After the government's decision to increase import duty on sugar from 40% to 50%, the rating agency ICRA in its latest report has said that a 10% increase in import duty on sugar is a positive for the industry, which is likely to support the domestic prices in the near term. The Centre has increased the import duty on sugar following the recent decline in the global sugar prices and improved outlook for domestic sugar production for the coming sugar season SY2018.
ICRA said that this move in turn will help sugar mills clear cane arrears to farmers. It also said that given the recent increase in the fair and remunerative (FRP) cane price for the coming season, a significant fall in domestic sugar prices, was a possibility had further imports (in addition to the recent 0.5 million tons duty free imports) been allowed, same could have adversely impacted the margins and the liquidity of sugar mills.
According to the report, the sugar production in India is set to increase by 16-20% in SY2018, to around 23.5 million tons (MT) to 24.5 MT. This growth will be driven largely by the increase in sugar production in Maharashtra and Uttar Pradesh. The closing stocks for SY2018 are likely to be around 4.0-4.5 MT, which would be sufficient before the production of the following season comes into the market, limiting the need for sugar imports into the country.
Moreover, global sugar prices have largely followed expectations on global supplies. The lower sugar import demand from India, coupled with an expectation of a global surplus in 2017/18 on account of increased production from Brazil and India, has resulted in a decline in the global sugar prices from around $540-$550/MT in January-February 2017 to $510/MT in March 2017 and further down to $445/MT in May 2017.