As the globe’s largest consumer and second-largest producer of sugar, India is navigating a tense supply crunch that has sent domestic sugar prices surging nearly 40% in just two months, forcing New Delhi to approve 1 million tonnes of imports for the first time in almost a decade. The crisis has unfolded ahead of the country’s peak demand season, which kicks off in August with a string of major religious festivals including Ganesh Chaturthi, Dussehra and Diwali, followed by the annual busy wedding period. This time of year already sees food and beverage manufacturers ramp up bulk stockpiling to prepare for high consumer sales, adding extra upward pressure on wholesale market prices.
Projections for the 2025-2026 production season, which runs from October 2025 to September 2026, have now been slashed to 30.6 million tonnes – an 11% drop from the government’s initial forecast of 34.3 million tonnes. The production shortfall translated directly to skyrocketing retail costs: by August, a kilogram of sugar that retailed for 40 to 45 Indian rupees ($0.42 to $0.47) between May and June was selling for more than 58 to 60 rupees across most major markets, though prices have seen a minor easing in recent weeks.
The situation has raised a pressing question: how did one of the world’s top sugar-producing nations end up needing to import the commodity for domestic consumption? Indian officials have pointed to three core drivers: reduced sugarcane output tied to El Niño-driven lower monsoon rainfall, unregulated hoarding by traders, and tightening global sugar supplies triggered by adverse weather hitting other major producing nations. But industry analysts and experts argue that a key contributing factor was the government’s overestimation of domestic production, which led to approval of large exports before the full scale of the shortfall became apparent.
New Delhi initially greenlit 1.5 million tonnes of sugar exports for the 2025-2026 season, then approved an additional 500,000 tonnes in February. By the time exports were halted in May, nearly 800,000 tonnes had already been shipped out of the country. “From allowing exports at the start of the season to ending with an import of a million tonnes is a large variation on production estimates – and that’s a big surprise,” explained Vikram Suryavanshi, senior analyst at PhillipCapital India.
The gap between production and demand is particularly acute for India because the country operates with very little excess sugar buffer. Domestic consumption hit more than 28 million tonnes in the previous season, a figure that already comes close to this season’s projected total output. On top of that, roughly 3 million tonnes of sugar is expected to be diverted to ethanol production this year, leaving almost no room to absorb any production shortfall. Atul Chaturvedi, non-executive director of Shree Renuka Sugars – India’s largest sugar refiner and a major ethanol producer – noted that the newly approved imports will act as a critical buffer to fill this gap.
To further ease domestic supply constraints, the government has introduced additional policy adjustments. For a three-month period starting September 1, sugar refineries operating in port-adjacent special economic zones – which normally import raw sugar for refining and re-export – will be allowed to sell refined sugar duty-free into the domestic market. The last time India imported sugar for domestic consumption was nearly a decade ago, during a severe national drought. The Indian Sugar Mills Association (ISMA) has also asked member mills to start sugarcane crushing two weeks earlier than the standard schedule to begin building inventory ahead of the new October harvest.
Unfortunately, the upcoming 2026-2027 production season also faces significant risks tied to erratic monsoon patterns across India’s key growing regions. Sugarcane is an extremely water-intensive crop, and uneven rainfall, paired with prolonged dry spells in top producing states including Maharashtra, Uttar Pradesh and Karnataka, has already damaged standing crops. Current projections point to lower overall yields, and thinner cane with reduced sucrose content will translate to even less processed sugar per harvested tonne. “Looking at the climate conditions, the next season is also not going to be a bumper crop, although it is too early for actual assessment,” Chaturvedi added.
Export restrictions when domestic supplies tighten and prices rise are a longstanding policy for India, most recently seen in a 2023 ban on non-basmati white rice exports that lasted more than a year after crop damage pushed up domestic food prices. But this year’s misstep – approving large exports before identifying the production shortfall – has sparked questions about the accuracy of the government’s agricultural forecasting frameworks. Siraj Hussain, a former secretary at India’s federal agriculture ministry, noted that “this year, the initial projections for sugarcane production did not materialise due to unusual weather in some parts and disease in certain varieties.” The government has not publicly explained why the full scale of the shortfall was not detected before exports were halted on May 13, only stating that production fell short of estimates due to sugarcane disease and waterlogging from excessive late rainfall. The BBC has reached out to India’s agriculture ministry for additional comment.
Some industry observers have also pinned part of the blame on India’s expanding ethanol blending program, which diverts sugarcane away from sugar production. Historically, mills diverted roughly 10% of sugar output to ethanol production, a policy designed to absorb excess supply and stabilise prices during years of bumper harvests. But this year, India rolled out E20 fuel – petrol blended with 20% ethanol – as the standard for retail pumps, coming at exactly the same time as a domestic sugar production shortfall, creating extra pressure on supplies, according to experts.
The government has pushed back on claims that the ethanol policy is a core driver of the crisis, noting that the share of sugarcane diverted to ethanol has actually fallen from 12% in 2022-23 to around 9% in 2025-26. Officials maintain that weak production, hoarding, and tighter global supplies are the sole causes of the current price surge. That position is shared by some industry groups: Deepak Ballani of ISMA, which represents private mills that produce nearly half of India’s total sugar output, argues that current market stocks and monthly release quotas are sufficient, and that speculation and hoarding – rather than a genuine structural shortage – are driving price hikes. In response to hoarding concerns, the government has capped trader and wholesaler sugar stockpiles at 400 tonnes for a three-month period to curb speculative stockpiling.
Suryavanshi disagrees with that assessment, noting that India has implemented similar stock caps in past supply crunches, and prices continued to climb even after the latest restrictions were announced. To him, the trajectory of prices confirms that a genuine supply squeeze is underway.
India’s import announcement also comes at a time of tightening sugar supplies across the globe. El Niño has disrupted rainfall in key producer Thailand, while unseasonably heavy rain has delayed sugarcane harvesting in Brazil – the world’s top sugar producer – where mills are also diverting a growing share of cane to ethanol production. Severe heatwaves have damaged Europe’s sugar beet crop, with France projecting its worst harvest in four years. U.S. government forecasters expect global sugar production to fall to 184.9 million tonnes this season, down from the previous season’s record high of 186.1 million tonnes. Global markets have already reacted: London white sugar futures hit $541 a tonne in mid-August, their highest level since April 2025, while New York raw sugar futures jumped 4% on the day India announced its import plan.
Looking ahead, some industry leaders say India’s sugar availability could improve next year if current high prices incentivise mills to divert less sugarcane to ethanol production. “At current sugar prices, it simply doesn’t make economic sense for mills to divert cane juice to ethanol, so India’s sugar scenario should be quite all right going forward,” Chaturvedi said. But he added that the 2025-2026 crunch carries a clear warning for future policy: it is a “warning that going forward, we need to be a lot more careful in estimating our sugar crop numbers.”