Context: Retail sugar prices reportedly rose sharply from around ₹45 to ₹65/kg within a month, with the ethanol-blending programme being blamed; however, the article attributes the rise mainly to lower sugar production and delayed government policy response.
Why Ethanol Is Not the Main Cause
- Only 27.5% of ethanol supplied by distilleries to oil marketing companies (OMCs) in 2025–26 came from sugarcane juice and molasses; the remainder was produced from cereal grains.
- Around 3 million tonnes (mt) of sugar was diverted for ethanol production in 2025–26—only about one-tenth of the 30.9 mt gross sugar production.
- Similar quantities were diverted to ethanol in the previous four sugar years (3.5, 2.4, 4.3 and 3.6 mt) without triggering comparable price spikes; hence, ethanol diversion alone cannot explain the current price rise.
Actual Trigger: Lower Sugar Production
- Sugar production fell substantially below the initial 34.4 mt projection, with the eventual shortfall estimated at around 3.5 mt.
- Supply stress was visible as early as February, when mills in Uttar Pradesh and Maharashtra faced cane shortages and some had to stop crushing, but the government reacted late.
- The situation worsened when below-normal June monsoon rainfall raised concerns about both current availability and 2026–27 sugarcane yields, pushing prices higher from July.
Government's Panic Response
- The government banned sugar exports in mid-May to increase domestic availability.
- As prices surged, it imposed a 400-tonne stock limit on dealers and prohibited them from holding sugar for more than 30 days.
- Mills were also asked to provide details of bulk consumers purchasing 500 tonnes or more, as part of stock verification.
- These reactive restrictions increased uncertainty and may have further aggravated market panic rather than resolving the supply shortage.
Better Policy Alternative: Keep Imports Open
- Instead of restricting exports, the government could have reduced the 100% import tariff on raw and white sugar to zero by April, when most mills had already stopped crushing.
- Timely imports would have allowed market forces to balance domestic supply and demand, preventing excessive price escalation.
Structural Problem: Excessive Government Controls
- India's sugar industry remains heavily regulated, with government intervention extending from sugarcane pricing to mill-wise monthly release quantities for open-market sales.
- Such extensive controls can distort market signals and prevent timely adjustment of production, stocks, imports and prices.
- The episode therefore highlights a broader policy failure arising from weak market intelligence, delayed decision-making and excessive reliance on administrative controls instead of market-based supply management.
Sugar–Ethanol Link
- Sugarcane can be diverted towards ethanol production, particularly through sugarcane juice, B-heavy molasses and C-heavy molasses; this creates a policy trade-off between sugar availability and ethanol production.
- India's ethanol-blending programme aims to reduce crude-oil imports, enhance energy security and lower emissions, but diversion of feedstock must be balanced against domestic sugar availability and food-price stability.
