Now that the Economic Coordination Committee has allowed the duty-free import of raw and refined sugar, it is time the TCP should act pronto. Sugar prices have been rising steadily in New York, extending a rally to its highest level in almost 29 years - 28.98 cents per pound - on speculation that increasing demand and limited supplies will widen the global deficit further.
News that sugar production from Brazil will be 2.1 million tons less than expected this year has triggered the latest rise. Reports suggest that the upcoming Brazilian sugar is unlikely to cushion the market, owing to heavy rains which have already reduced the volume of sugar that can be extracted from Brazilian cane, with yields falling to a record low.
Traders have warned that there could be further disappointment as regards the Brazilian output because wet weather has continued throughout this month, making it difficult for millers to produce sugar, and ethanol for that matter, from the water-loaded cane.
Adding to this, Indonesia, the biggest importer of the sweetener, is planning to purchase huge quantities of sugar this quarter. Around the same time Pakistan, Mexico, Russia and India also intend to import the commodity.
In meeting this demand, however, a large part of the selling counter would be empty for about another two months, as cane harvest season in Brazil, the worlds largest producer, will not begin until March.
Therefore, unlike the wisdom of the government, which plans to import the sweetener during the March-June period, its best to make that duty free import now when global sugar prices are still relatively low.
Landed costs of duty-free imports today would amount to Rs55 per kilogram - about 20 percent lower than what it would cost (around Rs70/kilogram) if the commodity is imported in the last quarter.
Any plans to rely on local production might also backfire as next season will likely begin with an alarmingly low level of stock with sky-rocketing prices. It already is a potentially explosive situation in the open market, where soaring sugarcane prices, currently around Rs220 per maund, are pointing that retail sugar will end being sold at Rs80 per kg soon.