Government could have foreseen the spike in sugar prices

Why in the News

Retail sugar prices surged to unprecedented levels in August, and the Union government has responded by allowing duty-free imports of 10 lakh metric tonnes of raw sugar until 31 October 2026, the first such window in a decade. The retail price rose 41 per cent, from Rs 46.27 per kilogram on 26 August 2025 to a high of Rs 65.05 on the same date this year. The government attributed the rise to festive season demand, hoarding, lower than expected production, tightening global supplies and weather related crop damage. An examination of the monthly price series and of the season’s production estimates shows that the tightening was signalled well in advance, which moves the question from what caused the spike to why it was not anticipated.

Why does the government’s own explanation not hold?

1. Five factors were cited: The rise was attributed to increased demand ahead of the festive season, hoarding, lower than expected production, tightening global supplies and weather related crop damage.
2. The festive season argument fails on the data: Monthly all-India average retail prices since January 2016 show this year’s increase as an outlier, unseen ahead of or during any earlier festive season.
3. The remaining factors were monitorable: Global supply pressure and the gap between estimated and actual production are variables the government tracks continuously.

What warnings were available before August?

1. A global price signal: In the first week of August, the Food and Agriculture Organization (FAO) of the United Nations reported that its Sugar Price Index, which tracks international export prices for sugar, had increased by 5.6 per cent in July, indicating the possibility of a further rise.
2. The FAO named the causes: It attributed the increase to concerns over crop yields in the European Union from hot weather, and to El Nino related weather conditions affecting production in key Asian countries.
3. Brazil was the larger signal: Expectations of lower sugar production in Brazil, the world’s largest sugar producer, pointed to pressure on global supplies.
4. The assessment: On these indications, the tightening of domestic sugar availability was not entirely unforeseeable.

Where did the production estimates go wrong?

1. A large estimation gap: Initial estimates for 2025-26 sugar production were around 343 lakh tonnes, against a current estimate of around 306 lakh tonnes.
2. Policy was set on the higher number: Exports were allowed and ethanol diversion targets were fixed on the basis of those initial estimates.
3. The consequence: When actual production turned out lower, domestic availability became tighter than anticipated.
4. The estimates ignored the State level trend: They were set high against a production trend that was declining or fluctuating in Uttar Pradesh and Maharashtra, which together account for 71 per cent of cane and 65 per cent of sugar production.

What does the longer production trend show?

1. The peak is four years old: All-India sugarcane production has declined since 2022-23, when it reached its highest level of 490.5 million metric tonnes.
2. The decline was acknowledged: A reply to the Rajya Sabha in March 2025 recorded the fall, and held that production was still sufficient to cater to domestic needs.
3. There is little export cushion: Of all sugar produced, 83 per cent is used for domestic consumption.
4. Import dependence has one address: India’s sugar imports have predominantly come from Brazil.

Is ethanol diversion the cause?

1. The allegation: The Opposition attributed the price rise to the diversion of cane for ethanol production.
2. The short term assessment: Ethanol diversion is not identified as a key reason for the current spike, and its weight over the longer term is a separate question.
3. The feedstock has shifted: In recent years maize has occupied a major share of the feedstock for India’s ethanol blending, a change from the earlier heavy dependence on sugarcane.
4. The historical test: No comparable price surge occurred in the years when ethanol production relied heavily on sugarcane.

Challenges to sugar price management

1. Cane pricing is administered and delinked from sugar realisation: The Centre fixes a Fair and Remunerative Price (FRP) for cane and several States announce a higher State Advised Price, so mills accumulate cane arrears whenever sugar prices fall. Eg. Uttar Pradesh has for years announced a State Advised Price above the central FRP.
   The Fix: Move to a revenue sharing formula that links the cane price to realisation from sugar and its by-products, as the Rangarajan Committee recommended in 2012.
2. Trade controls swing between extremes: Export permissions and stock limits are switched on and off in reaction to price, which destroys planning certainty for mills and for farmers. Eg. India restricted sugar exports from the 2023-24 season after two seasons of large shipments.
   The Fix: Publish a rule based trigger that ties export and import decisions to a stated closing stock norm rather than to the price of the month.
3. The crop concentrates water use in stressed basins: Sugarcane is among the most water intensive crops grown in India and takes a disproportionate share of irrigation where it is dominant. Eg. Cane cultivation in Maharashtra’s Marathwada region draws heavily on irrigation in years of deficient rainfall.
   The Fix: Make drip irrigation a condition for new mill licences and for cane area expansion in water deficit districts.

Conclusion

Prices have eased from the August peak and the import window is still open. The unresolved problem is not the import decision but the estimate that preceded it. What would change the outcome is a mid-season revision point at which export and diversion permissions are re-set against actual crushing data rather than pre-season projections. Without it, the next surprise in the cane crop will again be discovered at the retail counter.

Back2Basics: Ethanol Blended Petrol Programme

1. What it is: A programme of the Ministry of Petroleum and Natural Gas under which oil marketing companies blend ethanol into petrol before sale.
2. Launch and target: It was launched in 2003 and was later given a target of 20 per cent blending, which the government advanced from 2030 to the 2025-26 ethanol supply year.
3. Permitted feedstocks: Ethanol is procured from sugarcane juice and syrup, B-heavy and C-heavy molasses, damaged food grains, surplus rice and maize.
4. Why it interacts with sugar: Procurement prices are fixed administratively for each feedstock, and the quantity of cane and molasses that may be diverted to ethanol in a season is regulated by the Department of Food and Public Distribution.

Matching Previous Year Question

“[2025] Consider the following statements: Statement I: Of the two major ethanol producers in the world, i.e., Brazil and the United States of America, the former produces more ethanol than the latter. Statement II: Unlike in the United States of America, where corn is the principal feedstock for ethanol production, sugarcane is the principal feedstock for ethanol production in Brazil. Which one of the following is correct in respect of the above statements? (a) Both Statement I and Statement II are correct and Statement II explains Statement I (b) Both Statement I and Statement II are correct but Statement II does not explain Statement I (c) Statement I is correct but Statement II is not correct (d) Statement I is not correct but Statement II is correct ANSWER: (d)”