Rs 10 sugarcane FRP hike: Small raise, big questions for farmers and mills

Recently, the government raised the fair and remunerative price (FRP) of sugarcane by Rs 10 to support farmers and boost rural incomes. However, the decision has brought out growing stress within the sugar industry. Although industry stakeholders welcomed the hike decision, they cautioned that stagnant minimum selling prices of sugar and unchanged ethanol prices were squeezing mill margins as costs of sugarcane continued to rise. Farmer representatives, meanwhile, argued that the hike was inadequate to offset sharply rising cultivation, harvesting and transportation expenses.

FRP is the minimal price sugar mills must pay farmers for sugarcane. Notably, the government last week (May 5, 2026) raised the FRP of sugarcane by Rs 10 per quintal to Rs 365 per quintal for the 2026-27 sugar season, marking a 2.81% increase over the previous year. India’s sugar marketing season runs from October to September.

According to Deepak Ballani, Director General, Indian Sugar & Bio-energy Manufacturers Association (ISMA), the revised FRP will boost farmer incomes significantly, benefitting nearly 55 million sugarcane farmers across the country. “It is estimated that this increase will result in an additional income of over Rs 15,000-20,000 crore, taking total cane payments to around Rs 1.3 lakh crore in the upcoming season. This will provide a strong impetus to rural demand and reinforce the agricultural economy, particularly in regions where sugarcane cultivation is a primary livelihood, he says.


At the same time, Ballani also stresses the need to align minimum selling prices for sugar and ethanol procurement with the revised sugarcane FRP to ensure financial sustainability across the value chain, from farmers to sugar mills.

“While the FRP increase rightly supports farmers, it also raises the cost of raw material for mills. A proportionate revision in the minimum selling price of sugar and ethanol procurement prices would enable mills to absorb these higher costs, without financial strain, thereby maintaining operational stability and ensuring timely cane payments to farmers,” says Ballani.

Further, lower ethanol allocation to the sector has also led to a growing mismatch between installed distillation capacity and domestic off-take. This has resulted in underutilisation of capacities, contributing to financial stress and erosion of revenue streams within the industry,” he adds.

The industry called for timely revisions in sugar and ethanol prices, along with equitable ethanol allocations, to improve capacity utilisation and ensure long-term policy stability. Notably, the share of ethanol produced from sugar-based feedstocks fell to 28% (289 crore litres) in the 2025-26 Ethanol Supply Year (ESY), sharply lower than the over 70% share seen in previous years.

Alok Saxena, Executive Director-SPE Division, Zuari Industries, welcomes the FRP hike but cautioned that the increase from the previous season’s Rs 355 per quintal would add to cost pressures for sugar mills, making recovery rates, product mix, and operating efficiency even more critical. “For the sector to remain healthy and continue timely cane payments, it is important that sugar realisations and ethanol economics remain supportive,” says Saxena.

‘Little relief to farmers’
Anil Ghanwat, President of Maharashtra-based farmers’ union Shetkari Sanghatana, says the FRP increase offers little relief to farmers, as the production cost of sugarcane has risen to nearly Rs 1,000 per tonne. According to Ghanwat, the decision benefits neither farmers nor the sugar industry, as mills are being asked to pay more while the minimum selling price of sugar remains unchanged.

“The farmers should have received an increase of at least Rs 500 per tonne, ensuring returns of around Rs 4,000 per tonne. After accounting for harvesting and transportation expenses, he said, farmers are left with almost no profit, calling the move “a mockery of farmers,” says Ghanwat.

The sugarcane FRP was Rs 340 per quintal in 2024-25, Rs 355 in 2025-26, and now it has increased to Rs 365 for 2026-27.

Rising gap between input costs, returns
“The widening mismatch between input costs and realisations is significantly impacting the financial health of sugar mills, with many mills operating under negative margins,” says Rahul Chauhan, Director, iGrain India, a commodity research firm.

While the FRP of sugarcane has steadily risen, the minimum selling price of sugar, which determines mills’ revenue realisation and the value of sugar stocks pledged against loans, has remained unchanged at Rs 31/kg since February 2019. The impact is already visible: sugarcane arrears are rising again, reviving the cycle of delayed farmer payments, mounting mill liabilities, and growing dependence on government support, a phase the sector cannot afford to revisit, say experts.

Chauhan says, “Sugar mills have already invested over Rs 40,000 crore to build ethanol manufacturing capacity of nearly 900 crore litres. However, ethanol’s share in the blending programme has steadily declined—from 91% in Ethanol Supply Year (ESY) 2019-20 to 86%, 83%, 73%, 40%, 33% and now 28% year-on-year. At the same time, rising FRP and falling ethanol revenues are severely squeezing mill liquidity.”

“While the FRP of sugarcane has been increased every year, the minimum selling price of sugar has remained unchanged since 2019, widening the gap between costs and revenues. The financial stress is making it increasingly difficult for mills to clear farmers’ dues on time, even as the government continues to press for timely payments. If the situation persists, delayed cane payments could rise again, pushing mills towards defaults and reviving the sector’s old cycle of financial distress,” he adds.

Historically, the sugar industry dominated India’s ethanol supply, but rising ethanol production from maize and rice has intensified competition for sugar-based producers. The shift has accelerated further due to the government’s subsidised rice supply for ethanol production at around Rs 2,320 per quintal, adds Chauhan.

Rice use for ethanol production has surged from 0.9 MT in FY25 to nearly 5.2 MT this fiscal, highlighting a rapid shift towards non-sugar feedstocks. Industry players warn that without higher ethanol prices and minimum selling prices of sugar, sugar mill profitability will remain under pressure.

Notably, India’s sugar production rose 7.32% to 27.52 MT till April 30 in the 2025-26 marketing season, led by higher output in Maharashtra and Karnataka, according to ISMA. Production stood at 25.64 MT in the corresponding period last year. According to the ISMA, Maharashtra’s sugar output increased to 9.92 MT from 8.09 MT a year ago, while Karnataka’s production rose to 4.80 MT from 4.04 MT. In contrast, Uttar Pradesh saw production decline to 8.96 MT from 9.24 MT last year. ISMA has projected total sugar production for the 2025-26 season at 29.3 MT after ethanol diversion, compared with 26.12 MT in 2024-25.

Farmer payments may be hampered
Uppal Shah, MD, JK India eAgriTech, welcomes the FRP provision of no deduction for mills with sugar recovery below 9.5%, saying it would benefit farmers affected by factors beyond their control. However, Shah cautions that the higher FRP would further widen the gap between mills’ costs and revenues.

“The minimum selling price of sugar is stagnant, even though the sugar FRP has increased steadily over the last eight years. Without a corresponding increase in sugar selling prices, the industry will be financially unstable and, most importantly, will not be able to pay the farmer the cane price on time. We are seeing cane arrears increasing in the current season, which is detrimental for the industry. We cannot go back to the same vicious cycle of pending cane arrears. I would request the government to link sugar MSP with cane FRP and protect the financial health of the industry,” adds Shah.

Pushan Sharma, Director, Crisil Intelligence, says the FRP hike is aimed at supporting farmer incomes, but the gains may be limited as rising input costs, growing at around a 4% CAGR between marketing year 2021 (MY21) and MY26, are outpacing the increase. He adds that fertiliser shortages and El Niño-driven erratic rainfall could further hurt yields and recovery rates.

“For the sugar industry, the higher FRP will raise raw material costs for mills, putting additional pressure on already tight profit margins as the spread between sugarcane cost and sugar selling price narrows further. Additionally, the ethanol industry’s shift towards grain-based production has resulted in declining PBIT margins for distilleries. Overall, while the FRP hike is positive in principle, prevailing market and operational challenges mean farmers will see only limited benefits and millers are likely to face lower profitability in the sugar segment. This may further hamper payments to farmers, leading to an increase in sugarcane arrears,” adds Sharma.