Sugar Import Duty Hike: It’s Only Positive For Millers

5 comments Written on June 24th, 2014 by
Categories: General

India raises sugar import duty to 40% from the old 15%.  In addition the government will continue to pay Rs. 3,300 per tonne of export till September as a subsidy. And then, mandatory blending of ethanol into petrol will go up from 5% to 10%, and the sugar industry’s a huge source of ethanol.

imageSugar is a political story. Sugar mills buy from farmers at rates the state government dictates. Sugar farmers can’t even sell to others, they have to sell to the local mills. (who have first right of refusal)

The by-product of the crushing, molasses, is used for making ethanol. This can be used in cars (as a blended fuel) or in alcohol products. Political influence is high in those sectors too.

With the ethanol blend increase we will see a large demand for molasses, and therefore the revenues of sugar mills should increase.

India has produced surplus sugar for five years now, and millers are sitting on large stockpiles of the commodity. That’s why they can’t really produce more, and they can’t buy from farmers until current stocks are gone. And there’s no export demand because there’s a worldwide glut of sugar now.

However that may change with a drought in Brazil (the largest sugar producer).

But here the problem is of the whole system. Too much stock? Prices must fall. But they can’t fall too much because the government dictates what the farmer will get (and he has no choice of going elsewhere).

And then the sugar mills have massive loans. Around 11,000 cr. is due. With continuing surplus sugar stocks they will have to default if the sugar prices don’t rise. Some of the biggest lenders in this system are public sector banks, who are owned by the government.

The import duty increase isn’t massive because we don’t import much. But it does mean that if sugar prices go up, and the world wants to give us cheaper sugar, that the duty is a deterrent. That 40% is a buffer for the sugar cartel to hike up prices, if they want to.

Meanwhile, we’ll end up paying more for sugar anyhow. The only way to profit will be to either buy companies making sugar, or to eat less of it! (Companies like Balrampur Chini, Bajaj Hindustan, Shree Renuka Sugars etc. will benefit)

(Image Source)

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The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@gmail.com.

5 comments “Sugar Import Duty Hike: It’s Only Positive For Millers”

You don’t keep any barriers, import the cheap sugar, destory the local production. Next year the global prices shootup & there’s no local sugar production as either the farmers moved to a different crop due to losses and you crib.

Were not we done the same thing to Oil., dependend more on import without encouraging local scouting & cribbing on the weak rupee now!!!

Fine let me crib about no sugar. This shit will happen one year. Then others will jump in and produce and fix it, there will be a market and eventually it will stabilize. You don’t need external subsidies to stabilize it.

And if we didn’t subsidize today we could export our surplus. Because we “guarantee” a farmer a price, we can’t bloody export it because the losses will be huge.

Oil is a great example of why, if we see prices go up big time, we will find alternatives to oil that we can use. Right now we will import only, and there is no point having a subsidy at all. WE pay for it anyhow and I would rather pay directly for petrol than to have the government fund my neighbour’s diesel guzzler.

That the pro-industry stance of the current Govt. is clear in every aspect, though a few things to Sarcasm!
1. Enquire about individual appetite, call them how much is suuficient for them and handover the same.
You think I am talking about Sugar?
Call Vijay Mallya… he says 10000Crores….OK, RBI GOv. Says to banks, give him…
Call Sub Roy……who says 10Lakh Crores…OK, call public and ask them to handover to fulfil his appetite.
Call Sugar Mill Owners….. satisfy their appetite tooo….
Call farmers, who have lesser appetite…. give them a few thousand rupees of subsidy.
Call the Politicans…………………………………………………The RBI says………………Order new Printing Machines for Nasik….Get the Swiss banks ready….
After Achche Din anewale hai statement, the Govt. opened it’s eyes, started blaming the ManMohans and Chidu’s… and raisng fares………..says the purses have to be tightened, hard measures have to be taken…….WOW!

There is no justification for protecting sugar companies at the expense of consumers & taxpayers. Sugar is not an essential commodity, we can live without sugar (in fact, longer!). If there is one sector that is most in need for reforms, it is sugar. Even more than oil or fertilizers.

Well the solution lies in following Rangarajan committee totally de-controlling sugarcane prices and linking them with the current sugar prices.
This entire hue n cry is because of sugarcane price not being fairly priced. UP State Govt. with elections in their mind, gave deaf ears to sugar industry’s demand of Rs 240/- per quintal and continued with last years Rs 280/- per quintal , which was not feasible and the current low sugar prices.

Now there is crisis situation in UP as farmers have not received their dues for the sugarcane sold last season. What is the point of commiting higher prices which these bereaved sugar mills can’t pay back. Now farmers have a pile loads of debts and left with limited option other than to steal or commit suicide.