Sugar Sector Decontrolling and Market Performance of Sugar Sector in India Vis-À-Vis Global Market: A Cointegration Analysis

Abstract

The study analyses the extent, pattern and degree of spatial integration of sugar markets in India, as well as relationship of white sugar export prices of India and global market. The pattern and degree of integration were assessed by testing for the existence of the law of one price (LOOP) and ascertaining the speed of adjustment towards long-run equilibrium, using various tests by using cointegrated methods. Results indicated that only 4 of 11 sugar markets are cointegrated. The supply of sugar appears to be the most important factor shaping the long-run behaviour of its price levels in India. No single market is found to be the price leader. The prices of sugar exported by India to the global market were not cointegrated and did not conform to LOOP. Decontrolling of sugar sector from the clutches of monthly release mechanism plays an insignificant role in determining the relationship of sugar prices in the global market. The study suggests sugar policy reforms, consistent export and import strategies and abolition of export quota are absolutely essential for market integration and convergence of prices in the domestic and global market