Why sugar prices are rising: The story behind India's supply crunch

India, one of the world's major sugar producers, is facing a sharp rise in sugar prices even after the country reported record sugarcane production.Retail sugar prices, which were around Rs 48 per kg, have risen to more than Rs 65 per kg in some markets, putting pressure on consumers ahead of the festive season.The government has attributed some of the pressure to weather-related factors, including a weak monsoon and the impact of El Nino.However, a closer look at the developments over the past several months points to a more complicated picture involving lower sugar recovery, production estimates, exports, ethanol diversion and delays in responding to the emerging supply situation. THE SUGAR RECOVERY RATE PROBLEMThe Agriculture Ministry's third advance estimate, released on May 27, 2026, projected sugarcane production at 5,000.63 lakh tonnes.However, the total quantity of sugarcane produced does not necessarily translate into an equivalent amount of sugar. A crucial metric for the sugar industry is the sugar recovery rate — the amount of sugar that can be extracted from a given quantity of sugarcane.For example, if the recovery rate is 10%, a mill would broadly obtain around 10 kg of sugar from 100 kg of sugarcane.This season, the national average sugar recovery rate fell from around 9.70% to 8.91%, according to the report.This decline meant that the headline figure for sugarcane production did not translate into the expected level of sugar output.The report links the lower recovery to crop health issues, including red rot and top borer, which affected sugarcane in major producing states such as Uttar Pradesh, Maharashtra and Karnataka.These diseases can affect the sucrose content of the crop, reducing the amount of sugar that mills are ultimately able to extract.The result was a gap between the apparently strong sugarcane production numbers and the actual sugar available from the crop.EARLY WARNING SIGNS FROM THE FIELDThe report also raises questions about whether early signals from the field were adequately reflected in production and supply projections.According to the report, field surveys conducted by scientists associated with the Indian Council of Agricultural Research (ICAR) between December 2025 and February 2026 had identified the spread of red rot in important sugar-producing regions.The report argues that such field-level information should have helped policymakers assess the likely impact on sugar recovery and final production.However, the available information did not translate into an early enough adjustment of supply expectations, according to the report.This created a situation where headline sugarcane production estimates remained strong even as the quality and recovery of the crop were coming under pressure.THE EXPORT QUESTIONThe timing of sugar exports has also become an important part of the supply story.The report points to government decisions that allowed sugar exports even as domestic availability was becoming tighter.The initial export allocation was around 15 lakh tonnes, which was subsequently increased to 20 lakh tonnes in February 2026.By the end of the crushing season, around 8 lakh tonnes of sugar had been exported, according to the report.The concern was that lower-than-expected domestic production, combined with exports, would reduce the quantity available for the domestic market.By May-end, when the crushing season had ended and the extent of the production shortfall had become clearer, the government moved to restrict exports.But by then, part of the domestic supply had already been shipped overseas.The government is now having to turn to imports, with 10 lakh tonnes of raw sugar being brought in duty-free, according to the report.The sequence has raised questions about whether export decisions could have been recalibrated earlier as production and recovery estimates weakened.DID ETHANOL PLAY A ROLE?Ethanol is another factor complicating the sugar balance.India's sugar industry has increasingly diverted sugarcane and sugarcane juice towards ethanol production as the government has promoted ethanol blending in petrol.During the current season, some sugarcane and its derivatives were therefore used for ethanol rather than sugar production.The report questions whether the diversion was adequately factored into supply projections at the beginning of the season.As sugar availability tightened, however, ethanol production increasingly shifted towards other feedstocks such as maize and damaged or surplus grains.The larger issue is the need to balance India's ethanol ambitions with the availability of sugar for domestic consumption, particularly when production estimates begin to weaken.The supply situation was further complicated by concerns around stocks held by wholesalers and traders.According to the report, market participants began anticipating tighter supplies around May and June, with wholesale prices subsequently rising.The report alleges that some traders began holding back stocks as expectations of a shortage grew, contributing to tighter market availability.The government has a price monitoring mechanism that tracks daily movements in essential commodities.However, the sharp increase in sugar prices eventually prompted stronger action, including physical inspections and tighter restrictions on the amount of stock that traders could hold.The question raised by the report is whether such measures could have been introduced earlier, when the first signs of a supply squeeze emerged.WHY DID THE SHORTAGE BECOME VISIBLE SO LATE?The central issue running through the sugar story is the gap between sugarcane production and actual sugar availability.At the beginning of the season, the production outlook appeared comfortable. But as the crushing season progressed, lower recovery rates and crop disease reduced the amount of sugar that mills could produce.At the same time, sugar was being exported and part of the sugarcane feedstock was being diverted towards ethanol.By the time the scale of the production shortfall became clearer, the government had already allowed a significant quantity of sugar to leave the country.The report estimates that actual sugar production could end up around 300 lakh metric tonnes, compared with an earlier estimate of around 343 LMT — a difference of roughly 37 lakh tonnes.That gap became particularly important as the crushing season ended and no fresh domestic production could immediately make up for the shortfall.FROM EXPORTER TO IMPORTERIndia's sugar market is therefore facing an unusual reversal.A country that has traditionally been among the world's major sugar producers and exporters is now importing raw sugar to ensure domestic availability.The government has already moved to bring in 10 lakh tonnes of raw sugar duty-free, while restrictions have been placed on exports.At the consumer end, the impact is being felt through higher retail prices, with sugar crossing Rs 65 per kg in some markets.With the festive season approaching, the pressure on prices is likely to remain a key concern for consumers.The developments also highlight the importance of looking beyond headline agricultural production numbers. For commodities such as sugar, the final availability depends on several moving parts — crop quality, sugar recovery, domestic consumption, ethanol diversion, exports, stocks and imports.The current episode shows how a seemingly comfortable production picture can change quickly when several of these factors move in the same direction.- EndsPublished On: Aug 24, 2026 11:20 IST