The recent rise in sugar prices from about ₹45 per kg at the end of July to around ₹65 per kg at the end of August has put the management of agricultural produce in focus. Initially, this was blamed on the diversion of sugarcane for ethanol production aimed at fuel blending. But this was only part of the reason.
Sugarcane diverted for ethanol has been in the range of 10% of sugar production and accounts for less than one-third of India’s ethanol output. A larger share of the ethanol produced now comes from maize and broken rice. In fact, the share of sugarcane in ethanol production has been declining.
The main reason for sugar prices rising is faulty estimation of the sugarcane crop and ad hoc policy measures, which fuelled the price rise. Based on the agriculture ministry’s estimates of sugarcane acreage and production, the Indian Sugar and Bio-energy Manufacturers Association (ISMA) estimated sugar production at 34.3 million tonnes at the beginning of the season (October-September).
Even if one accounts for about 3 million tonnes being diverted to ethanol production, this level of output was sufficient to meet the domestic demand of about 28-29 million tonnes. But this was a gross overestimate of production, also acknowledged by the government; current estimates peg sugarcane output at 30.6 million tonnes.
The shortage becomes obvious when 3 million tonnes of the crop is diverted for ethanol production, leaving domestic availability at around 27 million tonnes.
This is not the first time estimates have gone wrong. Even last year, as against ISMA’s first estimate of 33.3 million tonnes, the actual output figure turned out to be 29.6 million tonnes.
That the estimates for this year were incorrect was obvious since excess rains last year had damaged crops in Maharashtra, Karnataka and Gujarat. Uttar Pradesh’s crop was hurt by fungal disease and pest attack. Curiously, rather than preparing for a shortage, the government allowed 1.5 million tonnes of exports of sugar on 7 November.
By January, it was clear that the production estimates are exaggerated. But again, the government raised the export limit to 2 million tonnes on 13 February. Eventually, only 0.8 million tonnes were exported due to subdued global prices, with the government finally imposing an export ban in May.
The sugar story is as much about the inefficiency of agricultural data systems as about the flawed policy regime that allowed 2 million tonnes to be exported. Given the crisis, the government has now allowed the import of 1 million tonnes of sugar, just six months after exporting 0.8 million tonnes. It also imposed stock limits on traders and millers, putting further pressure on prices.
Other commodities too face a similar situation. Onion prices have also almost doubled despite adequate production. Fortunately, the government has not imposed any ad hoc export ban and has blamed market intermediaries and traders for the price spike. But this has been the reasoning for many years even as no solution has come about.
Take the case of wheat, which was under an export ban since 2022. It was lifted earlier this year due to record production and stocks. While high stocks give the government headroom, there is also the possibility of the El Niño phenomenon strengthening and hurting the next wheat crop. To be sure, it is too early to predict the production for next year. But one would have expected caution, given expectations of extreme heat and low water reservoir levels.
Concern over an aggressive push for ethanol blending at the cost of food security has recently been voiced by the chief economic advisor to the government. Unfortunately, a response to his suggestion of a better balanced policy is not yet visible on the ground or in India’s official policy framework.
Sugarcane is no longer the prime ingredient for ethanol production, with broken rice and maize becoming dominant. But it has also led to maize being diverted for ethanol at the cost of feedstock for livestock and poultry.
According to the Indian Council of Agricultural Research, the acreage under fodder production has already fallen by one-fourth from 8.3 million hectares in 2018 to 6.4 million hectares in 2024. Fodder crops are among those affected this year by drought, with their inflation having exceeded 8.5% in June and July.
Food price inflation hurts the poor disproportionately. Failing to control prices is also a concern for the economy. At a time when El Niño is already posing risks to food security and farm incomes, faulty market intelligence systems and ad hoc policy decisions help neither Indian farmers nor consumers.
The author is associate professor at Jawaharlal Nehru University and visiting fellow at the Centre de Sciences Humaines, New Delhi.