Industry Odisha Bureau, Oct 24: Sugar mills are keeping less from every sale despite rising prices. Cane costs, sales controls and shifting ethanol rules are squeezing margins. Policymakers must balance farmers, consumers, mills and biofuel goals.
Indian sugar mills are earning thinner margins, even as wholesale sugar prices climb. An analysis of five leading sugar companies shows operating margins narrowing since FY2021–22. The authors, Madhuri Saripalle and Yash Mohan Gupta, link the squeeze to regulation.
Revenue-weighted EBITDA margins fell from 10.8% in FY2021–22 to 8.4% in FY2024–25. They edged up only to 8.47% in FY2025–26. That is a drop of about 2.33 percentage points over four years. EBITDA measures operating earnings before interest, tax, depreciation and amortisation. A lower margin does not necessarily mean lower revenue or absolute profit.
Thinner margins leave less cash for cane payments, debt and investment. Some mills may then delay farmer payments, creating arrears and fiscal liabilities for government.
The Centre sets the Fair and Remunerative Price (FRP) that mills must pay for cane. Government also controls domestic sales quotas and sugar exports. Between FY2020–21 and FY2025–26, wholesale sugar prices rose about 23%. Cane FRP rose roughly 25% over the same period. With cane costs rising slightly faster than prices, margins had little room to widen.
Ethanol offers mills a second income stream, but it comes with its own controls. Mills can make A- ethanol from cane juice, B-heavy molasses or C-heavy molasses. Juice and B-heavy routes divert more sugar; C-heavy, the final residue, diverts far less. Over the period studied, juice and B-heavy ethanol prices rose about 5%, C-heavy prices 27%. This tilts mills towards C-heavy production, preserving sugar supplies while advancing biofuel goals. The authors argue ethanol pricing has become another regulatory lever.
In December 2023, the government banned cane juice and syrup for ethanol production. Within days, it replaced the ban with a cap on sugar diversion. A senior industry executive cited in the analysis said ad hoc moves disrupt product mix. Flexible distilleries had to switch to unsuited molasses routes, leaving capacity idle. Mid-season changes also disrupted steam balances and the coordination of crystallisation and fermentation. Effects varied by mill.
Such uncertainty complicates cash-flow forecasts, making lenders wary of financing expansion. Mills recover extra costs only when market prices happen to be favourable. When realisations fall short, gaps may be bridged by bank loans or occasional state support. That leaves lenders exposed to credit risk if repayments falter.
Many mills are now building distilleries that can switch between sugar and multiple ethanol feedstocks. Others use bagasse, the fibrous cane residue, for cogeneration of power and steam. Distillery waste becomes potash or bio-fertiliser, and fermentation CO₂ is sold to industry. These ventures need capital and markets, and not all will pay off. Still, more flexible, diversified mills may better absorb price and policy shocks. This may explain wide gaps in net profit margins across companies.
In Brazil, market-linked cane prices and sugar-ethanol flexibility help align costs with revenue. That approach reduces, but does not remove, market and policy risk. Brazil’s industry structure and institutions also differ significantly from India’s. Millions of Indian farmers depend on cane, and sugar is a household staple. Policymakers must therefore balance farmer incomes, consumer prices, mill viability and biofuel targets.
