How ethanol push turned India from sugar exporter to importer

For most of India's middle class, the E20 debate seemed like a car problem. Would their five-year-old hatchback run on petrol blended with 20 percent ethanol, or would they need a new vehicle? That was the worry till last month. 

Nobody was watching the sugar bowl. 

In three weeks, retail sugar has jumped from around Rs 45 a kilogram to Rs 70 in several markets — a nearly 55 per cent spike that has hit kitchens, sweet shops and small traders just as the festive season begins. In Kolkata, neighbourhood kirana stores that were selling loose sugar at Rs 65 a kilogram three days ago say they cannot find stock below Rs 70 today. Wholesale rates in the city have already touched Rs 65. Traders warn that jaggery, batasa and nakuldana — staples of the festive plate — are next in line. 

The government's answer has been to reverse a decade-old script. Till May this year, India — the world's second-largest sugar producer — was exporting the commodity. This month it did something it has not done in nearly ten years: it allowed duty-free imports, scrapping a 100 percent customs duty to let mills bring in a million tonnes of raw sugar and cool down prices. 

It will not be that simple. When a country of India's size — the world's second-largest producer and a major exporter until recently — walks into the global market as a buyer, prices there do not sit still. They move, and they move fast. Global sugar benchmarks have already begun climbing as Indian demand competes for the same tight supplies that a weak Brazilian crop has left on the table. Industry voices have pointed out that a million tonnes covers barely a fortnight of India's own demand, meaning the import alone will not be enough to break the price spiral. 

Strip away the weather headlines and this is, at its core, a story of policy colliding with itself. 

The first collision is inside the cane itself. Sugarcane in India now serves two masters — the sugar mill and the ethanol distillery — and for years, government policy has quietly tilted the balance toward fuel. Sugar diverted for ethanol has run into millions of tonnes a season, with cane juice and B-heavy molasses feeding the Ethanol Blended Petrol programme that helped India hit its 20 percent blending target years ahead of schedule. That is being celebrated as an energy triumph even as closing sugar stocks are projected to fall to their lowest levels in roughly three decades. 

The second collision is a refusal to price that trade-off honestly. Ethanol procurement rates for cane-based feedstock have barely moved in nearly four years, even as sugar prices and cane costs kept rising. That has left mills with little financial incentive to divert less sugar to fuel when stocks are tight — the price signal that should have eased the squeeze simply was not there. 

The third collision is the one no one budgeted for: a shortfall of monsoon rain running well below normal through the sowing season, cutting into cane acreage and yields in Maharashtra and Uttar Pradesh, the country's two largest producing states, right when the ethanol programme needed more cane than ever. 

Put together, the sequence reads like a government caught by surprise by its own policy. It pushed ethanol blending aggressively and dismissed early warnings about the strain on sugar stocks. It let mills lean harder on fuel-grade diversion without recalibrating the economics that drive that choice. And it treated fuel policy and food policy as two separate files, run by two separate ministries, until a nationwide price shock forced them onto the same desk. 

The government has now imposed stockholding limits on bulk buyers and pushed mills to start crushing early, alongside the import move. Officials at a state level have blamed hoarding rather than ethanol diversion for the price rise — a claim traders on the ground dispute. 

What is not in dispute is the number on the price tag. Three weeks ago, sugar cost Rs 45 a kilogram. Today, it costs Rs 70. That gap is the real cost of a policy that spent years congratulating itself on fuel security without asking what it would do to the plate of rice, tea and sweets on an ordinary Indian table.