Whalesbook
India's sugar production for the 2025-26 season is set to reach approximately 320-325 lakh tonnes, even after accounting for diversion to ethanol. This robust output, fueled by increased planting and better yields in states like Maharashtra and Karnataka, ensures ample domestic supply and projected closing stocks of around 41 lakh tonnes. While fewer mills (56 down from 95) are operational, they are running at higher capacities. Yet, this volume growth is overshadowed by intense financial pressure. The average ex-mill sugar price is around Rs 3,850 per quintal, significantly below the estimated production cost of Rs 4,100-4,160 per quintal. This results in a direct loss of Rs 250-310 per quintal, severely impacting mill liquidity and their ability to meet obligations.
Government Prices Fail to Keep Pace
The root of the industry's financial problems lies in government-mandated prices that have not been updated. The Minimum Selling Price (MSP) for sugar has been fixed at Rs 31 per kg since February 2019. Meanwhile, the Fair and Remunerative Price (FRP) for sugarcane, the primary raw material, has risen substantially to Rs 355 per quintal for the 2025-26 season, up from Rs 340 the previous year and Rs 275 in 2019-20. This growing gap between the cost of cane and the realized sugar price is unsustainable. Adding to the pressure, the ex-factory prices for ethanol from B-heavy molasses and sugarcane juice/syrup have remained unchanged since the 2022-23 supply year, set at Rs 60.73 and Rs 65.61 per litre respectively. This lack of revision limits a vital alternative revenue source for sugar mills.
Mounting Farmer Dues Signal Deeper Risk
The financial distress translates directly into growing unpaid cane dues to farmers. By mid-February 2026, these arrears had climbed to approximately Rs 16,000-16,087 crore, a sharp rise from the previous year. Maharashtra alone reported Rs 4,898 crore in cane dues by March 31, 2026. Failure to make timely payments damages farmer confidence and could lead to reduced sugarcane planting in future seasons, posing a long-term threat to India's sugar supply. The industry is advocating for an MSP increase to Rs 41-41.66 per kg (or Rs 4,000 per quintal) to close the cost-realization gap.
Industry Valuations and Global Outlook
The financial strain is evident in the valuations of listed sugar companies. Integrated players like Balrampur Chini Mills show a P/E ratio around 21.8-23.89 and a market capitalization of approximately Rs 9,762 crore. In contrast, Bajaj Hindusthan Sugar reportedly has negative P/E ratios and significant debt, with a market cap around Rs 3,917 crore as of March 31, 2026. Dwarikesh Sugar Industries has a higher P/E ratio, ranging from 34.28 to 43.85, a market cap around Rs 867 crore, and high debt-to-equity at 86.04%. Dhampur Sugar Mills has a more moderate P/E of 10.98-12.86, though some reports indicate a negative P/E of -132. Globally, sugar prices have fallen due to surplus supply from Brazil, with international prices dropping below Indian production costs.
Reliance on Policy Masks Structural Weaknesses
The Indian sugar sector's stability heavily relies on government policy. A persistent gap between production costs and mandated selling prices (MSP and ethanol) creates a structural deficit. While the government approved the 2025-26 FRP, a critical MSP revision is still pending. Any delay or insufficient MSP adjustment, or unchanged ethanol prices, will worsen financial stress and cane arrears. India currently has no plans to curb exports and has allowed 1.59 million tonnes, but failure to meet export targets could lead to caps, diverting supply to ethanol or domestic stocks. Global surplus conditions also put downward pressure on international prices, hurting export competitiveness. The El Niño phenomenon, while not affecting the immediate 2026-27 crop, poses a future risk to sugarcane yields for the 2027-28 season. Dependence on government intervention for price support and export management presents significant regulatory risk, as policy shifts may not always align with industry needs.
Outlook: Policy Support Key to Future Supply
The future stability of India's sugar industry hinges on timely and supportive government policy decisions. An upward revision of the sugar MSP and realistic adjustments to ethanol procurement prices are essential to improve mill profitability, clear farmer dues, and ensure the long-term viability of sugarcane cultivation. While current season production is strong, continued financial strain could jeopardize future supply. This is despite government initiatives like the mandatory E20 ethanol blending program, with E22 targets under consideration. The sector's ability to manage global price volatility and domestic cost pressures depends on policy support.