Insight Focus
Sugar export margins have improved in the recent weeks. However, a rapid end to the crush has left the domestic market tight and could restrict further exports. For the conflict in the Persian Gulf to lead to more ethanol production the government will need to increase ethanol prices.
Export Prices Improve but Supplies are Tight
India’s 2025/26 is coming to a rapid end. As recently as January, sugar production was racing 20% ahead of last year and was, in fact, the joint highest it had ever been at that time of year. However, by the end of March, output had only reached 27.1 million tonnes, which is three million tonnes less than by the same date between 2022 and 2024.
The disappointing end to the crush reflects two factors. Firstly, late and heavy rains in October induced early cane flowering in Maharashtra and Karnataka. This is reported to have impacted crop development and the sucrose content of ratoons.
Secondly, farmers began supplying cane to jaggery producers rather than sugar mills as unpaid dues from sugar mills built up. Mills subsequently were left with less cane to crush in the second half of the season.
It now looks like final production will not be much higher than consumption, which is 28 million tonnes.
Tighter market conditions have supported Indian sugar prices at close to INR 38,000/tonne (ex-mill, Maharashtra) since the start of February. In contrast world sugar prices rallied in March as speculators turned bullish after the conflict in the Persian Gulf drove up oil prices.
At the same time, the Indian Rupee depreciated to reach a low of almost INR 94.8/USD by the end of March (4% weaker than a month earlier). The Indian economy is highly vulnerable to rising energy prices due to its high dependence on imported oil and this has weighed on the currency.
The combination of higher world prices and weaker currency has made exports more attractive for mills compared to domestic prices.
However, we don’t expect exports to increase considering how tight the domestic sugar market is now. Additionally, we’d expect the government to prioritise ethanol production ahead of sugar exports to contain the inflationary impact of high oil prices.
Exports are Unlikely to Increase
The government has permitted Indian mills to export a total of 2 million tonnes in 2025/26. However, for the reasons explained above, we don’t see shipments totalling much more than the 0.5 million tonnes that has so far been contracted.
Meanwhile, Indian raw sugar exports still require a No.11 price of around 17c/lb to match the domestic market. With mills losing over 3 c/lb on raw sugar exports, we therefore don’t see India exporting raw sugar in the foreseeable future.
Incentives to Divert Sucrose to Ethanol
Although the bulk of 2025/26 ethanol volumes have already been finalised, the attractiveness of ethanol vs. sugar remains an important issue to follow for 2026/27. This is particularly so given the impact the conflict in the Persian Gulf has had on world oil prices. As India is one of the world’s largest importers of crude oil, the impact of the conflict on energy security, inflation and the economy are particularly acute.
Ethanol producers have for some time been calling for an increase in the blend to 27% and introducing flex-fuel vehicles. The current situation could renew impetus on this front. The government is even promoting using ethanol in cooking stoves and exploring blending it with diesel.
However, as things stand, firm domestic sugar prices mean that mills have limited incentives to divert sucrose to ethanol production. For this to change, either sugar prices will need to weaken – which seems unlikely given the tight domestic market, or the government will need to increase ethanol prices that it sets.
We’ll continue to monitor the ethanol vs. sugar trade-off and analyse its influence over sugar output and export availability. For example, in Northern India, where sugar prices are higher than in Maharashtra, it is even less attractive to divert sucrose 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:
