Is ethanol the villain in sugar price surge in India?

As retail sugar prices surge and India prepares to import the commodity, one primary question has emerged: is diversion of cane for ethanol production to blame? Here's what agriculture experts, including Ashok Gulati, have to say on the sugarcane and E20 issue.

For years, ethanol was presented as part of the answer to India's sugar problem. Ethanol was seen as a way to absorb surplus sugarcane, improve the finances of mills and reduce the country's dependence on imported crude oil. But with sugar prices surging by 40% in a month and Indian households bracing for the festival season, the same fuel policy is now giving rise to a question: is the diversion of sugarcane for the production of ethanol to blame?

There is no easy consensus on this question. Two prominent agricultural economists and professors at the Indian Council for Research on International Economic Relations (ICRIER) — Ramesh Chand and Ashok Gulati — agree that India's sugar supply and balance has tightened, but differ on how much blame ethanol deserves.

India has built a massive ethanol-manufacturing ecosystem and mandated E20 petrol five years ahead of schedule as part of its Ethanol Blended Petrol programme.

Chand, who is also a former Niti Aayog member, argued in an Opinion piece in The Times of India that the present price spike in sugar cannot principally be attributed to cane diversion for ethanol. Gulati told India Today TV that ethanol diversion, alongside lower sugar production and depleted stocks, had added to the pressure. Gulati also said that the government should have acted months earlier. Separately, Lucknow University professor Sudhir Panwar explained to India Today Digital the multiple factors behind the rise in sugar prices.

The disagreement of the two individuals of the ICRIER matters because India is now trying to balance two competing priorities. One is food prices at home and the second is fuel security on the road. This is part of the bigger food-versus-fuel debate and the trade-off.

Amid the political uproar with the Opposition blaming the cane diversion to ethanol production for the sugar crisis, the government clarified stating it is monitoring the situation closely, and cited a combination of factors that impacted the surge, including lower-than-expected domestic production, increased demand ahead of the festive season, weather-related damage to the sugar cane crop, tightening global sugar supplies, and speculation and hoarding by some sections of the industry.

Sugar prices seem to be cooling down after hitting a record Rs 67 per kg last week, with ex-mill rates now falling 18% to Rs 55 per kg. Food secretary Sanjeev Chopra attributed the drop to the government's recent decision to allow sugar imports and action against hoarding and speculation. For clarity, India will be importing raw sugar and processing it in the country.

WHY SUGAR PRICES SPIKED SUDDENLY IN INDIA?

India's sugar prices remained relatively stable for several years even as sugarcane production expanded in the country. But the equation changed in the 2025-26 sugar season.

In his Opinion piece written for The Times of India on August 25, Ramesh Chand argued that the immediate trigger was a much tighter-than-expected supply position.

"The initial estimate for 2025-26 sugar production was around 34.3 million tonnes. That has since been revised down to about 30.6 million tonnes, a reduction of nearly 11%," Chand wrote, citing official data.

Excessive rainfall, waterlogging and diseases such as red rot and top borer damaged crops in important producing regions, affecting both cane yields and sugar recovery. At the same time, firm international prices and stronger domestic demand ahead of the festival season added to the pressure.

But Chand also said that this should not automatically be interpreted as a "failure of the ethanol programme".

On the other hand, Ashok Gulati agreed that lower production is at the heart of the crisis. But unlike Chand, he believed the diversion of cane towards ethanol has compounded the problem.

Speaking to India Today TV's Consulting Editor Rajdeep Sardesai, Gulati said the government "miscalculated the shortage" and failed to act despite warning signs several months earlier.

"It's very clear that the sugar production was down. It was a delayed decision and recognition on the part of the government," Gulati told India Today TV.

Gulati's calculation is straightforward. He argued that production was down by about 10%, opening stocks had fallen from around 8 million tonnes to 5 million tonnes, and some cane was being diverted towards ethanol.

"And then whenever you are diverting to ethanol, naturally it becomes a cumulative impact," he said.

Panwar said a diversion of sugarcane to produce ethanol was one of the reasons behind high prices of sugar in India. "The market forecast for sugar wasn't that bad, which also signals market manipulation by sugar stockists and retailers," he told India Today Digital.

HOW ETHANOL HELPED UTILISE EXCESS SUGARCANE

India's ethanol programme gained importance precisely because the sugar industry had a problem of too much sugar.

The sweetener's production, according to the Ministry of Consumer Affairs, Food and Public Distribution, rose from about 20.3 million tonnes in 2016-17 to more than 32 million tonnes in 2017-18 and 33 million tonnes in 2018-19.

Production was substantially above domestic consumption, while exporting the surplus was not always commercially attractive because Indian sugar prices were generally higher than international prices.

Ethanol offered mills another dimension. From 2018-19, mills were allowed to use B-heavy molasses and sugarcane juice or syrup for ethanol production. This gave them flexibility to decide how much cane should go into sugar and how much into fuel.

In years of surplus production, more cane could be diverted towards ethanol, preventing sugar stocks from accumulating excessively. It also diversified mill revenues and helped improve their ability to pay sugarcane farmers on time.

The diversion, however, has not simply increased every year.

According to data from the Department of Food and Public Distribution cited by Chand in his Opinion piece in The Times of India newspaper, "43 lakh tonnes of sugar were diverted to ethanol in 2022-23, 24 lakh tonnes in 2023-24 and 34 lakh tonnes in 2024-25".

The present situation, Chand said, was fundamentally different because the production shortfall emerged after the crop was hit by weather and disease.

IS ETHANOL REALLY NOT TO BLAME?

According to Ramesh Chand, ethanol diversion obviously impacts sugar prices because sugarcane juice, syrup and B-heavy molasses used to make ethanol could otherwise have yielded sugar.

But he also argued that the more important question is not simply "how much sugar was diverted to ethanol", but whether the total quantity of sugar available is adequate to meet domestic consumption and maintain sufficient stocks".

Chand strengthened his argument by the fact that the share of sugar diverted to ethanol has actually declined. According to the figures he cites, it fell from around 11.5% in 2022-23 and 11% in 2024-25 to about 9% in 2025-26.

At the same time, nearly three-fourths of India's ethanol is now produced from grain feedstocks, particularly maize.

Therefore, Chand argues that making ethanol diversion the principal explanation for the current price surge does not adequately explain the sudden deterioration in India's sugar balance.

In his view, ethanol has actually been a "stabilising force" for the sugar economy.

"India’s sugar production and the subsequent govt decision is mainly related to impact of weather and crop disease on production, in addition to stronger festival demand, and firm global prices," said Petroleum and Natural Gas Minister Hardeep Singh Puri, sharing Chand's Opinion piece on X.

Ashok Gulati's bigger criticism was directed at the timing of government intervention. He said that India should have opened sugar imports "four to eight months earlier", when warning signs about production and stocks were already emerging.

He also suggested that the government could have temporarily reduced sugarcane diversion to ethanol. One alternative, according to Gulati, would have been to import ethanol rather than divert as much domestic sugarcane towards fuel.

"You could have imported ethanol and avoided the domestic sugarcane complex going into ethanol," he said.

Another option, he suggested, was to produce more ethanol from rice using Food Corporation of India stocks. The basic argument is that India had several policy levers available, but they were not used quickly enough.

Gulati did mention diversion of sugarcane for ethanol production as one of the factors.

The disagreement between Chand and Gulati ultimately points to a larger policy question.

India wants to achieve its E20 target, reduce crude oil imports and expand domestic ethanol production. At the same time, it needs to ensure that diverting agricultural commodities towards fuel does not undermine food availability or push up prices.

India's ethanol capacity has expanded rapidly. Sugarcane accounts for roughly 30-35% of ethanol feedstock, with maize and rice making up much of the rest.

"Sugarcane diversion towards ethanol shouldn't be at the cost of sugar, and shouldn't increase food prices. We need correct estimates of sugarcane production and sugar requirements of India, and the international situation and sugar prices," Panwar said.

Cane diversion to produce ethanol is one of the factors if not the villain. Ramesh Chand sees the sugar surge mainly as a production and supply problem, while Ashok Gulati argues that ethanol diversion added to the pressure and that the government acted too late.

Their disagreement highlights India's larger dilemma as the country pushes for E20 petrol, it must balance fuel security with the need to keep enough sugarcane available for food. What should be monitored is that the Ethanol Blended Petrol programme doesn't end up disturbing food prices.

- Ends