India, a major global sugar producer, is facing a significant domestic shortage that has caused prices to jump by nearly 40%. This situation has compelled the country to import 1 million tonnes of the sweetener, threatening the upcoming peak season for sweets and traditional desserts.
The domestic price increase has been attributed to several factors, with the diversion of sugarcane to ethanol production being a key point of contention. Experts suggest that as India aims to meet its E20 fuel standard, which mandates 20% ethanol blending in petrol, a larger portion of sugarcane is being used for ethanol rather than sugar. This has exacerbated the shortage, particularly in a year of already low sugar output.
The Indian government, however, disputes the extent to which ethanol production is to blame. Officials state that the share of cane diverted to ethanol has actually decreased from 12% in the 2022-23 season to an estimated 9% in 2025-26. They argue that weak production, hoarding by traders, and tighter global supplies are the primary drivers of the sugar price surge.
Some industry representatives echo the government's sentiment. Deepak Ballani of the Indian Sugar Mills Association (ISMA) maintains that existing stock and monthly release quotas are adequate, suggesting that speculation and hoarding, rather than a genuine scarcity, are inflating prices. In response, the government has imposed a three-month cap on stocks held by traders and wholesalers, limiting them to 400 tonnes, to curb hoarding practices.
However, dissenting views, such as that of commentator Suryavanshi, point to a genuine supply squeeze, noting that prices continued to rise even after the imposition of hoarding restrictions. This suggests that market interventions alone may not be sufficient to address the underlying production deficit.
The need for India to import sugar comes at a time when global sugar supplies are also tightening. Adverse weather conditions have impacted production in key sugar-producing regions worldwide. El Niño has affected rainfall in Thailand, while heavy rains have disrupted cane harvesting in Brazil, the world's largest sugar exporter, where increased diversion of cane to ethanol is also occurring. Furthermore, heatwaves have led to expectations of the worst sugar beet harvest in four years in Europe, particularly in France.
US government forecasts predict a global production fall to 184.9 million tonnes this season, down from a record 186.1 million tonnes in the previous year. This global tightness has led to significant price increases in futures markets, with London white sugar futures reaching their highest levels since April 2025 in mid-August, and New York raw sugar futures jumping 4% after India announced its import plans.
Looking ahead, the situation may improve if current high sugar prices incentivize mills to reduce the diversion of sugarcane to ethanol production. Some analysts believe that at current price levels, it may no longer be economically viable for mills to prioritize ethanol over sugar, potentially stabilizing the Indian sugar market in the future. Nevertheless, the recent squeeze serves as a reminder of the need for more accurate crop estimations and careful management of sugar supplies.