Production has fallen below initial estimates due to crop diseases, adverse weather and lower sugar recovery.
Festive demand, stockpiling and rising global prices have added pressure to an already tighter market.
The Centre has responded with duty-free imports, stock limits and an earlier start to the next sugarcane crushing season.
Sugar prices have surged across India just as the festive season gets underway, putting an everyday kitchen staple under fresh inflationary pressure. Retail prices have climbed sharply in several markets, with some traders reporting increases of more than 30-40% within weeks.
The spike has prompted the Centre to intervene. It has opened the door to duty-free imports, restricted how much sugar can be stored and asked the industry to bring fresh supplies to the market sooner.
But the question is: How did India move from expecting a comfortable sugar surplus to worrying about supplies?
How much have sugar prices increased?
The average retail price of sugar was around Rs 62.47 per kg on August 23, according to government data. A year ago, it was about Rs 46.30.
Wholesale prices have also climbed. Sugar was selling at an average of roughly Rs 5,801 per 100 kg on August 23, compared with Rs 4,313 during the same period last year.
The increase has begun affecting businesses that use sugar heavily. In Ahmedabad, for instance, tea sellers have raised the price of a cutting chai, while some coffee sellers have also increased rates.
The situation is particularly striking because the 2025-26 sugar season began with expectations of ample production and even room for exports.
How did the expected surplus disappear?
At the beginning of the season, the sugar industry was expecting a bumper crop. Early estimates put production considerably higher than the previous year, prompting the government to permit exports.
But those projections steadily deteriorated.
Production estimates were revised downward several times as the season progressed. The government now expects gross sugar production to be around 30.6 million tonnes, considerably below the industry's initial projections.
The problem wasn't simply how much sugarcane was harvested. It was also how much sugar could be extracted from that cane.
The sugar recovery rate fell to around 8.91% from 9.7% previously. In practical terms, mills were getting less sugar from every 100 kg of cane.
What went wrong with the sugarcane crop?
The government cites weather and crop diseases as the biggest reasons among other factors that exclude ethanol blending.
Red rot, a fungal disease that damages sugarcane stalks, has affected crops in several areas. Top borer disease and waterlogging have also hurt yields, particularly in major sugar-producing states.
Weather conditions associated with El Niño have also been cited as a factor affecting agricultural output.
This combination meant that the large cane crop expected earlier in the season did not translate into an equally large quantity of sugar.
Is ethanol to blame?
Opposition leaders have argued that the government's ethanol-blending programme diverted sugarcane towards fuel production, leaving less available for sugar and contributing to higher prices.
The government disagrees. According to its data, the proportion of sugar diverted for ethanol has actually declined in recent years. It also says roughly three-fourths of India's ethanol production now comes from grains, particularly maize.
There is another important detail: the amount of sugar ultimately diverted to ethanol this season was lower than the industry had initially anticipated.
On the concerns of India's ethanol blending programme and the sugar being divereted for that, ISMA Director General Deepak Ballani said the programme is not responsible for the current price movement.
Ballani said that grain-based ethanol is estimated to account for 75% of total ethanol supply in 2025–26, while sugar-based ethanol accounts for 25%.
"The data does not support the suggestion that ethanol is responsible for the current movement in sugar prices. Sugar diversion is determined only after assessing domestic requirements and the overall sugar balance," he said.
More importantly, the ethanol programme itself has changed significantly, with grains now accounting for an estimated 75% of supply, he added.
So while ethanol affects the overall balance between sugar and fuel, the available data does not support the argument that ethanol alone triggered the current price surge.
Is festive demand making the problem worse?
India's sugar consumption rises around festivals such as Onam, Ganesh Chaturthi, Dussehra and Diwali. This year's seasonal demand has arrived at a time when traders are already worried about supplies.
That has encouraged some buyers to stock up.
The Indian Sugar & Bio-Energy Manufacturers Association (ISMA) says certain traders and large consumers accumulated more sugar than they normally would, temporarily reducing the quantity circulating in the market.
That does not necessarily mean India has run out of sugar. It means less sugar is readily available at a time when demand is rising.
International prices have added another layer of pressure, increasing by more than 16% between late June and August. Higher global prices make imports more expensive and can influence domestic market expectations.
What has the government done?
The Centre has taken several steps to prevent prices from rising further.
It has banned sugar exports until September 30, 2026 and allowed 10 lakh tonnes of raw sugar to be imported duty-free until October 31.
It has also capped sugar stocks held by dealers at 400 tonnes and restricted large industrial consumers to inventories equivalent to no more than 15 days of their requirements.
The industry is simultaneously working to bring the next crushing season forward by around 10-15 days. Special crushing has already begun in Tamil Nadu and Karnataka, which should bring additional sugar into the market before the peak festive period.
Is there actually a sugar shortage?
According to a press release, ISMA estimates that India will have around 279 lakh tonnes of net sugar production in 2025-26, against domestic consumption of roughly 280-285 lakh tonnes. It expects closing stocks of around 35 lakh tonnes.
That suggests India has enough sugar to keep domestic supplies going.
The current spike is therefore better understood as a supply squeeze rather than an outright shortage. Lower-than-expected production, crop damage, festive demand, stockpiling and firmer global prices have all converged at the same time.
With imports, tighter stock controls and an earlier start to the next crushing season, the government and industry expect the pressure on prices to ease as fresh sugar enters the market and festive demand eventually settles.
