An economic analysis of price behavior, efficiency and market integration of sugar in India

This study has analyzed the trends in area, production and productivity of sugarcane and also examined the price behavior of sugarcane and sugar, efficiency of sugar industry and market integration of sugar in India and major sugar producing states of Uttar Pradesh and Maharashtra. Sugarcane which contributes to India's second largest agro based industry has witnessed a stagnant growth in productivity over the years and production growth has mainly contributed by the area expansion in India as well as in Uttar Pradesh and Maharashtra. The mismatch between sugar and sugarcane prices and the existing inefficiency in sugar industry in terms of using huge amount of resources has inflated its cost of sugar production and negatively affected its gross margin. This in turn has resulted in mounting cane arrears to be paid to sugarcane farmers and adversely affected the interest of both millers as well as farmers. The market integration analysis found that although domestic sugar markets are integrated but no co-integration was found between domestic and international sugar market as domestic sugar prices have been regulated in the past while international sugar prices are market determined. Thus the study draws the policy attention towards linking sugar and sugarcane prices to remove all the discrepancies existing in the sugar sector.