Centre rules out diversion to ethanol, cites key factors

Sugarprices rise from ₹48.18 to ₹55.70 a kg in a month; lower domestic production, festive demand, crop damage, tighter global supplies and hoarding cited as key reasons. Sugar prices in India have risen sharply in recent weeks, raising concerns among consumers and traders. The average price has increased from ₹48.18 per kg to ₹55.70 per kg within a month, with prices reported to be even higher in some markets.

The Centre, however, has rejected claims that the recent surge is primarily linked to the diversion of sugar for ethanol production. The Ministry of Consumer Affairs, Food and Public Distribution said the share of sugar diverted for ethanol production has actually declined in recent years.

According to the government, the proportion of sugar diverted for ethanol production fell from around 12% in 2022–23 to about 9% in the 2025–26 season. It also pointed out that nearly three-fourths of India’s ethanol production now comes from grains, particularly maize.

Lower domestic production

The most significant factor is the expected decline in domestic sugar production. Production during the current season is estimated at around 30.6 million tonnes, substantially below the initial estimate of approximately 34.3 million tonnes made by sugar-producing states.

Major sugarcane-growing states such as Uttar Pradesh, Maharashtra and Karnataka have faced adverse weather conditions and crop-related problems. Excess rainfall, waterlogging and diseases have affected sugarcane yields. Diseases such as Red Rot and Top Borer have also contributed to lower production, putting pressure on domestic supplies.

Festive-season demand

Sugar consumption traditionally rises during the festive period, particularly from August through November. Demand from households, sweet manufacturers, bakeries, restaurants and other commercial users increases significantly during this period. Anticipating higher festive demand, bulk consumers and traders often build inventories in advance. This seasonal increase in demand has added further pressure to the market.

Tighter global supplies

The domestic market is also being influenced by developments in the international sugar market. The Centre estimates that the global sugar market could face a deficit of around 3.3 million tonnes in 2026–27. International sugar prices have also increased sharply.

The global price reportedly rose from around $474 a tonne on June 30 to $552 a tonne on August 20, an increase of more than 16%. Tighter global supplies could reduce the availability of imports as a buffer for the domestic market and add pressure to prices.

Hoarding and speculation

Another factor identified by the government is speculative stocking. Expectations of a shortage and further price increases may encourage some traders and dealers to hold larger quantities of sugar than required. Such stocking can temporarily reduce the quantity available in the open market and create artificial scarcity. The government has therefore tightened stock limits for dealers and traders to prevent excessive accumulation and market manipulation.

Government steps to control prices

To improve domestic availability and moderate prices, the government has authorised the duty-free import of one million tonnes of raw sugar. It has also imposed stricter stock limits on dealers and traders and is monitoring market conditions closely. The objective is to ensure adequate supplies during the festive season and prevent speculative activities from pushing prices higher.

Centre rejects ethanol connection

The Centre has strongly rejected the argument that ethanol production is responsible for the current rise in sugar prices. The government maintains that the quantity of sugar diverted towards ethanol has declined rather than increased. At the same time, the growing use of grains—particularly maize—for ethanol production has reduced dependence on sugar-based feedstock. Therefore, the government argues that attributing the current sugar-price surge primarily to ethanol production would be misleading.

A combination of supply and demand pressures

The present increase appears to be the result of a combination of supply and demand pressures rather than a single factor. Lower domestic sugar production, higher festive-season demand, weather damage and crop diseases, tighter global supplies, and speculative stocking or hoarding are collectively contributing to the price rise.

The immediate challenge for the government is to ensure adequate sugar availability during the peak festive season while preventing speculative activities and excessive stocking. While the Centre has ruled out ethanol diversion as the primary cause, the combination of lower domestic production, stronger seasonal demand and tighter global supplies is likely to keep the sugar market under pressure in the near term. The effectiveness of duty-free imports, stock limits and increased market monitoring will determine whether supplies improve sufficiently to moderate prices in the coming weeks.The current sugar-price surge, therefore, appears to be driven less by ethanol diversion and more by a combination of reduced production, crop damage, seasonal demand, global supply constraints and market speculation.

ABOUT THE AUTHOR

Dr Muchukota Suresh Babu

Dr Muchukota Suresh Babu