After a gap of almost two years, sugar prices are yet again showing signs of rising steadily. Barring any unforeseen events, the rise could stretch for almost two years, partly because the area under cane cultivation is not expected to rise in that period. According to an estimate, retail prices of sugar should climb up to Rs 25 per kilogram, from the current Rs 20-22 per kilogram across the country by March. This immediate rise is mainly because of an almost 7-7.5 million tonnes fall in production in 2008-09 because of low acreage and low yields in the key sugarcane growing states of Uttar Pradesh and Maharashtra.

The sugar sector is cyclical in nature?every two-three years of bumper harvest are followed by falling production, high prices and better realisation for mills. But, in India?s case, the cycle of boom and bust has huge implications on inflation control as sugar has a weightage of almost 4% on the wholesale price index. Any small rise in retail prices could have a cascading impact on food inflation, completely unacceptable to any government, particularly one that faces election in the next three months.

The government has reacted to the rising sugar prices by tightening the noose around exports, and raising the monthly quota of production for mills, by almost 14% for the January-March quarter. Such policy interventions, which have a questionable impact on lowering prices, certainly don?t help the sugar sector in its quest to thrive.

The oft-repeated argument that decontrolling the sugar sector would harm farmers? interest is unfounded because prolonged period of low prices automatically encourage farmers to scale down their planting and shift to more remunerative crops. A case in point is the almost 20%-25% drop in area under sugarcane in Uttar Pradesh and Maharashtra, the two states together contributing over 60% of the country?s sugar output. Artificial increase in prices through tools like state advised price, which mills cannot pay, is not a guarantee for higher output, even if, in states like UP, it is viewed as a tool to garner political mileage in the short-term.

sanjeeb.mukherjee@expressindia.com