Abstract

The domestic sugar production in 2016 was sufficient only to meet 9% percent of the total consumption requirement in Sri Lanka. Quantitative analysis of factors related to the quantity of sugarcane and sugar production and their prices will be vital to design policies for the development of the sugarcane industry. This study examines important factors affecting the production and prices of sugarcane and sugar over the period of 26 years from 1990 to 2015 using the secondary data obtained from various sources. An algebraic model was specified and the co-efficients of the model were estimated using the ordinary least squares method. The results showed that the quantity of cane crushed was positively influenced by the cane area harvested. One percent increase in quantity of cane crushed has showed 0.086% increase in quantity of sugar produced. Average cane and sugar yields are low in Sri Lanka. One-year lagged sugar price was positively related to cane price, and privatisation of sugar mills had a negative effect on cane price. The world price of sugar and import tax were the main determinants of local sugar price, which in turn affect the profit of local sugar mills. The government intervention through price policies on sugarcane and sugar and regulatory mechanisms on the management of sugar industry is needed to develop the sugarcane industry in Sri Lanka.