India Mulls Sugar Export Tax, Zero Import Duty

India is considering imposing a tax on sugar exports and dropping a 10% import duty to help curb overseas sales and keep a lid on domestic prices as a drought threatens farm output, government sources said on Aug. 9, 2012.

The government also plans to release an extra 500,000 tonnes of sugar in August to beef up supplies in the local market, where prices have surged. Each month, the government decides the quantity mills can sell in the open market.

The government only last month slapped the 10% import tax on sugar.

"We are planning some of these measures to keep prices under check. We are not comfortable with the rise in prices, which in my view are not in a comfortable range," one of the sources said.

India's benchmark sugar futures have surged more than 22% since January. On Aug. 10, 2012, sugar futures hit a new contract high for a third straight session.

Sugar futures have also been volatile, attracting the attention of the Forward Markets Commission, which polices the derivatives trade.

India, the world's top sugar consumer and the biggest producer behind Brazil, is suffering its first drought in three years. Sugar output is set to fall in top producing Maharashtra state in the 2012/13 season.

But India will still have surplus sugar next year because other states have planted more cane.

Strong production and lower local prices encouraged India to free up sugar exports in May. Before lifting limits, the government had already allowed 2 million tonnes of exports for the year to Sept. 30 to help mills trim bulging stocks.

Since then mills have registered for 1.4 million tonnes of sugar exports, and 850,000 tonnes of that have already been shipped out.

"Right from the beginning, we were not comfortable with the idea of allowing more than 4 million tonnes to go out of the country in the 2011/12 year. That is a sort of informal ceiling for us," the second source said.

Sugar companies have produced 25.9 million tonnes of sugar in the current season to September, and some mills are still crushing cane, sources said.

For the 12 months from October, mills are expected to produce 25 million tonnes, about 4 million tonnes higher than the country's annual demand.

"We are not in favour of a ban on exports at the moment as supplies of the new season sugar will start trickling in from October-September, and we just need to ensure that domestic prices stay within comfortable levels until then," the first source said.

"The fall in global prices also indicates that exports are not going to be brisk now," he said.

On Aug. 9, 2012, benchmark New York futures slipped to near a five-week low, weighed by harvest pressure in top producer Brazil.