Indian laborer loads stalks of sugar cane onto cycle rickshaw at wholesale market in Hyderabad on April 25, 2009World sugar prices have reached their highest in nearly 30 years, assugar cane output in India - formerly a big exporter - drops. HedaBayron in Bangkok reports on the souring future of India's sugarindustry and the challenges faced elsewhere in Asia.

Sugar caneproduction in India has fallen, as farmers over the years shifted tobetter-paying food crops. Production in the year ending in September isestimated to drop 40 percent to 14.8 million tons.

S.L. Jain isthe departing director-general of the Indian Sugar Millers Association.He says the sugar industry today faces a "critical" time that couldspell the end for the country's status as major exporter.

"Therehas been an increase of 72 percent in food crops price by thegovernment of India, sugar cane only 24 percent. So therefore it is nota competitive land with food …. We are happy if we can meet ourrequirement which is increasing every year because population isincreasing. Maybe in good times when the weather is very good …, but Icannot see any exports of sugar taking place from India," said Jain.

About 36 percent of global sugar production comes from Asia.

Badweather in many sugar cane growing countries, such as Brazil, and theshift to other crops in some places is contributing to a globalshortfall in sugar.

For instance, in Vietnam, some mills temporarily shut down this year because of lack of sugar cane.

Priceshave surged to 28-year highs - to about 50 cents a kilogram. India, thebiggest consumer of sugar, will have to import millions of tons thisyear to satisfy its annual consumption of 22.5 million tons.

Andif India permanently stops exporting sugar, prices could go evenhigher. Until recently, India was the second biggest supplier of sugarafter Brazil. Thailand has now moved into that spot, but it cannotproduce enough to satisfy global demand in the short term.

Jainsays the situation in India is exacerbated by government intervention.The government sets the price that millers pay farmers for sugar cane,and also says how much millers can sell each month. It requires millersto sell 10 percent of their output at a cheaper price to the poor.

"There'sa lot of corruption going on, so many middle men are created. It shouldonly be one price. And if the government wants to make two prices, letthe government procure sugar directly, have a proper system and give itto the poor people…. When the price is double, everyone wants to dosomething. This system has to be corrected," said Jain.

Incontrast, in the Philippines, the government uses none of India'scontrol mechanisms. The Sugar Regulatory Board monitors the domesticsupply of sugar, but it does not impose prices or quotas on theindustry. Archimedes Amarra, executive director of the Philippine SugarMillers Association, says there is no shortage this year.

"Weare still producing a surplus. But the fact is the Phil sugar industryis not focused toward being an export-oriented industry. Our primaryobjective is just to produce enough for our domestic market. But inorder to stabilize prices in the domestic market we do export thesurplus that we produce," said Amarra.

Raw sugar production inthe country has been increasing since 2005. Most of the country'ssugar exports go to the United States, because of a long-standingpreferential trading agreement.

Now the industry is gearing upto meet growing demand for ethanol, which can be made from sugar caneand used to power cars. As biofuel production gains ground in Asia,market experts say, it could push sugar prices even higher.

Amara says new areas in the Philippines are available for biofuel expansion.

"Wecan afford to allocate about 10 percent of our total production forethanol. However, if the ethanol requirement increases beyond the 10percent, well, we are trying to encourage ethanol producers to open upnew areas rather than existing areas," he said.

The rise insugar prices has left many in Asia worried that traditional sweets fortwo coming holidays - the end of Ramadan and the Chinese Mid-Autumnfestival - will be more expensive. Sugar industry experts say unlesssugar cane production rises quickly, consumers will pay more forholiday treats.