Sugar prices in India have risen dramatically in recent weeks on concerns of a weather-driven supply shortage, prompting expectations of a drop in ethanol production from the feedstock.
Indian retail sugar prices rose to 63.97 rupee/kg (67¢/kg) on 25 August from Rs48.18/kg on 20 July, data from the ministry of consumer affairs, food and public distribution show. Soaring prices prompted the government on 20 August to allow tariff-free imports of 1mn t of sugar until 31 October to ease rising prices and concerns over low stock availability. This could prompt the first major sugar import into India, the world's second-largest producer, since 2016-17 after prolonged poor rainfall in Maharashtra and Karnataka, the two largest sugarcane-producing states.
Sugar prices have risen sharply globally due to the prospect of tight international supply because of weather concerns. Forecasts of a strong El Nino weather pattern have raised concerns about irregular rainfall in major sugar-producing countries such as Brazil, potentially affecting production. The October New York sugar futures on Ice has been trading at its highest level since May 2025, reaching 17.27¢/lb on 25 August.
Retail sugar prices continued to rise in India following the government's intervention, while ex-mill prices have declined slightly. Kolhapur wholesale sugar prices on the National Commodity and Derivatives Exchange have fallen by 12.8pc since last week to Rs5,220/quintal on 21 August.
The diversion of sugar to ethanol towards India's E20 blending programme has been widely blamed for rising consumer prices. But the government has dismissed this, citing lower domestic production, increased demand ahead of the festive season, weather-related damage to sugarcane crops, and hoarding by some industry participants for the price hike. The government issued a temporary order imposing a 15-day stock limit on consumers buying ethanol in bulk, aiming to prevent hoarding. The order will take effect from 1 September.
Market participants expect a reduction in sugarcane-based ethanol production for the upcoming seasons. There will be significantly less diversion of sugar for ethanol production going forward, a Delhi-based ethanol trader said. The source noted that the trend started well before sugar prices rose due to expected shortages. Sugarcane is highly susceptible to weather patterns, and as a long-harvest crop, its yield is difficult to forecast, he added.
Sugarcane-based feedstocks, including sugarcane juice, B-heavy molasses and C-heavy molasses, account for the second largest share of total ethanol production, according to All India Distillers Association data. Grain-based feedstocks such as Surplus Food Corporation of India rice and maize are the main feedstocks, collectively making up over 75pc of ethanol production.
Hence, massive grain-based manufacturing dominates ethanol output. Producers are expected to increasingly rely on underutilised grain-based capacity to compensate for the reduction in sugar-based ethanol production, said Dilip Patil, regional director-west for the Indian Federation of Green Energy.
Investors expect untimely rains and higher rates to prompt manufacturers to prioritise sugar over sugarcane juice for ethanol, but grain-based ethanol plants will offset any shortfall, Praj Industries president Atul Mulay said. New grain-based units are coming online, and many existing ones are expanding capacity, he added.
The existing E20 programme is unlikely to be affected despite debate over using sugar as a feedstock. "Sugar-based ethanol production will continue its journey. There will be cyclic high and low production because of external factors," Indian Federation of Green Energy director general Sanjay Ganjoo said.
Volatility in the sugar market did not affect domestic ethanol rates, which are set by the government. The Argus assessment of US ethanol delivered to Mumbai remained unaffected, as global production and freight costs largely determine the price. Argus assessed the Mumbai cfr price at $770/t on 26 August.
