Sugar Market Surge Tied To India, Which Will Likely Ramp Up Production: USDA

A sharp runup in global sugar prices in the last several months has much to do with a cyclical decline in sugar production in India - the world’s second largest producer - that is at least temporarily shifting the country from a net exporter of sugar to a net importer.

A white paper by Maurice R. Landes with USDA's Economic Research Service, maintains that the decline in India's production was due mainly to a policy cycle. Landes writes that India has more than enough resources to rebound, and he sees higher output coming in the new season.

"Sugar production is poised to rebound in 2010/11, as higher government price supports and open-market prices are likely to stimulate plantings and improve incentives to deliver sugarcane to sugar mills," he contends. "In the longer term, India has the capacity to boost sugarcane output, and the government and the sugar industry are considering policy measures to moderate the increasingly sharp cycles in sugar production and trade."

India is second only to Brazil as a sugar producer. Landes notes that India's sugar production accounts for a relatively small portion of the country's cropland. Between expanded acreage and expanded irrigated production, India has potential to produce more sugar. Long term, Indians also will consume more sugar as incomes increase, he adds.

Here's a link to his full report.