INDIA: Sugar industry suffering under weight of bumper crop

Published: 01/08/2018, 10:49:34 AM

The sugar sector seems to be heading back into troubled waters in 2018. A record increase in sugar production during the current season has steadily depressed prices in the domestic market, with analysts observing that initial moves from the government like removing stock limits have had no effect in firming up prices, according to India's Express News Service.

According to food ministry sources, the government is actually mulling an import duty hike from the current 50% to as much as 80% to protect domestic prices from falling further.

Figures from the Indian Sugar Mills Association show that the country's sugar output increased by a sharp 26% to 10.33 million tonnes in the October-December period of the current season compared to 8.19 million tonnes in the corresponding period of last year.

The consequence has been a sharp fall in sugar prices. "Domestic wholesale prices were trading 8-10% lower than October-November 2017 average prices at INR34.5 (US$0.54) a kg mainly due to higher availability of sugar in initial months of crushing against lower consumption demand during winter," JM Financials analyst wrote in a note. Industry sources say mill realisations currently stand at INR31-32 per kg. However, prices are expected to fall even further, threatening existing margins, wafer thin in some cases.

The report also noted that there was no improvement in sugar prices after the removal existing stock limits by the government in December last year. Food ministry sources say that the government will begin getting feed back from stakeholders on whether to increase the import duty from 50% to maybe as high as 80% to protect domestic prices.

While there are no sugar imports at the current duty level, the hike will have the added benefit of blocking Pakistan's planned subsidised sugar exports.

The government has pegged total sugar output at 24.9 million tonnes in the entire 2017/18 season, against 20.2 million tonnes last year. Consumption is estimated to be about 25 million tonnes this year.

"There is also a plan to allow export of raw sugar under Duty Free Import Authorization scheme," sources said.