By VIKAS BAJAJ


LONI KALBHOR, India - Sanjay Gujar’s family has raised sugar cane for generations. But last year, after sugar prices fell by more than 40 percent, he replanted his two and a half hectares here in the sugar bowl of India with bananas.

A year later, after Mr. Gujar and thousands of other Indian farmers abandoned sugar, prices are surging. The price of refined sugar on international markets has jumped 60 percent since the end of last year, to 51 cents a kilogram, even as other food commodities have stabilized or fallen.

While all commodities move in cycles, sugar in India is a case study in feast-tofamine swings in which bountiful crops are followed by anemic harvests every two or three years.

Volatility is aggravated - some analysts say caused - by government efforts to control prices to balance the interests of farmers and consumers. When prices were rising, for instance, policy makers restricted exports, which helped create a glut. By the time the government reversed course and subsidized exports, many farmers like Mr. Gujar had switched crops.

“Sugar is a political commodity,” said M. R. Desai, president of the National Federation of Cooperative Sugar Factories, and “the government is not ready to let go.”

Even as India rushes toward a future as a technology and services powerhouse, there has been slow, halting progress in its agrarian economy, which still sustains more than half of its 1.1 billion people. Hobbled by small farm sizes, an intense reliance on fickle monsoon rains and extensive government control, Indian farmers are less productive and more vulnerable than their peers in other developing countries like Brazil and China.

Economists say India’s approach to regulating sugar is an example of how populist policies can hurt the very people they were meant to help: farmers and the rural poor.

Even now with sugar prices up sharply, demand is growing, because India’s population is growing, said Sanjay Manyal, a sugar analyst at Icici Direct.com, a securities firm.

To meet that demand, India will probably import 20 to 30 percent of the sugar it uses this fiscal year. Less than two years ago, the country exported 20 percent of the sugar it made.

To understand India’s sugar problems, industry officials say it is important to consider what happened in 2006 when the government banned exports to bring down prices. Those efforts were almost too successful. Within a few months prices began falling as it became clear that farmers had planted too much cane.

Farmers said conditions were so bad in 2007 and 2008 that sugar mills, which usually arrange to have cane harvested, did not even bother to send out crews. Many farmers, including Mr. Gujar, burned their crop in the field.

“Government policy, well intentioned though it may have been, seems to have aggravated the cycle,” said Samir S. Somaiya, president of the Indian Sugar Mills Association and a mill owner.

The government then tried to help by subsidizing exports. At the same time, farmers began switching to other crops. The ground was being laid for the current shortage.

Industry officials and analysts say the recent rise in prices has lured some farmers back to sugar cane, but India will not produce enough to satisfy domestic demand until at least 2011.

Mr. Gujar, the banana grower, expects that he will be able to farm for another decade before his land is swallowed up by the urban sprawl around Pune. Many of his relatives have already quit farming and his teenage son and daughter have no interest in growing bananas or sugar cane.

“They won’t do this,” he said. “They will change.”


Once a major exporter, India may import a third of its sugar this year. Farmers harvested sugar cane near Pune.