Ethanol is not the whole story behind India’s sugar price surge

All-India average retail price of sugar rose from ₹48.18 a kg on July 20 to ₹55.70 on August 20, an increase of about 16% in 1 mth. The immediate temptation is to blame ethanol and E20. But the story is more complicated.

Industry estimates suggest around 3 mn tonnes of sugar-equivalent output were diverted to ethanol in the 2025-26 season. That does not mean 3 mn tonnes of sugarcane land was shifted from food to fuel. Farmers do not grow separate cane for sugar and ethanol. The same cane can be processed into either at the mill.

However, when cane juice, syrup or molasses goes into ethanol, less sugar becomes available for human consumption. But the figure should be properly described. The 3 mn tonne estimate is an industry estimate, not a figure issued by the consumer affairs ministry.


At first sight, there appears to be a contradiction in GoI's position. It has rejected the suggestion that ethanol diversion is responsible for the sugar price surge. It has also stated that the share of sugar diverted to ethanol declined from around 12% in 2022-23 to about 9% in 2025-26. Yet, industry estimates put the absolute diversion at around 3 mn tonnes. Moreover, India's ethanol feedstock has changed, with GoI stating that nearly 3/4th of ethanol now comes from grains, particularly maize.

Importantly, ethanol diversion exists and matters. But the evidence does not establish it as the principal cause of the current sugar-price surge. According to GoI's August 21 statement, sugar production in October 2025-September 2026 is now expected to be around 306 LMT, compared with the initial estimate of about 343 LMT. The shortfall of about 37 LMT is substantial.

GoI attributes the weaker production to crop damage, and waterlogging caused by excessive rainfall. Then comes demand. India's festival season brings a predictable hike in demand for sugar, sweets and gur. When supply is tight, even normal seasonal demand can have an unusually large effect on prices.

Moreover, international sugar prices have risen, while global supplies have tightened. This affects the economics of domestic stocks, exports and imports.

GoI's decision to permit 10 LMT of duty-free raw-sugar imports, an unusual step after many years, is significant. It indicates that policymakers are dealing with a broader supply-and-inventory problem, not simply an ethanol problem.

There is also the possibility of stockholding and speculative behaviour. If traders and bulk consumers expect prices to rise further, they may hold stocks rather than release them. GoI's decision to impose stock limits and undertake physical verification reflects this concern.

The food-vs-fuel issue becomes even more interesting when we move from sugar to maize.

Maize has become an increasingly important ethanol feedstock. But it is also a major ingredient in poultry feed, accounting for roughly 55% of poultry-feed formulations. Greater demand from ethanol distilleries can, therefore, compete with poultry producers for maize and push up feed costs.

Soybean meal creates another pressure point. It is an important protein component of poultry feed, and weaker soybean availability has also increased its price. The result is visible in the egg market.

The chain is straightforward: higher maize and soybean costs mean higher poultry feed costs, means higher production costs, means higher egg and chicken prices. But again, ethanol is only one factor. Heat stress, poultry mortality, weather conditions and cost of imported feed ingredients also affect production and prices.

Newer vehicles designed and certified for E20 can use the blend. But many older vehicles were designed for E10 or below. Higher ethanol blends can raise concerns about the long-term compatibility and durability of certain fuel-system components in vehicles not designed for them.

There is also a fuel-efficiency issue. Ethanol contains less energy per litre than petrol. So, higher blends can require more fuel to travel the same distance, although the actual effect varies by vehicle and engine design. So, for consumers, cost of E20 can extend beyond the pump price.

Which is why chief economic adviser V Anantha Nageswaran's recent intervention is important. He suggested retaining an E10 option alongside E20 for older vehicles, and called for greater attention to the food-vs-fuel and water trade-offs before moving beyond E20. This does not require abandoning ethanol. It requires asking better questions: how much ethanol should India blend? From which feedstocks? At what agricultural and water cost? And under what food-supply conditions?

India needs a flexible feedstock strategy, greater use of agricultural residues and advanced biofuels, and closer coordination between energy, agriculture and food policy. The present sugar-price episode should neither become an argument for blindly defending E20 nor for blaming E20 for everything that has gone wrong.

The writer is former adviser,Asian Development Bank