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The Indian sugar industry is passing through a challenging phase marked by record production, weak prices, and rising costs. What should have been a positive year has instead turned into a cost-price squeeze, straining mill liquidity and delaying payments to farmers.
By late December 2025, the situation has reached a critical point, with surplus stocks, falling ex-mill prices, and mounting cane arrears putting pressure on the entire value chain.
Production: When Abundance Becomes a Problem
High sugar output has resulted in a domestic glut.
Industry estimates suggest net sugar production for the 2025–26 season at around 30.95 million tonnes, while total availability, including opening stocks, is close to 35.95 million tonnes. Against this, domestic consumption remains largely unchanged at about 28.5 million tonnes, leaving a surplus of nearly 7.5 million tonnes.
This excess supply has pushed ex-mill prices sharply lower. In major producing states such as Maharashtra, prices have fallen to ₹35.50–₹36.50 per kg, significantly below the average production cost of ₹41.70 per kg.
Liquidity Stress and Rising Cane Arrears
The widening gap between input costs and selling prices has triggered a liquidity crunch.
The Fair and Remunerative Price (FRP) for sugarcane for the 2025–26 season has been raised to ₹355 per quintal, while the Minimum Selling Price (MSP) of sugar has remained frozen at ₹31 per kg for nearly seven years. This mismatch has eroded mill margins.
As a result, cane arrears have been rising sharply. In Maharashtra alone, dues crossed ₹2,000 crore by early December 2025. Industry bodies warn that arrears could escalate nationwide if corrective steps are delayed.
Ethanol Diversion Faces Headwinds
Diverting surplus sugar toward ethanol production was expected to offer relief, but challenges persist.
Although India has achieved its 20 percent ethanol blending target ahead of schedule, mills are seeking a higher share for sugarcane-based ethanol in the blending mix. At present, sugarcane contributes roughly 35 percent, while the industry is pushing for 50–55 percent.
Adding to the problem, ethanol procurement prices for sugarcane feedstocks have not been revised for the past three years, even as cane costs have risen by around 17 percent. This has reduced the viability of ethanol production for several mills.
Policy Signals Offer Limited Relief
There are early signs of government intervention, though the impact remains uncertain.
Officials have indicated that a revision in the MSP of sugar is under active consideration, with an announcement expected in January 2026. The industry has been pressing for an increase to at least ₹41 per kg to align prices with production costs.
To ease excess stocks, the government has also permitted an initial export quota of 1.5 million tonnes for the current season. However, global sugar prices remain under pressure due to strong production in Brazil, limiting the benefit of exports.
Meanwhile, the proposed Sugar Development Board is being viewed as a step toward longer-term reform, potentially moving the sector toward a more flexible, revenue-sharing framework between mills and farmers.
Conclusion
The Indian sugar industry is caught between surplus production, rising costs, and slow policy adjustments. While short-term measures such as MSP revisions and exports may offer temporary relief, lasting stability will depend on structural reforms that better align cane pricing, sugar realisations, and ethanol economics. Until then, mills and farmers alike will continue to navigate a tight and uncertain market.