India Mulls Easier Sugar Import Restrictions; Supply To Drop

NEW DELHI --India, the world's second-largest sugar producer, is staring at a demand-supply gap in 2009, so it is likely to ease open the local market to imports by March.
Industry officials say there is little option but to relax import controls as forecasts of output in the year ending September are likely to fall further - to 18 million-18.5 million metric tons - as key producing states are estimating lower recoveries and yields.
The government has already revised its output forecast to 20 million tons from an earlier projection of 22.5 million tons, while annual consumption is around 22 million tons.
"We are heading for lower production this year and market sentiment hints at a possible shortage after the cane crushing season is over," a food ministry official said.

A final crop assessment isn't expected until the first week of March, as cane crushing by sugar mills usually ends in February.
However, there is a possibility that an announcement on imports may be made even earlier, as the government is heading for elections by April or May, and it may not want to make such a policy announcement in the run-up to the polls.
"We are looking at all options on imports," the ministry official said, adding that the government would not like prices of sugar, an essential commodity, to rise. Last year's sugar carryover stocks of 9 million-11 million tons have lent some comfort to the government, but local prices have already climbed to more than international rates in anticipation of a domestic shortage.

Analysts say the government is carefully weighing the decision so that a relaxation of raw sugar import restrictions doesn't benefit only those hoping to profit by selling white sugar at the higher local prices, but bridges the supply gap.
Local sugar prices are in a range of $388-$406/ton at various spot markets, while global prices are between $325 and $340/ton.

Under the existing policy, an importer of raw sugar has to export the quantity of sugar processed from those imports within 24 months to avoid the import tax.
Millers have to pay an import duty of 60% if they want to process and sell the sugar in the local market.

An easing the import policy could entail either giving importers more time to fulfill the re-export obligation, or an elimination or reduction of the import duty.
Some in the industry feel that a decision to relax imports should be taken only after March, when the final output estimates are clear, regardless of elections.
"Policy tinkering at this juncture would depress prices and induce cane farmers to shift to other crops," said N. Ramanathan, vice president of the South Indian Sugar Mills Association, Tamil Nadu.

However, mills in the west of the country say that lower crop yields in their region mean they will face a shortage of cane and idle capacity unless raw sugar import norms are relaxed immediately.
Four years ago, a precedent was set when domestic sales of sugar processed from duty-free imported raw sugar were allowed to cover a demand supply mismatch.