Article 3: Policy mistakes, not ethanol, are behind sugar price rise
Why in news: Sugar prices have surged sharply in India, prompting debate over ethanol diversion. However, lower sugar production, delayed government intervention, restrictive policies and inadequate imports are key concerns.
Key Details
- Ethanol Diversion: Only 27.5% of ethanol supplied in 2025–26 came from sugarcane juice and molasses; cereals accounted for the majority.
- Production Shortfall: Sugar output was around 30.9 million tonnes, significantly below the initial estimate of 34.4 mt, creating supply pressure.
- Delayed Response: Cane shortages and mill closures had emerged by February, but export restrictions were imposed only in May.
- Policy Intervention: Stock limits and restrictions on sugar holdings were introduced as prices surged, but these measures risked worsening market uncertainty.
- Import Option: Reducing import duties could have enabled imports to bridge the supply gap, highlighting the need for better market intelligence and flexible trade policy.
Sugar Prices and Ethanol Debate
- Sugar prices have risen sharply, from around ₹45 to ₹65 per kg within a month, with the ethanol-blending programme being blamed.
- However, ethanol production is not the primary cause of the price surge.
- Only 27.5% of ethanol supplied in 2025–26 was produced from sugarcane juice and molasses, while the rest came mainly from cereal grains.
Limited Impact of Ethanol Diversion
- Around 3 million tonnes (mt) of sugar was diverted for ethanol production in 2025–26.
- This represents only about one-tenth of the 30.9 mt gross sugar production during the year.
- Similar quantities were diverted for ethanol in previous years without triggering comparable price increases, suggesting that ethanol alone cannot explain the current crisis.
Lower-than-Expected Sugar Production
- The major reason for the price rise is the significant shortfall in sugar production, which fell to about 30.9 mt against the initial projection of 34.4 mt.
- Warning signs had emerged by February, when mills in Uttar Pradesh and Maharashtra faced cane shortages and some had to stop crushing.
- The government’s delayed recognition of the supply problem contributed to the subsequent price escalation.
Delayed and Counterproductive Government Response
- The government banned sugar exports only in mid-May, after the production shortfall had already become evident.
- Rising prices later triggered measures such as stock limits, restrictions on holding sugar beyond 30 days and bulk-consumer reporting requirements.
- Such reactive interventions increased uncertainty and may have intensified market panic rather than stabilising prices.
Need for Market-Oriented Sugar Policy
- Instead of restricting exports, the government could have reduced import duties on raw and white sugar, allowing imports to supplement domestic shortages.
- Excessive government control over cane prices, mill sales and sugar stocks has created a rigid and inefficient sugar market.
- The crisis ultimately reflects a policy failure arising from inadequate market intelligence and excessive intervention, rather than ethanol production itself.
Conclusion
India’s sugar crisis highlights the limitations of excessive state intervention in agricultural markets. Rather than blaming ethanol blending alone, policymakers must strengthen production forecasting, market intelligence and timely import decisions. A balanced approach should protect farmers and consumers while allowing market forces to respond to supply shortages. Predictable trade policies and rational regulation can improve sugar-price stability.
Descriptive question:
The recent surge in sugar prices reflects more a policy failure than the diversion of sugar towards ethanol production. Discuss. (150 words, 10 marks)
Source: The Indian Express