Export Tax Turns Sugar Stocks Bitter

It was not a sudden move. Those involved in the business of sugar knew at least a week in advance that the government will impose a high double digit customs duty on sugar export. This is because by June 14, the wholesale and the retail prices of sugar were breaking all price barriers. Due to strong demand from bulk buyers and less than adequate supply from the sugar mills, the sugar prices had crossed the Rs 90 per quintal at the wholesale market. In Delhi NCR the retail price of sugar was pushing Rs 46 a kilo too.

In the evening of June 16 the government decided to impose a 20 per cent customs duty on sugar exports in order to boost the domestic supply. The move, according to government officials, has also been made to help check traders who have been eyeing exports in order to take advantage of the favourable international markets.

As expected, this has dented the stock prices of sugar companies like Simbhaoli Sugar, Oudh Sugar Mills, Ugar Sugar Works among others. On an average, the sugar stock prices witnessed a drop and were trading 8-10 per cent lower around afternoon.

"To keep domestic prices of sugar under check, government has decided to impose export duty of 20 per cent on export of raw sugar, white or refined sugar," the finance ministry said in a tweet. The Central Board of Excise and Customs, too, notified the decision on Thursday, June 16.

The move to impose a 20 per cent customs duty on sugar exports has also been taken in the wake of delayed harvest of sugarcane crop in Brazil, which is the world’s largest producer of sugar. As a result, the global prices of sugar have gained by over 50 per cent in the past six month period making exports a lucrative option for traders here in India.

In the futures market too, the sugar prices drifted by Rs 21 per cent to Rs 3,727 per quintal as participants engaged in trimming positions, triggered by the government's decision to impose customs duty on exports reported PTI.

But to be fair to the those involved in the sugar business, food and consumer affairs minister Ram Vilas Paswan had last week proposed a 25 per cent duty on sugar exports.

"There is an increasing trend in the price of sugar in the international market. Traders may increase the export of sugar to make profit. Therefore, to keep the export of sugar in control, it is purposed to levy 25% custom duty on export of sugar," Paswan had said.

"It will keep sufficient availability of sugar in domestic market and the price will be under control," he had said in a tweet. There is no change in the import duty on sugar, which stands at 40 per cent.

The move to impose the export duty on sugar followed a meeting of key ministers, chaired by finance minister Arun Jaitley on Wednesday, to review supplies and prices of essential commodities. It was also decided in the meeting that the government would raise its buffer stocks of pulses to 8 lakh tonnes from 1.5 lakh tonnes.

The government has taken a series of measures in recent weeks to curb a rise in sugar prices, including suspending an earlier order for the compulsory sugar exports of 3.2 million tonnes and capping the amount of sugar that dealers and traders can pile up at 500 tonnes across states, except Kolkata, to discourage hoarding.

Before the suspension of mandatory export policy, mills had shipped out roughly 1.5 million tonnes, out of the 3.2 million tonnes of sugar they are mandated to export under a provision whereby the government provides subsidy of Rs 4.5 to farmers for the supply of every quintal of cane for sugar production. The government last year directed sugar mills to export, a move aimed at reducing a glut in the domestic market and arresting a slide in the price of the commodity, which had resulted in massive cane arrears. Mills were required to export the entire quantity of sugar by the end of the current marketing year (September 30), a PTI report said.

Domestic sugar prices climbed around 40 per cent since the current marketing year started on October 1, 2015 on fears that sugar output in 2016-17 could drop by as much as 14 per cent from a year before. According to the estimate by the Indian Sugar Mills Association, India is likely to produce 25 million tonnes of sugar in FY 16 down 11.7 per cent from a year ago period.

The International Sugar Organization had in February predicted global sugar deficit for the current marketing year through September at 5 million tonnes, compared with 3.5 million tonnes announced in November, anticipating lower production in India, Thailand, Brazil and the EU.