India Increases Sugar Import Duty as Global Glut Weakens Prices

India boosted the import duty on sugar to prevent the inflow of cheap supplies from overseas as the world’s second-biggest producer battles a price slump amid the biggest output in eight years.

The cabinet approved raising the tax to 40 percent from 25 percent, the government said in a statement on Wednesday. It also scrapped a 12.36 percent excise duty on ethanol made from molasses that is used for blending with gasoline from the 2015-16 sugar season. The government ended a plan under which exporters were allowed to bring in duty-free raw sugar.

Futures in New York last month plunged to the lowest since 2009 as rising output from Thailand to India exacerbated a global glut. Prices in India have fallen below the cost of production due to weak demand and mounting stockpiles, according to the Indian Sugar Mills Association. The processors have yet to pay farmers 201 billion rupees ($3.18 billion) for the cane supplied, the government said today.

Higher tax will “prevent any imports in case international prices of sugar were to depress further,” the government said. “These measures will significantly improve the adverse price sentiments in respect of sugar and would improve the liquidity in the industry, facilitating the clearing up of arrears of cane dues to farmers.”

Futures in New York have fallen in the past four years, the longest stretch of declines since at least 1962, and touched 11.91 cents a pound on March 31, the lowest since January 2009. Prices fell 1.5 percent to 13.02 cents on ICE Futures U.S. on Wednesday, extending losses this year to 10 percent.

Expanding Stockpiles

Raw sugar importers under the so-called ‘advanced authorization scheme’ will now need to re-export white sugar within six months of import, the government said.

Sugar production in India will climb to 27 million tons in the year that began Oct. 1, the highest since 2006-07, according to the association. That may expand stockpiles to more than 9 million tons by the end of September from 7.5 million tons a year earlier, the association estimates.

The abolition of excise duty on ethanol may boost producers’ earnings by 5 rupees a liter and encourage them to divert cane juice into biofuel, Abinash Verma, director general of the association, said in an e-mailed statement on Wednesday. That may help reduce the sugar surplus from next year, he said.

“We would urge the government to quickly decide on our request to buy out 10 percent of our current year’s sugar production,” Verma said. “Only this step will help the industry come out of the crisis in the short run and ensure that a major portion of cane price arrears of farmers are cleared before the start of the next sugar season.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE