India's sugar sector is witnessing a significant rebound in production for the upcoming 2025-26 season, offering relief after a tight previous year. However, this positive news is tempered by a concerning plateau in demand for ethanol, creating a complex scenario for the industry's ambitious biofuel roadmap.
Sugar Production Set for a Strong Recovery
According to a recent report by the Indian Sugar Mills Association (ISMA), the country's sugar production is projected to reach 34 million tonnes in the 2025-26 season (October-September). This marks a substantial recovery from the estimated 32.5-33 million tonnes produced in the 2024-25 season. The increase is primarily attributed to improved rainfall in key sugarcane-growing states like Maharashtra and Karnataka, which had faced severe drought conditions previously.
The rebound is crucial for ensuring adequate domestic supply and stabilizing prices. The government has maintained a cautious export policy, and with this production estimate, the focus remains firmly on meeting local consumption needs, which stands at around 28.5-29 million tonnes annually.
The Ethanol Conundrum: Capacity Outpaces Demand
While sugar production looks promising, the parallel narrative around ethanol presents a starkly different challenge. India's celebrated Ethanol Blending with Petrol (EBP) program, which aimed to blend 20% ethanol into gasoline by 2025-26, is facing a major headwind: a plateau in demand.
The report highlights a critical issue. The ethanol production capacity in the country, heavily incentivized by government policies, has been expanding rapidly. However, the actual offtake by oil marketing companies (OMCs) has not kept pace. This mismatch is leading to underutilization of distillery capacities and creating financial strain on producers who invested based on projected demand.
The demand plateau is linked to the slower-than-expected rollout of higher ethanol blends across the nation's fuel stations and logistical challenges in the supply chain. As a result, the ambitious diversion of sugarcane and sugar for ethanol production, a key strategy to manage sugar surpluses, is now under scrutiny.
Balancing Sugar Stocks and Biofuel Goals
The current situation creates a delicate balancing act for policymakers and the industry. On one hand, the rebound in sugar production is welcome news for food security and price stability. On the other hand, the stalled momentum in ethanol blending raises questions about the future of investments in distillation capacity.
The government's policy of diverting 2-2.5 million tonnes of sugar for ethanol production in the previous season helped prevent a glut. However, with ethanol demand stagnating, deciding on the optimal level of diversion for the 2025-26 season becomes more complex. Excessive diversion could risk domestic sugar availability, while insufficient diversion might lead to surplus stocks and pressure on mill finances.
The industry is now calling for a recalibrated and stable policy framework that provides clearer long-term signals for both sugar production and ethanol capacity expansion. Ensuring consistent offtake by OMCs and addressing supply chain bottlenecks are seen as immediate steps needed to revive the ethanol blending program's growth trajectory.
In conclusion, India's sugar industry stands at a crossroads. The cyclical recovery in sugarcane yield brings temporary relief, but the structural challenges in the biofuel segment demand urgent attention. The path forward requires a synchronized effort to align production, diversion, and consumption policies to secure the interests of farmers, millers, and the nation's energy security goals.
