Industry Odisha Bureau, Aug 25: India’s sugar market has undergone a stunning reversal. Twelve months ago, policymakers and industry officials expected ample supplies to support both domestic consumption and a significant export programme. Today, prices have climbed to historic highs, the government has suspended exports, tightened stockholding limits and opened imports for the first time in nearly a decade all to manage what has become an acute supply shortage as the festive season begins.
Retail sugar prices in major urban centres have surged roughly 40% in a fortnight, touching ₹7,100 per 100 kilograms at some mills highs never recorded in independent India’s history. The dramatic swing raises a critical question about forecasting accuracy and policy-making in agricultural commodities: how did such a comfortable margin of expected availability collapse so rapidly?
The Projection That Changed Everything
When the 2025-26 sugar season opened on October 1, 2025, the Indian Sugar and Bio-energy Manufacturers Association forecast gross production at 34.90 million tonnes, representing an 18.3% year-on-year increase from 29.6 MT the previous season. That estimate shaped everything that followed.
On the basis of this projection, the government approved export permissions totalling 2 million tonnes 1.5 MT in November 2025 and an additional 500,000 tonnes in February. This was a marked departure from the prior year, when exports had been permitted only in January 2025 and limited to 1 MT. The industry, facing pressure to pay sugarcane farmers and clear mill dues, pressed for these export permissions to prevent inventory accumulation.
The mathematics appeared straightforward. With opening stocks of approximately 5 MT and gross production expected at 34.90 MT, the industry body calculated total sugar availability at nearly 36 MT. Allowing for approximately 3.4 MT to be diverted to ethanol production and domestic consumption of about 28.5 MT, a comfortable surplus remained.
By May, however, the policy framework had inverted entirely. The government banned sugar exports until September 30, citing the need to preserve domestic supplies. By August, it had imposed monthly sales quotas at 2.25 MT unchanged from the prior year despite anticipation of higher festive-season demand and restricted large industrial buyers from holding more than 15 days of sugar requirements from September onwards.
The Steady Erosion of Production Expectations
The reversal was not sudden; it was the culmination of a year-long erosion of production estimates that accelerated as the crushing season progressed.
In November 2025, ISMA had already trimmed its gross production forecast to 34.35 MT. By February, the reduction was sharper: 32.4 MT, a downward revision equivalent to one month of the nation’s entire sugar consumption. The industry also reduced its estimate of net sugar production production available for food use after ethanol diversion to 29.3 MT.
A subsequent April estimate of 32 MT represented further weakness. By August, the government’s own projection had settled at 30.6 MT. With 2.9 MT now expected to be diverted for ethanol and 800,000 tonnes already exported, the remaining balance for domestic use stood at 26.9 MT below the estimated consumption of 28.5 MT.
The All India Sugar Trade Association had signalled the scale of the problem earlier, cutting its net production forecast to 28.3 MT in early March, citing lower yields in Maharashtra and Karnataka, two states accounting for half the country’s production variability.
This series of downward revisions was crucial. The export permissions and policy settings had been locked in based on comfort over supply. As actual production fell short of expectations with each successive estimate, the market shifted rapidly from comfortable surplus to uncomfortable deficit.
Prices Respond to Vanishing Supplies
The transmission to retail prices was swift. Ex-mill prices in Maharashtra and Uttar Pradesh, which had been climbing since late June, reached ₹4,880–4,980 per 100 kg in the first week of August. By August 18, they touched ₹5,350. Within a single week, Uttar Pradesh mill prices jumped to ₹5,850 from ₹4,830.
The government’s response came late on August 19, further tightening stockholding limits. On August 20, it scrapped a 100% import tariff and announced permission for 1 MT of sugar imports the first significant import approval in nearly a decade. That same day, prices shot to ₹7,100 per 100 kg in Karnataka mills.
The Ethanol Question
Ethanol policy complicates the narrative but does not fully explain it. At the outset of the season, industry participants had expected ethanol diversion of 4.5-5 MT. ISMA had estimated 3.2-3.4 MT. The actual diversion now stands at approximately 3 MT, meaning less sugar entered the ethanol supply chain than anticipated.
Logically, lower ethanol consumption should have freed more sugar for the domestic food market. It did not, because production shortfalls proved larger than the ethanol savings. The government has explicitly rejected ethanol as the primary cause of the price surge, pointing instead to lower production, higher festive-season demand and weather-related crop damage particularly Red Rot and Top Borer disease, along with waterlogging from excess monsoon rainfall in Maharashtra.
The statement carries weight: ethanol’s share of sugar diversion has actually declined from approximately 12% in 2022-23 to around 9% in 2025-26, while nearly three-quarters of ethanol production now comes from grains, particularly maize. Yet the fact remains that production estimates proved persistently optimistic, and the policies based on those estimates locked in export commitments that later became unsustainable.
The Forecasting Failure and Its Consequences
This raises a more fundamental issue. ISMA’s initial estimates have repeatedly overshot actual production across the past four sugar seasons. In each year, the industry body’s first forecast was significantly higher than eventual output.
The government has countered that its own production estimates derive from inputs submitted by Cane and Sugar Commissioners in producing states, not from industry forecasts. Yet the practical effect is similar: the initial optimistic assessments shaped policy export permissions, stock-holding rules and quota settings that proved incompatible with later-revised production numbers.
Deepak Pareek, founder of agricultural advisory HnyB, captured the broader concern: “The government has understandably relied on industry bodies such as ISMA for production assessments, given their close visibility of the sector. However, their repeated revisions in sugar and cane estimates over recent years suggest both official and industry forecasting systems need to be more robust. Inaccurate assessments have influenced major policy decisions with consequences for consumers, domestic trade and India’s credibility in global markets.”
The Next Season’s Shadow
The immediate crisis may ease with buffer stocks from prior years, but the outlook for 2026-27 appears clouded. Industry estimates suggest carry-over stocks could fall to approximately 3.2 MT, the lowest level in nearly two decades. That carry-over becomes the opening stock for the next season, creating a much tighter buffer against unexpected production shortfalls or demand surges.
More troubling are the weather signals. The sugarcane crop currently being sown in the kharif season faces productivity concerns across key producing states. Maharashtra and Karnataka face fluctuating rainfall and significant deficits in some areas. Karnataka’s reservoir levels remain very low. Eastern Uttar Pradesh and Bihar face rainfall deficiency. With El Niño strengthening and weather forecasters predicting a potential September rainfall deficit, the risk of reduced sucrose production by as much as 2 MT looms over the next season.
Sugarcane requires intermittent rainfall to achieve healthy yields. Preliminary industry estimates place the 2026-27 production outlook at around 29 MT, barely sufficient to meet annual consumption estimated near 29 MT. A stock-to-use ratio of approximately 11% is already uncomfortable; the 2008-09 crisis, when stocks fell to similarly low levels, forced India to import over 5 MT of raw sugar and drove global prices to 30-year highs.
The Policy Dilemma
India now faces a delicate balancing act. Consumer price stability, farmer incomes, mill finances, the ethanol fuel-blending programme, export commitments and food security all pull in different directions. The sugar market’s volatility reflects not only weather and crop cycles but also forecasting limitations and the inherent difficulty of setting agricultural policy based on production estimates that prove obsolete within months.
The experience of 2025-26 suggests that more conservative initial forecasts, tighter stockholding requirements and greater caution in permitting exports during seasons with elevated forecast uncertainty might better protect domestic supply stability. Whether policymakers draw these lessons remains to be seen.
