Sugar output slips, but is India really staring at a festival season crunch?

While the top industry body is confident of adequate supplies, some fear that an early festival season this year could be marred by lower-than-usual level of sugar stocks

In a few days from now, the majority of sugar mills across India will end their sugarcane crushing for the current season (October 2024- September 2025). This year, though, industry watchers are keenly focused on the final production numbers and the impact that could have on domestic sugar availability in the coming months.  While sugarcane crushing gets over within a few months of the cutting of the cane, which typically starts around November, the product marketing season continues through September the next year. The entire cycle is considered as a single season.  

The supply situation has turned tricky after net sugar production (after accounting for diversion towards ethanol) was estimated to have fallen by almost 16-18 per cent from last year's level, mainly due to disease infestation in UP and a prolonged drought in Maharashtra, the two major cane-growing states in the country. 

The fall in production has also brought to the fore the deep divisions within the industry with one section of the trade asking the government to halt the one million tonnes (MT) of exports allowed in January to ensure adequate supply during lean months. Their argument is that India’s ethanol blending programme, which relies heavily on sugarcane-based molasses, could be affected if supplies fall short.

 

Sweet on the numbers

 

However, the country's premier sugar industry body, the Indian Sugar and Bio-Energy Manufacturers Association (Isma), has categorically stated that there is no chance of any supply shortage and that adequate quantities of sugar will be available in the country for meeting its domestic consumption along with ethanol requirements. 

In a recent statement, it said that though India's net sugar production in 2024-25 season ending September is now projected to be around 26.4 MT down from the January estimate of 27.2 MT due to lower recovery in Uttar Pradesh and drop in production in Maharashtra, it won't have any impact on supplies or prices and that the country will be left with around 5.4 MT of sugar by the end of this season. 

The closing sugar stocks for the 2024-25 season would therefore be higher than the normative requirement of two month's production estimated at 4.5 MT, it said. Isma's confidence over adequate supplies despite a drop in production stems from a higher-than-expected opening stock of 8 MT in the 2024-25 season. 

In January 2025, the industry body had estimated that net sugar production would come in at 27.2 MT after accounting for diversion towards ethanol of about 3.7 MT. It has recently revised its estimates downward to around 26.4 MT, around 800,000 tonnes less than the earlier estimate, and projected ethanol diversion of about 3.5 MT. 

“We will have a very comfortable opening stock position for the 2025-26 season and moreover, next year’s sugarcane crop is expected to be very good because, supported by a favourable southwest monsoon in 2024 and good water availability in reservoirs, planting for 2025-26 season has reportedly improved over this year in Maharashtra and Karnataka,” Deepak Ballani, director general of Isma had told Business Standard last month. 

As a consequence, he pointed out, the 2025-26 sugarcane crushing season is set to begin on time in October 2025, with an estimated closing stock of around 5.4 MT by the end of the season, which is expected to be more than adequate. 

"Additionally, the varietal replacement activity in Uttar Pradesh and other north Indian states has shown marked improvement. This would also result in better yields and recovery in the 2025-26 sugar season in these regions also," Ballani had added. 

Isma estimates total sugar consumption in 2024-25 season to be around 28 MT, down from 29 MT last year as the bump that elections provided to sugar sales won’t be there in this year. On the retail sugar prices, millers are confident that retail prices would hover around Rs 43-44 per kg, almost at the same level as last year. 

“The biggest highlight of this season is that we have cleared almost 99.9 per cent of previous year’s sugarcane dues while nearly 80 per cent of the current season’s dues have been settled as on date,” Ballani said. He said that the timely decision of the government to allow a million MT in exports has resulted in an additional outgo of close to Rs 21,000 crore to farmers between January and March. 

“Once the entire 1 MT of sugar meant for exports is shipped out of India, a revenue of around $500 million is projected to be earned by the sugar sector,” Ballani said. Seconding his views, Tarun Sawhney, vice chairman and managing director of Triveni Engineering and Industries Ltd, one of the better-known sugar firms in the country, says that talk of any shortage in sugar supplies due to drop in production is simply disinformation. 

He, too, says that the decision to allow exports was a well-thought-out move and any attempt to curtail that would be counter-productive. “First, I think we have more than enough sugar. Second, I also feel that the decision to allow one million tonnes of exports - I wish it had been a little bit more - was a brilliant decision," he said. "It allowed sugar prices to rise a little bit in an environment where Fair and Remunerative Price (FRP) and State Advised Price (SAP) has been rising consistently over many years and sugar prices have been absolutely at a standstill, a little bit of an increase 2-3 per cent is not a huge increase. Also, the exports allow us to evacuate a small but notable amount of sugar. And, it's important for two reasons. First, it allows us to remain a part of the global sugar ecosystem and second, now that we are in the race, I hope we are allowed to export next year as well,” Sawhney told Business Standard.

 

He said though sugar production numbers have fallen since the beginning of the 2024-25 season that runs from October through September, by no means is there any cause for any alarm. 

 

Festive worries

 

On an early Diwali and its impact on consumption and stocks, Sawhney said that Diwali coming early is inconsequential as India will have a robust closing stock to meet that. 

“In fact, Diwali coming early is a good sign, because sugar factories usually wait for Diwali, and then start their operations, especially in India. So Diwali coming early means we'll have an early start, which means you'll have more new sugar in the market,” he said. 

Sawhney was also very positive on exports saying that bulk of the shipments will happen in April and May also at good prices as global sugar markets are showing signs of firming up. 

“Northern Mills have sold off almost 95 per cent of their allocation export quota and now the exports are in the hands of traders which usually happens through direct dealings,” he said.

 

Electoral albatross

 

One unknown variable which could have a direct impact on any policy decision is the coming state elections in Bihar. As per observers, the state could likely have its next state polls sometime in early October, and any sharp spike in sugar prices due to low supplies during the Diwali and Chhat festivities could have a negative impact on the electoral prospects of the ruling dispensation.

 

Questions of availability remain

 

Though a large section of the industry believes that sugar production will be adequate in 2024-25 season to meet all demands including adequate quantities for making ethanol, there is a section that is concerned about supplies in the major festival months of August through October this year. 

According to senior industry officials, domestic closing stock of sugar - after accounting for domestic consumption of 28.5 MT and exports of 1 MT and 3.2-3.5 MT diversion towards ethanol - would be somewhere around 4.4-4.8 MT by the end of September, bang in the middle of the festival season. 

“This could create a touch-and-go situation," a senior official said. "Though good enough to meet the first two months’ consumption, any further drop in total production numbers could complicate the situation.” 

So far, he said, his production estimates align with that of the cooperative sector, which is around 25.9 MT. “But, a further decline of 100,000 tonnes in production cannot be ruled out by the middle of this month as some mills are diverting more sugar towards making Extra Neutral Alcohol (ENA) to take advantage of its high prices,” this official pointed out. 

He said that most of sugar closing stocks of 4.4-4.8 MT would be housed in North India, which could cause a regional imbalance in Maharashtra and Karnataka. 

“Major festivals in Maharashtra start from August with the commencement of Ganesh Chaturthi, which is why I am little worried about the supply and demand situation,” he explained. 

He said that to address the situation, the central government should immediately start a scheme to incentivise sugar mills to start their crushing for the 2025—26 (October to September) season early. 

“Usually, crushing starts from November and the new sugar starts arriving in the market from December onwards but if mills are incentivised for the loss in recovery due to early crushing, they can start sugarcane crushing from October 1 itself,” the official said. 

He said that in such a situation, not only new sugar will come into the market early, but the closing stocks could also be used fully. “Special incentives for mills are needed as when you crush sugarcane early or premature cane its recovery is lower than normal which needs to be compensated so that mills don’t stand to lose,” the official said.