Insight Focus
Lower domestic prices and a weaker INR have improved sugar export margins. However, world sugar prices will need to rise further for large-scale exports to be viable. Incentives to increase diversion to ethanol could improve this year.
Domestic Prices Move Lower as a Good 2025/26 Harvest Hits the Market
We’re now over two months into India’s 2025/26 sugar season and crushing results continue to support our view that production will increase 25% year-on-year to be 32.8 million tonnes.
By the end of December, mills had produced 11.8 million tonnes of sugar, which is 24% more than by the same time last year. As well an as increase in crushing volumes, sugar output has benefited from higher sugar recovery rates than last year.
As supplies from this year’s crush enter the market, domestic prices have declined. Ex-mill prices have fallen by 5% since September. Their USD value has declined further due to the depreciation of the Rupee, which is now valued around 5-6% lower than in the first half of 2025.
White Sugar Exports Become More Attractive
The government has permitted Indian mills to export 1.5 million tonnes and indicated that additional quantities could be granted in March. As domestic prices have moved lower, margins on low quality white sugar exports from Maharashtra have turned positive again. Around 100,000 tonnes have been exported so far, almost all to India’s usual markets in South Asia and East Africa.
We think that world prices will need to be much higher if India is to ship its entire existing 1.5 million tonne export quota, never mind the additional quantities that are being talked about. For the full allocation to be exported, mills in western India need to buy/swap export quotas from mills in the north that are not logistically well placed to export sugar, and world prices will need to be higher to cover this cost.
Meanwhile, Indian raw sugar exports now require a No.11 price of 17-18c/lb to match the domestic market. Weaker domestic prices and currency are pushing this benchmark lower. However, mills would still lose 2-3c/lb on raw sugar exports compared to selling to the domestic market. Therefore, we still don’t see India exporting raw sugar this year.
In response to falling prices, the industry is calling for the government to increase the minimum support price (MSP) that sets a price floor for domestic sales. If the government does increase the MSP, it would support mills’ financial positions.
However, we feel it will be negative for export volumes as world prices will then have to rise even further to match returns from the domestic market. Furthermore, higher domestic prices will also reduce the pressure on mills to liquidate stocks and accept low prices in the export market.
Sugar-to-Ethanol Incentives Improve, May Be Too Late for 2025/26
The results of the first tender for supplying ethanol to India’s fuel blending program for 2025/26 indicate sugar mills will only divert around 3.5 million tonnes of sugar to ethanol this year. This is lower than the 5 million tonnes that the industry wanted to divert and reflects sugarcane ethanol losing market share to grains-based ethanol.
The chart below shows revenue generated by mills in Maharashtra (the main sugar exporting region) based on the type of feedstock used. We can see that, as domestic sugar prices have weakened, incentives to divert sucrose to ethanol production are improving.
Although the bulk of 2025/26 ethanol volumes have already been finalised, increased ethanol production in Maharashtra (and neighbouring Karnataka) is a point to watch for future ethanol supply tenders. This is particularly so as low exports volumes build up stocks and put further pressure on sugar prices.
In fact, the government is looking at measures that could boost the sugarcane ethanol sector. These measures include increasing procurement prices of sugarcane ethanol, increased blending rates and other demand creation measures, and a higher allocation to sugarcane ethanol in the fuel blending program. If any of these outcomes do materialise, they should increase diversion to ethanol in 2026/27.
At the same time, it’s also worth remembering that, in Northern India, where sugar prices are higher than in Maharashtra, it is much less attractive to divert sugar to ethanol. For diversion to ethanol to increase in this part of the country, the price of ethanol relative to sugar may have to rise much more than today’s levels.
Appendix
Our analysis considers the returns that mills earn from producing ethanol at the expense of sugar. Many mills/distilleries have a choice over which feedstocks they use to make sugar or ethanol based on the relative prices of ethanol paid by the oil marketing companies (OMCs), which is summarised below:
Proportion of Sugar to Ethanol:
