The Government has decided to increase the import duty on sugar to 15 per cent from 10 per cent at present to curb cheaper inflow of the sweetener into the country.
Food Minister K.V. Thomas said the decision to hike import duty was taken after a meeting with Agriculture Minister Sharad Pawar and Finance Minister P. Chidambaram on Thursday.
The Finance Ministry will decide from when the duty hike will be implemented, he added.
The latest move follows representations by sugar co-operatives and farmers to hike import duty as a bearish trend in realisations has not only hurt the millers but has also delayed cane payments to farmers.
The cane arrears currently stand at Rs 9,000 crore. The duty hike may affect the consumer for in the short term, but will help the farmers in the long run, Thomas said.
Urging the Government to check imports under the open general licence (OGL), the sugar co-operatives had demanded the duty be hiked to 30 per cent.
The sugar co-operatives felt that the inflow of cheaper sugar from countries such as Brazil and Pakistan was influencing domestic prices.
Currently, the import of raw and refined sugar under OGL attracts a duty of 10 per cent.
Sugar prices have been bearish since the beginning of the crushing season in October, as millers have been offloading stocks to pay off cane dues to farmers.
Further, the rising imports of cheaper sugar under OGL has crossed half a million tonne are also influencing the prices, thereby, affecting the realisations. Raw sugar imports under advance licensing for re-exports were estimated by the industry at around 1.2 million tonnes.
Millers blame the build-up in cane arrears to the high cost of production – driven by a high cane price and lower-than-expected realisations.
Since the beginning of the current season in October, sugar millers in Uttar Pradesh have been losing about Rs 4-5 a kg as the ex-factory prices have been hovering around Rs 31-32 while the cost of production is estimated at Rs 36 .
Further, the recent de-control of sugar sales announced by the Centre has not helped the millers clear up the cane dues as ample supplies kept the prices of sweetener for quite some time now.
The average ex-factory realisations in Maharashtra, which stood at Rs 3,328 a quintal in October 2012, are now hovering a little over Rs 2,800.
The increase in imports is despite the domestic output estimated at around 24.5 mt, against the demand of 22.5 mt.
According to industry estimates, the opening sugar balance for next season starting October is pegged at around eight million tonnes. Millers are unable to export the surplus sugar as international prices are ruling lower than domestic prices.