India's sugar flip-flop highlights fault lines in agri trade policy regime

The decision to import 1 MT of raw sugar after allowing exports earlier in the season has revived questions over crop estimates, policy predictability and the cost of repeated trade interventions

In a move that was as sudden as it was unexpected, the government last month allowed the import of a million tonnes (mt) of raw sugar after a gap of almost 10 years in a bid to rein in spiralling prices.

 

The August 20 announcement that came less than three months after the government banned sugar exports – after first permitting an additional export of 0.5 mt — exposed a fickle farm trade policy and raised questions about the accuracy of production, consumption, and demand data.

 

In its defence, the government cites a production drop — from 34.3 mt in the 2025-26 crop crop year to 30.6 mt in the 2025-26 crop year; private estimates peg the drop even steeper at around 28 mt.

 

It claims the drop caught it off-guard — the sugarcane crop was impacted by diseases like red rot and stem borer, besides being exposed to prolonged weather troubles, likely a reference to prolonged dry weather in some parts of the country and then excess rainfall in others during the crop maturing stage.

 

In sugar, within a single marketing year — 2025-26; it runs from October to September — the Centre first permitted exports of 1.5 mt, then topped it up with another 0.5 mt, but weeks later banned exports until September. And then on August 20, it allowed the import of 1 mt of raw sugar. 

 

Not just sugar

 

Year after year, a similar pattern of trade uncertainty has played out in sugar, wheat, rice, onions, cotton and pulses. But these sudden decisions to allow imports or ban exports at the slightest rise in prices have been a pain-point for India’s farm sector for decades.

 

Successive governments have attempted multiple times to adopt a specific policy to boost India’s agricultural export target — to over $60 billion — with a clear road map for a predictable import-export regime, doing away with arbitrary curbs.

 

However, none has succeeded — more often than not the need to keep prices in check has trumped the interest of growers, millers or free trade.

 

Experts said, the on-again, off-again policy, driven purely by domestic price considerations, has several immediate effects — it can lead to a drop in farmers' earnings; deprive them of the chance to gain from any rises in global commodity markets; and lead to a loss of valuable export markets.

 

Traders said Bangladesh’s market for Indian onions is a prime example of a market that has been seriously dented due to India’s policy uncertainty.

 

Bangladesh accounted for almost half of India’s annual onion exports of 1-2 mt until a few years ago. But traders said due to repeated bans on exports and other curbs, the volumes dwindled — from a high of almost 40 per cent share in India’s onion exports to 15-20 per cent in recent years.

 

The eastern neighbour, meanwhile, has moved to more stable suppliers like Pakistan and China. And it has also started growing its own onions in an effort to reduce its reliance on India, traders said.

 

The same thing happens with wheat and rice. In the case of rice, India’s ban on exports in 2022 and 2023 did not lead to a dramatic or drastic shift in buyers, though some trade reports at the time had said that it did cause shortages in global markets, particularly in Africa, for some time. 

 

So many orders

 

Between May 2022 and August 2026, there were as many as 14 notifications by the Directorate General of Foreign Trade (DGFT) regarding the export and import policy for wheat and wheat products, and nine related to rice from September 2022 to March 2025.

 

For sugar, there were seven trade orders from the same period until the August 2026 import order, and for onions, the policy changed around six times.

 

Cotton is another major commodity that has been at the receiving end of frequent export bans and easing of import restrictions.

 

Traders said a decision in June to allow import of duty-free cotton could end up hurting growers if it is allowed to be extended beyond its scheduled end of October 31, as it would clash directly with the period when Indian cotton farmers head to the market.

 

Some experts, such as Ashok Gulati, a well-known agriculture economist and Infosys Chair Professor for Agriculture at the India Council for Research on International Economic Relations (Icrier), have questioned the timing of the latest sugar import decision.

 

Their argument is that since the government knew sugar production was falling short as early as in March, there was no point in waiting until August to announce the import. 

 

‘A perfect storm’

 

“Sugar prices have surged sharply because of a total failure of policy with the government failing to respond in time to declining stocks and production,” said Gulati.

 

Calling the situation a “perfect storm”, Gulati in an interview to an online news platform recently said that sugar prices rose 44.4 per cent between July and August 20, reflecting a severe mismatch between supply and demand. He said the government was aware of the emerging shortage much in advance but failed to act.

 

Gultai said opening sugar stocks at the beginning of the 2025-26 sugar year were around 5 mt, compared with nearly 8 mt a year earlier, a decline of about 3 mt.

 

Sugar production was also expected to fall by around 11 per cent from the previous year, while some of the available sugar was being diverted towards ethanol production. Around 2.4-2.9 mt of sugar was diverted for ethanol in 2025-26.

 

Gulati said these factors, coupled with the approaching festive season and rising global sugar prices, should have got the government to intervene much earlier.

 

“Latest, by April-end or May, they should have opened up imports,” he said, arguing that by then most of the season’s sugar production would have been processed, so the government would have had a clearer picture of supply.

 

He criticised the government’s decision to allow duty-free imports only of raw sugar while retaining the 100 per cent import duty on refined sugar arguing that raw sugar has to be processed before it can be consumed domestically, whereas refined sugar is what consumers directly use.

 

Gulati said the government’s approach reflected a broader reluctance to allow markets to function. He argued that futures markets should have been allowed to operate and traders given the flexibility to fix import contracts in advance. Keeping import duties high, he said, prevented timely market correction. 

 

Domino effect

 

The sharp rise in prices, therefore, cannot simply be blamed on hoarding or traders. “It is a policy failure,” Gulati said, adding that the government had all the necessary information on stocks, production and ethanol diversion well before the current supply squeeze emerged.

 

Some traders said that the government decision to allow imports just ahead of the 2026-27 sugarcane crushing season, which starts in October 2026, also carried the risk of pulling down mill-gate prices, which in turn could harm millers’ ability to pay sugarcane farmers on time for the next crop.

 

These traders believe that an ex-mill price of around ₹50 per kg would be positive for sugar factories as the production cost is estimated at around ₹42-43 per kg.

 

“Any drop below these levels would start hurting the millers as their margins will get squeezed,”a senior industry official remarked.

 

In the last few days, trade sources indicated, ex-mill sugar prices had dropped by almost 30 per cent to around ₹45-46 per kg, from a peak of ₹67 per kg on August 18, following the government interventions.

 

The warning from the farms is clear: A prolonged drop below this level is not in the interest of growers and millers.