Govt mulls sugar MSP hike, ethanol push to prevent stock buildup; decision likely in January

The Union government is considering several measures to prevent a domestic sugar glut and ensure timely payments to farmers, with a policy announcement expected in January, food secretary Sanjeev Chopra told reporters on the sidelines of the Annual General Meeting of the Indian Sugar & Bio-Energy Manufacturers Association (Isma).

The government is monitoring the 2025–26 sugar season, where gross production is projected to reach 34.3 million tonnes (mt).

“We are actively working and we need to ensure that the stock buildup is prevented to the extent possible, and the sugarcane farmers get their payment in time. So we are working towards that, and you would come to know in due course about the various decisions that the government would take to ensure that there is no buildup of stocks,” said Chopra.

The decisions are likely linked to the sugar sector’s long-standing demands, including an increase in the minimum sale price (MSP) of sugar to at least ₹41 per kg, raising the share of ethanol production from sugarcane from the current 28% to 50%, and allowing exports beyond the existing 1.5 million tonnes, Chopra said. The sugar season in India lasts from October to September, and the MSP for sugar has remained unchanged at ₹31 per kg since February 2019. The government has allowed 1.5 million tonnes of sugar exports for the 2025-26 sugar season.

On 15 December, the National Federation of Cooperative Sugar Factories Ltd (NFCSF), the apex body representing farmer-owned cooperative sugar mills, urged the government to increase the MSP of sugar in view of rising production costs, declining ex-mill sugar prices, and mounting financial stress on sugar mills and sugarcane farmers. The federation has emphasised the need for revision of the sugar MSP to ₹41 per kg, enhancement of ethanol procurement prices, and additional diversion of 0.5 million tonnes of sugar towards ethanol production.

The pan-India average cost of production has gone up to ₹41.66 per kg, according to Isma. An increased MSP is essential to ensure fair returns to mills and timely payment to farmers.

Deepak Ballani, director general of Isma, said, “There is sufficient ground for an MSP revision this year. Cane arrears are already building up. As per reports, cane arrears in Maharashtra as of 30 November stand at ₹2,000 crore.” He also noted that sugar prices have recently dropped below the cost of production, a situation that needs immediate action.

Sugar has a low weight in the CPI basket, and a sugar MSP revision would entail no fiscal burden on the government, said Gautam Goel, former Isma president. An upward revision of the MSP is essential, he added.

Domestic sugar consumption has softened in the 2024-25 season, declining to 28.1 million tonnes from 29 million tonnes in 2023-24. A recent Isma study on sugar consumption indicates that demand is expected to grow at a mere 1.5-2.0% CAGR over the next five years, reflecting a relatively low consumption outlook.

Currently, institutional or indirect consumption accounts for 60–65% of total demand, with the remaining share coming from retail households. This muted growth is pulling down the ex-mill prices while straining the cash flows and financial viability of the sugar industry.