said. The country consumes about 62,000 tonnes of sugar every month, of which only 15% is produced locally.
White sugar for December delivery, the contract closest to delivery on London’s Liffe exchange, fell $1.50, or 0.5%, to $276.50 a tonne on Tuesday. Sugar has declined 31% in the past year on expectations supply will outpace demand this year and next.
Sri Lanka’s government cut taxes on sugar imports by Rs5,000 (Sri Lankan) a tonne in August to check prices after inflation in July rose for the first time in four months. Inflation unexpectedly quickened to a nine-month high in October.
Production in the island nation may decline by a third to about 40,000 tonnes after a drought and pest attacks cut cane output this year. In comparison, India is set to bypass Brazil as the world’s top sugar producer this year. The country held reserves of 11.9 million tonnes on 30 September, enough to meet demand for more than seven months.
“Local production may not increase next year as farmers have no real incentive to plant sugar cane,” said H.K. Sunil, director of Sri Lanka’s Sugar Research Institute.