 "Sugar sector, Agriculture, Sanjeev Chopra, Union Food Secretary, ethanol")
“Happy days are here again for the sugar sector!” exulted Union Food Secretary Sanjeev Chopra at a conference of sugar and ethanol makers, pretty much summing up the mood on the opening session of a two-day event earlier this month.
The main question before the participants — leading players in the domestic and global sugar sector, major ethanol industry figures, and a host of other stakeholders — was this: What will India do with the nearly 12 million tonnes of surplus sweetener that it is set to produce in the coming 2025-26 sugar season running from October to September?
The upbeat mood marked a healthy departure from previous such events, held over the past two years, where participants would fret over how sugar supplies just about met domestic demand and about the hit to sugar output from government curbs on exports among other restrictive measures.
But not anymore: The latest conference on sugar and bio-energy organised by the Indian Sugar and Bio-Energy Association (Isma) was all about optimism and hope.
Reasons for hope
One big reason is the jump in production expected in the 2025-26 season.
According to Isma’s first estimate, India’s gross sugar output (without accounting for diversion towards ethanol production) in the 2025-26 season is projected to be 34.9 million tonnes — almost 18 per cent more than the current year’s output of 29.5 million tonnes.
This, Isma says, is on account of good monsoon showers in June and July; an 8 per cent rise in acreage in Maharashtra and 6 per cent in Karnataka as compared with the 2024-25 sugar season; and a 30-40 per cent increase in water reservoir levels in major growing regions.
With an estimated consumption of 28.4 million tonnes in 2025-26, Isma now expects India to be sitting atop a pile of around 12 million tonnes of surplus sugar in the 2025-26 season (after adding opening stocks from the previous year).
To absorb this, it wants the government to divert 4.5-5 million tonnes for producing ethanol — a clean fuel widely used in cars — and allow exports of 2 million tonnes. These were among three demands Isma put across in a recent meeting. The third was for the government to resolve an ethanol pricing conundrum.
In January 2025, India permitted sugar mills to export as much as one million tonnes this season, easing restrictions that had curbed shipments for more than a year. The country has shipped much larger volumes in the past.
“We would like the government to open the export window from now till March as then the realisation would go straight into making sugarcane price payments,” Gautam Goel, president, Isma, said.
The National Federation of Cooperative Sugar Factories (NFCSF), the other major industry association, feels that closing stocks of sugar in 2025-26 — that is, the opening stocks of 2026-27 — will be in the range of 5.33 million tonnes even after allowing for 2 million tonnes for exports and 4.5 million tonnes for ethanol (see chart).
This is good enough to meet two months of domestic demand.
“However, the grey area here is the surplus monsoon that is now lashing parts of Maharashtra and Uttar Pradesh, the two biggest producing states. How much this will impact the standing crop remains to be seen,” Prakash Naiknavare, managing director of NFCSF, told Business Standard.
“The sugarcane crop starts to rot if the monsoon rains end up submerging it for 5-6 days at a stretch,” Naiknavare added.
The ethanol factor
With sugar being in surplus, industry players expect the crop to regain its 45-50 per cent share in India’s total ethanol production, something it had lost to grains — the other source of ethanol — in the last few years. This was because of restrictions placed by the government on the production of molasses, a byproduct of sugar that is used to produce ethanol.
For the 2025-26 ethanol supply year (ESY) that starts in November, most industry players expect that out of the 12 billion litres of ethanol needed to achieve a targeted 20 per cent blending in petrol, sugarcane will contribute 4.5-4.8 billion litres, or around 40 per cent. The rest will come from a combination of rice and other grains drawn from surplus stocks held by the Food Corporation of India.
But though grains are likely to continue dominating the ethanol landscape, ESY 2025-26 could see sugar claiming some of its lost ground.
Till August 31 in ESY 2024-25, around 11.33 billion litres of ethanol have been allocated by oil marketing companies for blending, of which 31 per cent would come from sugarcane-based sources and the rest from grains, according to industry estimates.
Around 8.40 billion litres have already been supplied. Of this, around 2.95 billion litres (around 35 per cent) have come from sugarcane.
“In ESY 2025-26, sugar would regain some of the ground it lost to grains but not fully since a few years, back our share was around 77 per cent. For this to be realised fully, the procurement price for ethanol that has been stagnant for the last three years has to go up,” Naiknavare said.
Rating agency Icra, in a note circulated in July, estimated the revenues of sugar mills to grow by 6-8 per cent in FY2026, shored up by increased sales volumes among other factors.
Despite this, it said the operating profit margin gains for the mills will be modest in FY2026 if ethanol prices remain stagnant. The price of ethanol produced from certain feed stocks derived from sugarcane has not been raised in the last two ESYs. The price is decided by the Union Cabinet.
To be sure, another rating agency, Crisil, said in June that with improved supplies and potentially higher diversion of sugar for blending ethanol with petrol, the operating margins of sugar mills are likely to recover in fiscal 2026.
“This should support credit profiles of sugar players, which saw some pressure last fiscal,” Crisil said.
Sugar price
The NFCSF, in a letter to the Union food secretary on September 16, has called for increasing the minimum sale price (MSP) of sugar to ₹3,900 per quintal from the current ₹3,100 per quintal, something that has remained unrevised since 2019.
The MSP of sugar should ideally be linked to the fair and remunerative price (FRP) that sugar mills pay farmers for sugarcane. However, although the FRP of sugarcane has risen by almost 8 per cent since 2017-18, the MSP of sugar has remained stagnant, impacting profitability for mills.
The average cost of production of sugar in India at present is around ₹4,200 per quintal.
“Since January 2025, the cash and liquidity position of sugar mills has improved a bit as ex-mill realisation from sugar, which was languishing at around ₹3,400-3,500 per quintal, has risen to almost ₹4,000 per quintal and is expected to stay so for the next 4-5 months,” Naiknavare said.
The timely announcement of export quotas acted as a breather for mills in the 2024-25 season.
Challenges for sugar
It’s not as if the sugar sector does not face major challenges.
A controversy on 20 per cent ethanol blending, and its reported impact on fuel efficiency has put the industry on the backfoot.
Moreover, sugarcane yields have again started plateauing in UP due to crop disease, even as propagation of new varieties slow.
All major industry associations, including Isma, reject the view that ethanol blending leads to a drop in mileage or damages vehicle engines, citing extensive testing by oil marketing companies and certification from the Automotive Research Association of India. Negative reports, however, have sown seeds of doubts among stakeholders.
This controversy and a recent clarification by Union Oil Minister Hardeep Singh Puri that the Centre might review the ethanol programme before going in for higher blending mean that future investments into the sector could get impacted, say analysts. Industry estimates indicate that so far, around ₹50,000 crore has been invested into the ethanol sector by both grain- and molasses- based distilleries.
The consensus is that the Centre must move to help cane farmers and sugar mills untangle the web of stagnant sugar and ethanol pricing that has emerged as a policy challenge.
The future could then be sweeter.
