Sugar price surge highlights growing gap between India's fuel demand and feedstock supply

Researchers Ashok Gulati and Tanmoy Adhikary of ICRIER argue that India's rapid push for ethanol blending has outstripped the growth of key agricultural commodities used as feedstock, creating competition between food, feed and fuel. Retail sugar prices climbed 44 percent, from Rs 45 per kg in July to Rs 65 per kg by August 29, 2026, as low opening stocks and ongoing sugar diversion to ethanol tightened the market. Ethanol supplied to oil marketers is expected to surge to roughly 12 billion litres in the 2025-26 supply year, a growth rate far above the 11.4 percent, 5.1 percent and 4.4 percent annual increases in maize, sugarcane and rice output respectively.

The paper cautions that similar strains could emerge in maize markets, affecting poultry and livestock feed and pushing up prices of eggs, meat and milk. It advises retaining the E20 program but making it adaptable, reducing sugar diversion when stocks are scarce, limiting the use of FCI rice to genuine surpluses, and allowing temporary imports of sugar or ethanol. A broader assessment of feedstock-specific costs and a shift toward second-generation ethanol from residues are also suggested.