New Delhi: India’s gross sugar production in the ongoing sugar season 2024-25 (SS25) is estimated to decline by 15 per cent year-on-year to 29.0–29.5 million tonnes, marking the lowest output since SS20, India Ratings and Research (Ind-Ra) said in its latest Agro Commodity Watch report.
The decline in sugar output is driven by lower cane yields, reduced sugar recovery and red rot infestation. Crushing is down by 11 per cent year-on-year to 277 million tonnes as of mid-May 2025, and net sugar recovery has dropped 80 basis points to around 9.30 per cent, the report said.
The diversion of sugar for ethanol is expected to increase to 3.2–3.4 million tonnes in SS25 from 2 million tonnes in SS24, following the government’s lifting of restrictions in August 2024. Net sugar production, after diversion, is projected to fall to 26.0–26.2 million tonnes.
“EBITDA margins marginally declined in FY25, largely driven by a weakening in the ethanol segment due to the restrictions in 1H and the absence of price hikes even as the production costs increased. As a result, an ethanol price hike is critical to maintain the segment’s profitability, given the likelihood of a further increase in cane prices in the next sugar season,” said Khushbu Lakhotia, Director, Corporate Ratings, Ind-Ra.
Inventory below buffer level
With consumption estimated at 28 million tonnes and exports allowed up to 1 million tonnes in January 2025, the closing inventory is likely to drop to 5.3–5.5 million tonnes by end-SS25, just below the normative requirement of 5.5 million tonnes. Last year’s closing stock stood at 7.8 million tonnes.
While this would mark India’s first production deficit in nearly eight years, the carryover from previous seasons is expected to cushion immediate domestic supply.
Ethanol margin outlook hinges on price revision
Ind-Ra said that while ethanol production saw an increase during the Ethanol Supply Year 2024 (ESY24), the lack of price hikes in ESY25 has pressured segment profitability. Ethanol prices for ESY24 were revised to ₹72/litre for maize-based ethanol and ₹56.6/litre for C-heavy molasses, but no upward revision has been announced for ESY25, except for a ₹1.4/litre hike in C-heavy molasses-based ethanol.
Ind-Ra expected a 3–5 per cent increase for ESY25 to partially offset rising cane and molasses costs. As of mid-May 2025, about 3 million tonnes of sugar had been diverted for ethanol production, lower than the Indian Sugar Mills Association’s (ISMA) projection of 4 million tonnes.
“India has achieved close to the targeted 20% ethanol blending in the past three months, and growth would be contingent on the policy developments related to the increase in blending, which is a key monitorable. Ind-Ra believes feedstock availability and vehicle compatibility are key growth considerations,” Lakhotia said.
Cane prices rise, SAP hike likely in SS26
The Fair and Remunerative Price (FRP) for sugarcane has been raised by 4.4 per cent to ₹355 per quintal for SS26. The State Advised Price (SAP), which generally remains ₹40–₹50 above the FRP, was not increased for SS25 but is likely to rise by 5 per cent in SS26. This could increase sugar production costs by ₹1.5–₹2 per kg, with the full impact expected in FY26–FY27.
Sugar prices have remained firm, rising 5 per cent year-on-year in May 2025 to ₹40.3 per kg. The firm prices are expected to partly offset cost pressures in FY26.
Grain-based ethanol leads blending gains
India is on track to meet the 20 per cent ethanol blending target for ESY26 within ESY25 itself. The blending rate reached 18.6 per cent in the first six months of ESY25, up from 14.6 per cent in ESY24. The total ethanol requirement for ESY25 is projected at 9.7 billion litres, compared to 7.1 billion litres in the previous year.
Grain-based ethanol, especially from maize, has become a major contributor. Its share in total ethanol supply rose to 51 per cent as of March 2025, with maize alone accounting for 42 per cent. Sugar-based ethanol has fallen below 40 per cent from more than 70 per cent in ESY23.
Ind-Ra highlighted that challenges such as adequate feedstock availability and vehicle compatibility beyond 20 per cent blending, due to fuel efficiency concerns, must be addressed to increase targets further.
