The government is poised to raise the minimum selling price (MSP) of sugar by nearly 23 percent to Rs. 38 per kilogram, the first revision since 2019, when the floor had been fixed at Rs 31/kg. The proposed increase comes amid mounting pressure from sugar mills grappling with elevated production costs and squeezed margins.
For 2025-26, this adjustment coincides with a 4.42 percent uptick in the fair and remunerative price (FRP) for sugarcane, now pegged at Rs 355 per quintal, a hike that significantly inflates the cost of raw material for mills. Coupled with recent inflation-linked increases in input costs such as fuel, fertilisers and labour, mills have argued that the long-standing MSP has become insufficient to cover break-even costs.
A key justification for the MSP revision draws upon Sugar (Control) Order, 2025; industry representatives, notably National Federation of Cooperative Sugar Factories (NFCSF), have cited Section 9 of this order to argue that domestic sugar price floors must reflect current input realities, including elevated FRP, inflation and production costs. The NFCSF has urged the government to raise MSP further, advocating for Rs. 41/kg to ensure mills’ financial viability and to safeguard timely payments to farmers.
The decision could offer immediate relief to sugar mills, improving cash flow and enabling prompt payment to cane growers, but the challenge of turning that into long-term sustainability is nuanced.
Export prospects, once a safety valve for surplus sugar, appear increasingly constrained. The government has permitted exports of 1.5 million tonnes in the current 2025-26 season. CZ app+1 However, mills remain reluctant to ship out bulk volumes, because global sugar prices are depressed and often lower than domestic ex-mill rates. As a result, exporters have found it economically unviable for now to sell overseas.
At such low global price levels, sometimes undercutting the cost of production, the logic of exporting becomes questionable. For many mills, domestic sales remain the only realistic option, even with MSP adjustments. Should export volumes remain low, Indian sugar stocks may build up, increasing pressure on domestic prices.
The sluggish export outlook further weakens the incentive to divert sugarcane toward ethanol. Once seen as a reliable way to manage surplus and generate alternative income, ethanol diversion is now under strain. The latest government ethanol-supply policy for 2025-26 appears to prioritise grain-based feedstocks over sugar-based ones, prompting dismay in the sugar sector.
Sugar mills argue that ethanol pricing needs to be more formula-driven, tied to FRP (or SAP), feedstock recovery and prevailing energy costs if sugarcane-based distilleries are to remain viable. The absence of such alignment has already eroded margins, reducing the attractiveness of ethanol production.
Suppose ethanol prices remain static while input costs continue to rise. In that case, mills may be forced to curtail ethanol production and focus purely on sugar, even as domestic demand stagnates and global oversupply depresses export opportunities.
In this context, raising the sugar MSP is perhaps an urgently needed reprieve but not a complete solution. For long-term stability, the industry needs a cohesive policy approach: one that links MSP and ethanol procurement prices to real-time costs, allows flexible diversion of production between sugar and ethanol, and supports export competitiveness.
As the 2025-26 crushing season unfolds, all eyes will be on how mills, farmers and policymakers navigate this intricate balancing act between fair returns for growers, financial viability for mills, and global competitiveness for Indian sugar.
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Caption: Farmers extract sugarcane juice in the fields using a traditional method in Nagaon of Assam on Feb 22, 2015. (Photo: IANS)
