Decontrolling, Price Transmission and Market Integration of Sugar Sector in India vis-a-vis Global market - A cointegration Analysis

Abstract

The study analyses the extent, pattern and degree of the 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 toward long-run equilibrium, using various tests by using cointegrated methods. Results have shown that only 4 of 11 sugar markets are integrated into a common sugar market. 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 LOOP. Decontrolling of sugar sector from clutches of monthly release mechanism and export quota in India, plays an insignificant role in determining the relationship of sugar prices in the global market. The study suggests that improving the extent of market integration by focusing on the communication and other market related infrastructure and sugar policy reforms for more integration of domestic and global market. Acknowledgement : The presenting author is thankful to Director, ICAR- Sugarcane Breeding Institute for kind support to submit the paper to 30th International Conference of Agricultural Economists (ICAE 2018) in Vancouver, British Columbia, Canada, 28 July 2 August 2018.