India May Allow Duty-Free Imports of Raw Sugar

(Bloomberg) -- India, the world’s biggest consumer of sugar, may allow mills to import the raw sweetener duty free in two weeks to ease a local shortage and prevent an increase in domestic prices before elections next year.

The government plans to allow refiners to buy sugar from overseas for processing and sale in the local market without paying a 60 percent duty, said an industry association official, who didn’t want to be identified as the proposal has yet to be approved by the cabinet. The mills will need to export the same quantity within two years, he said.

Prime Minister Manmohan Singh, who is seeking re-election, wants to curb the cost of commodities including food grains, sugar and edible oil. In 1998, the Bharatiya Janata Party lost power in the capital New Delhi when a shortage of onions sent prices soaring. Increased imports by the south Asian nation may boost global sugar prices that have fallen 14 percent in six months.

“We need raw sugar for compensating the shortfall in sugarcane production to meet our output target,” said Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories Ltd. “We need to use the idle crushing capacity of some mills.”

Raw sugar for March delivery rose as much as 0.8 percent to 11.38 cents a pound on ICE Futures U.S. in New York. It traded at 11.33 cents at 2:54 p.m. Mumbai time.

The 60 percent duty in India has applied since Feb. 16 on sugar imported for domestic refining and sales. Importers can purchase duty free if they export the sugar after processing, and are not permitted to sell the volumes locally.

Cane Output

Output in India, the world’s biggest producer of the sweetener after Brazil, may drop from last year after yields fell in the main growing areas, Farm Minister Sharad Pawar said on Dec. 22. Production in the year ending Sept. 30, 2009, may total 20 million metric tons as productivity in Uttar Pradesh and Karnataka declines. Output was 26.4 million tons a year earlier.

The food ministry estimated production for the year ending September at 20.5 million to 22 million tons on Nov. 26.

Sugarcane output may drop to 294.66 million tons in the year to June 30, 2009, 14 percent less than last year, after farmers shifted to crops such as grains, according to the farm ministry.

Mills will be allowed to sell 5 million tons of locally-grown sugar in the domestic market in the January-to-March quarter, up 14 percent from a year earlier, the food ministry said on Dec. 29.

While mills can sell 90 percent of their output at market rates, the government fixes the quantity and time of the sale every month. Producers must sell 10 percent to the government at below-market prices for resale to the poor.

“The government shall be monitoring the sugar prices in the open market closely and shall not hesitate to release additional” sugar if prices increase sharply, it said on Dec. 29.

Separately, mills will need approval from the government to sell local sugar overseas starting Jan. 1, the food ministry said Dec. 29.