Sugar output may rise 25% in 2017-18 season

Import duty hike to curb overseas supply isn't required as prices have been under control

Indian mills are expected to produce 25.1 million tonnes (mt) of sugar during the 2017-18 sugar season beginning October, nearly 25 per cent higher than last season’s 20.3 mt, the Indian Sugar Mills Association (ISMA) said on Tuesday.

The association said Uttar Pradesh could again turn out to be the largest sugar producer in the coming season, with almost 40 per cent share in the total production. “ISMA has projected 9.95 mt sugar production from UP. Maharashtra and Karnataka are also expected to come back on track, with Maharashtra production estimated at 7.4 mt,” said Abinash Verma, ISMA director general.

Sugar stock at the end of June was estimated at 10 mt, and ISMA’s initial estimates show June lifting was below average. On Monday, the government issued a notification increasing sugar import duty from 40 per cent to 50 per cent on refined as well as raw sugar. The move follows sharp fall in sugar prices in the past one month.

For the past few months, expecting good production in the 2017-18 (Oct-Sept) season, sugar mills have been selling as much sugar as possible to reduce stock . This was keeping the prices in open market under check, and the Centre’s recent decision to allow duty-free import of raw sugar up to five lakh tonnes only helped to maintain the supply-demand balance.

Since March, international sugar prices have been on a downward trail and have fallen 30 per cent to trade at 13.5 cents per pound. This is because of better production in Brazil, no Indian demand in international market, and a depreciating Brazilian currency, making export from that country remunerative. A trade official said, “Duty increase is good as it will protect price from import threat and help mills to clear sugarcane farmers’ dues.”

Sugar prices have increased in wholesale mandis in recent weeks. “Sugar mills had been paying till June Rs 1,270 a tonne as sugar cess, which was abolished from July when the GST (goods and services tax) on sugar was fixed at five per cent. However, in June, traders were destocking, as any old stock after 30 June would not have been eligible for input credit for sugar cess,” the official said.

As a result, in early July, pipeline is looking empty and prices have moderately gone up, which will stabilise in coming days, according to an industry official. 

ISMA has written to the government to clarify if sugarcane attracts the GST. Because, if cane attracts five per cent GST, it will block capital of the mills significantly. However, they will get the GST paid on cane as input credit. Sugar prices in Mumbai wholesale market ex-mill was on Tuesday quoted at Rs 36 a kg, which was one rupee higher than in June.

In a report, CARE Ratings said, “The government’s move to raise duty on sugar is likely to keep the prices stable. This step also indicate that the government is keeping an eye on the industry’s situation and is expected to continue to take measures to keep the prices stable. Also, the government has hiked the sugarcane price payable to farmers by 10.9 per cent to Rs 255 a quintal on a year-on-year basis for the sugar year 2017-18. Thus, it could not have afforded the fall in sugar prices as it would have resulted in higher sugarcane arrears.”