alternatives fuels like bio-diesel and ethanol. The emergence of ethanol as a fuel is transforming the global sugar industry. Brazil, the world's largest producer and exporter of sugar, is replacing petroleum products with ethanol by 60 per cent. This took global sugar prices to an eight-year high at the end of November.

This global shift towards sugar-based ethanol has had a cascading effect on India. The sugar industry in India works on very tight inventories and short supply is pushing up domestic prices. Though India is the second largest producer of sugar, it is also the largest consumer. This year the total domestic demand has been high at 19 million tonnes (MTs) compared to 18.5 MTs in 2004-05 (see box: Sugar daddy). This demand is being managed by the surplus from last year, current production and imports. In recent years, domestic sugar production has decreased drastically, converting from being a sugar-exporting nation to one of the biggest importers.

Import of raw sugar began in 2003-04 to meet domestic demand. To facilitate import, the Centre relaxed certain stipulations. But Indian mills, which imported around two MTs of raw sugar in 2004-05 duty-free, still need to export an equivalent quantity of white sugar till September 2007. India is expected to sell about 200,000 tonnes of white sugar to Pakistan anytime before September 2006, says a senior official at Indian sugar mills association.

In the wake of the unprecedented increase in global sugar prices, an export initiative from India was inescapable despite its own shortages. Prices have already increased by 11.2 per cent this year, according to a finance ministry report. Spot prices have shown a sudden spurt in Maharashtra and Gujarat in the last week of November due to increased buying and low stocks. Reports claim medium grade sugar is trading at Rs 1,882-1,955 per quintal (100 kg), while small grade sugar is trading at Rs 1,830-1,861. Sugar prices may cross Rs 2,000, if stocks go down further.