India Imposes Sugar Export Duty to Keep Local Price in Check

(Bloomberg) – India levied a 20 percent duty on sugar exports to prevent further gains in local prices amid prospects of supply shortage in the world’s biggest consumer.

The government decided to impose the tax to keep domestic sugar prices in check, the Finance Ministry said in a tweet late Thursday. A 25 percent duty had been proposed to curb overseas sales, Food Minister Ram Vilas Paswan said last week.

Less than a year after ordering sugar mills to compulsorily export from a mountain of stockpiles, India is struggling to cope with spiraling prices and a potential shortage. Output is set to fall to the smallest in seven years in the 12 months starting Oct. 1 as drought conditions shrink acreage in the nation’s second-biggest growing region of Maharashtra. Refined sugar in Mumbai rallied to the highest price since at least May 2014 this month and spurred bets that India will turn into a net importer.

“It seems the government wants to conserve sugar domestically in view of an expected fall in sugar production in the coming 2016-17 sugar season,” said Abinash Verma, director general of Indian Sugar Mills Association. Sugar exports from India were just about becoming viable with a recent increase in global prices, he said.

Global Deficit

Reduced supply from India could exacerbate a global supply deficit after drought also hurt crops in Thailand, the second-biggest exporter, and as heavy rains disrupted harvesting and shipping in top producer Brazil. Global raw sugar prices have advanced for four straight months and are trading near the highest in more than three years. Futures in New York rose 1.4 percent to 20.03 cents per pound by 1:30 p.m. in Mumbai.

A 20 percent duty translates into about $100 a ton, making exports of sugar from India unviable, Verma said. Opening stockpiles of sugar may total 7 million tons on Oct. 1, down from 9.1 million tons a year earlier, according to the association. The export duty will ensure a “healthier opening balance” for 2017-18 season, he said.

Prime Minister Narendra Modi’s government has already sprung into action to rein in prices and ensure the market is well supplied. The Food Ministry withdrew a production subsidy last month and scrapped the so-called minimum export quotas for sugar mills on June 8. It has also imposed limits on the amount of sugar traders can stockpile to prevent hoarding.