Sugar price rise driven by market sentiment, not ethanol diversion: GEMA
Synopsis
India's sugar price spike has little to do with ethanol diversion and everything to do with market sentiment, according to GEMA — but the industry body's own admission of an eight-year freeze on the sugar MSP points to a structural fault line that no amount of reassurance can paper over.
Key Takeaways
GEMA stated on 24 August that the recent sugar price rise is driven by market sentiment , not ethanol diversion.
Jain , President of GEMA, said mills hold adequate stocks and no actual sugar shortage exists in the market.
Around 30 lakh tonnes of surplus sugar was earmarked for ethanol conversion in September 2025 under the ethanol supply year 2025–26 plan.
Factors including excessive rainfall , red rot disease , and waterlogging affected sugarcane output but not severely enough to cause a shortage.
The sugar MSP has not been revised in eight years , even as the government raises the FRP for sugarcane annually — a structural mismatch flagged by GEMA.
Sugar mills are expected to resume operations from 15 October .
The recent surge in sugar prices is being fuelled by market sentiment and forward-looking expectations around the upcoming sugarcane crop — not by the diversion of sugarcane for ethanol production, the Grain Ethanol Manufacturers Association (GEMA) said on Monday, 24 August. The industry body's position directly aligns with the government's own assessment on the matter.
GEMA's Core Argument
Dr C.K. Jain, President of GEMA, said ethanol diversion should not be held responsible for the current price increase. He pointed to the ex-mill price and the markup over it as the key indicator, arguing that a high market markup signals that sentiment — not supply constraints — is the primary driver.
'Ethanol production is no factor in the rise in sugar prices. The sugar price in the market is totally sentimental,' Jain said.
Jain added that GEMA agrees '100 per cent' with the government's position that ethanol production should not bear the blame for higher sugar prices.
Background: The Ethanol Diversion Decision
The decision on diversion of sugarcane for ethanol during the ethanol supply year 2025–26 was taken in September 2025, at a time when approximately 30 lakh tonnes of surplus sugar — which would otherwise have gone into storage — was earmarked for conversion into fuel. Jain noted that this decision was made in the context of expected surplus, not scarcity.
Subsequently, factors including excessive rainfall, red rot disease in sugarcane, and waterlogging did affect sugarcane and sugar output to some degree. However, according to Jain, the reduction has not been severe enough to cause an actual shortage in the market.
Stock Levels and Mill Operations
'Even today, there is enough stock in the sugar mills, enough stocks,' Jain said, indicating that current inventories remain adequate. Sugar mills are also expected to resume operations from 15 October, which should further ease any near-term supply concerns.
The Structural Anomaly: FRP vs MSP
Jain highlighted a deeper, systemic issue underpinning sugar price pressures. The government raises the Fair and Remunerative Price (FRP) paid to farmers for sugarcane every year, steadily increasing the raw material cost for mills. Yet the Minimum Selling Price (MSP) of sugar has not been revised in the last eight years.
'This is the anomaly in our system which needs to be rectified,' Jain said, stressing that a balance must be struck between the interests of farmers, sugar mills, and consumers. This structural mismatch, critics argue, creates a squeeze on mill margins and can feed into retail price volatility over time.
What to Watch
With mills set to restart in mid-October and the next sugarcane crop outcome still uncertain, sentiment-driven price movements could persist in the near term. The government's handling of the FRP-MSP gap will be closely watched by both the industry and consumer advocacy groups in the months ahead.
Point of View
On its face, create a shortage when stocks remain adequate. But the more revealing admission is the eight-year freeze on the sugar MSP against an annually rising FRP: that structural gap is the slow-burning fuse beneath retail price volatility, and neither the industry nor the government has offered a credible fix. Sentiment may be moving prices today, but the underlying cost economics make the next spike easier and the one after that easier still. The real story is not ethanol versus sugar — it is a pricing architecture that has been left unreformed for nearly a decade.
NationPress
24 Aug 2026
Frequently Asked Questions
Why are sugar prices rising in India in 2025?
According to GEMA, the current rise in sugar prices is driven primarily by market sentiment and expectations around the upcoming sugarcane crop, not by diversion of sugarcane for ethanol. The industry body says adequate stocks exist in mills and no actual shortage has been created.
Has ethanol production reduced sugar availability in India?
GEMA says no. The decision to divert approximately 30 lakh tonnes of surplus sugar for ethanol during the 2025–26 ethanol supply year was taken when surpluses were expected. Subsequent crop disruptions — rainfall, red rot disease, waterlogging — caused some output reduction but not enough to create a market shortage.
What is the FRP-MSP mismatch in the sugar sector?
The Fair and Remunerative Price (FRP) paid to sugarcane farmers is increased by the government every year, raising raw material costs for mills. However, the Minimum Selling Price (MSP) of sugar has not been revised for eight years, creating a structural squeeze on mill margins that can feed into retail price volatility.
When will sugar mills resume operations?
Sugar mills are expected to begin operations from 15 October, which should help ease near-term supply concerns and stabilise sentiment in the market.
What does GEMA say about current sugar stock levels?
GEMA President Dr C.K. Jain stated that sugar mills currently hold sufficient stocks and that there is no shortage of sugar in the market. He attributed the price rise to sentiment rather than any supply deficit.
