The Hindu Business Line : Mills may gain from zero duty raw sugar imports

DOMESTIC sugar mills are likely to benefit substantially from the Government's decision to allow them to import duty-free raw sugar, under the advance licence scheme (ALS) and sell the processed white sugar in the domestic market.

On Monday — just two days after the Union Food and Agriculture Minister, Mr Sharad Pawar announced the relaxation in the ALS norm — the Indian Sugar Exim Corporation (ISEC) floated a tender for import of the first cargo of 25,000 tonnes of raw sugar. The cargo, of Brazilian origin and scheduled for delivery at Mumbai port in October, is understood to have been contracted at $223.25 per tonne c.i.f (cost, insurance, freight).

According to sources, of the 25,000 tonnes, the major chunk is to be used by the Osmanabad-based Natural Sugars & Allied Industries Ltd (15,000 tonnes) and the Pravara Cooperative Sugar Factory Ltd, Ahmednagar (2,000 tonnes). The remaining quantity is also expected to go to Maharashtra-based mills.

The landed cost of $223.25 per tonne comes to around Rs 1,030 per quintal at current exchange rates. The processing cost of the raw sugar, the sources said, would work out to about Rs 200 per quintal (Rs 90 on steam, Rs 5 on chemicals, Rs 7 on handling, Rs 35 on packing the white sugar, Rs 50 processing losses and Rs 10 other miscellaneous charges). If provision is made for interest on three-months working capital (Rs 30), the cost of the processed white sugar at the factory gate would be in the region of Rs 1,360 per quintal.

Currently, the ex-factory realisation from domestic sale of sugar (S-30 grade) is about Rs 1,450 per quintal. The white sugar processed from the imported raw sugar would be sold in April 2005, by which time realisations are expected to shoot up to Rs 1,500 per quintal. Over and above this, the mills would also obtain another Rs 10 per quintal from sale of the 2 per cent molasses content in the raw sugar.

All put together then, the profit from processing each kg of import raw sugar would be to the tune of Rs 1.50. (See table) And this has been made possible simply by the decision to relax the ALS norm for import of raw sugar, by permitting it to be processed into white sugar that can be sold in the domestic market.

The downside risk though, is that the mills would still have to export one tonne of white sugar for every 1.05 tonnes of raw sugar they import within 24 months of undertaking the imports. "There is no dilution of export obligation. The only relaxation given is that mills do not have to export white sugar by processing the raw sugar they import. Instead, they can export white sugar from domestically sourced sugarcane," the sources pointed out.

Two years down the line, therefore, the mills importing raw sugar may end up losing money, as they would be exporting at a price likely to be about Rs 3 per kg lower than that realised from domestic sales. The mills hope that the interest earned on the profits made in the intervening period would offset the losses, both notional and real.

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