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Harish Damodaran

New Delhi, May 27 Exempting imported raw sugar from the monthly release mechanism and providing a two-month levy holiday for mills undertaking early crushing are among the latest measures being considered by the Centre in its efforts to rein in domestic prices.

Both these proposals figured prominently at a stock-taking meeting called by the Union Food and Agriculture Minister, Mr Sharad Pawar, with sugar industry representatives here on Wednesday.

Currently, white sugar processed from imported raws is not subject to the 10 per cent levy obligation as in the case of sugar processed from domestically sourced cane.

The raw sugar is, at the same time, governed by the release mechanism, under which the Government allocates the quantum of sugar that any mill can sell in the open market during a particular month.

“The latest proposal is to exempt the sugar processed from the imported raws from the monthly release mechanism as well. The mills can decide when to sell, so long as it is done within 90 days of the imports being made. They can sell on the very first day (thereby, saving interest charges) or 89th day, without awaiting any release orders from the Sugar Directorate,” sources said.

They, however, added that the proposed move will not fundamentally enthuse mills to contract raw sugar imports.

New York raw sugar for July delivery is now trading at 15.87 cents a pound or $350 a tonne.

After factoring in freight, financing charges and polarisation premiums, the landed cost would touch $404 a tonne or Rs 19,390 a tonne.

Even if this sugar is processed at a mill close to the port, one has to add port handling costs, transport and processing charges of at least Rs 2,600.

And given that this raw sugar will only yield 95 per cent whites, the effective cost of the processed white sugar will be Rs 23,150 a tonne even without considering any interest costs.

As against this, mills in Tamil Nadu are currently realising only Rs 21,500 a tonne on domestic sales.

In Maharashtra, ex-factory prices are ruling at Rs 21,000-21,150 for S-30 sugar and Rs 21,450-21,700 for M-30 sugar, while ranging between Rs 22,600 and Rs 23,000 a tonne in central and western Uttar Pradesh, respectively.

“At present domestic realisations, it doesn’t make economic sense to import. For imports to happen, either international prices have to go down or the Government has to allow domestic realisations to improve. Even in Tamil Nadu, the landed cost cannot be more than $350 a tonne to correspond to the domestic ex-factory rate of Rs 21,500 a tonne,” the sources said.

A leading Tamil Nadu-based miller had, only a week back, contracted imports at $375 a tonne, in the expectation of a future improvement. “But with prices going beyond $400, it is impossible to take even that risk. Exemption from release mechanism will not really compensate for the spurt in international prices,” the sources added.

The other proposal of providing a two-month levy holiday in order to encourage mills to start crushing by end-September or early-October (as against December) is meant to compensate for lower sugar recoveries.

Mills taking the season early would be crushing premature cane yielding 1-1.5 percentage points less sugar.

To make up for this, the mills would be exempted for delivering any levy sugar during October and November, on which they realise hardly Rs 13,500 a tonne.

“The 2008-09 season (October-September) is expected to produce 14.5 million tonnes (mt) of sugar. This, with opening stocks of 8 mt, imports of 2.5 mt and consumption of 22.5-23 mt, will leave precariously low stocks at the season-end. An early start to the season could help add one mt or so,” the sources added.

More Stories on : Sugar | Outlook | Exports & Imports

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