Festive flashpoint: Why sugar prices are rising sharply in India

Retail sugar prices in major Indian cities have surged by nearly Rs 20 per kilogram over two weeks, averaging around Rs 70 per kg ahead of the festive season, according to reports from local media. The sharp increase has sparked concern among consumers, with many finding the cost of sugar increasingly burdensome during a time of year typically associated with indulgence and celebration. The government has responded to the situation by imposing stockholding limits on bulk consumers from September 1 to November 30, aiming to curb hoarding and stabilize market supplies. These limits have been set at a maximum of 15 days' worth of sugar stock. The move follows a decision made on August 20, when the Union government authorized the import of up to 1 million tonnes of raw sugar without duties, under a tariff rate quota regime valid until October 30. This initiative is part of broader efforts to manage the current spike in prices and ensure adequate availability for both industrial and consumer sectors. Supply constraints and the redirection of sugarcane towards ethanol production are cited as key drivers behind the price surge. The government's push for increased biofuel blending has resulted in a portion of sugarcane being diverted away from traditional sugar production, exacerbating the already tight supply conditions. Industry representatives argue that the price increase is essential to help the sector recover from prolonged losses. For several years, sugar mills have reportedly been selling sugar below their cost of production, leading to widespread financial difficulties across the industry. Jayprakash Dandegaonkar, president of the National Federation of Sugar Cooperatives, highlighted the dire state of the sugar industry, noting that mills have been operating at a loss for the past four years. He emphasized that unless sugar can be sold at around Rs 45 per kg, the sector will continue to struggle. Despite the recent price hikes, Dandegaonkar maintains that the impact on household budgets will remain minimal given the relatively low monthly sugar consumption of around 1.75 to 2 kg per person. He further suggests that higher prices could ultimately benefit sugarcane farmers by ensuring better returns for their produce. Vinay Kore Savkar, a former minister and leader of the Warana group based in Kolhapur, pointed out that while the fair and remunerative price (FRP) for sugarcane has increased by approximately 28 percent over the last decade, the minimum support price (MSP) for sugar has remained largely unchanged at around Rs 3,100 per quintal. The FRP represents the minimum amount that sugar factories must pay to farmers for their sugarcane. Savkar argued that the government should implement a differential pricing strategy, allowing industries producing premium goods such as ice cream, soft drinks, and pharmaceuticals to access sugar at a higher rate than domestic consumers. Such a policy, he believes, could alleviate pressure on the struggling sugar industry. Meanwhile, Sanjay Khatal, managing director of the Maharashtra State Cooperative Sugar Factories Federation, reported that the cost of production for sugar stands at Rs 4,350 per quintal, while the ex-mill price is significantly lower at Rs 3,825 per quintal. This discrepancy has placed considerable strain on the industry, particularly in Maharashtra, where mills have been forced to seek financial relief through soft loans and loan restructuring. Khatal noted that although the current price increase is not unusual, the long-term trend of selling sugar at a loss has created a critical crisis within the sector. Mills have reportedly sold about 80 percent of their sugar stocks by July at prices below their production costs, contributing to the ongoing financial instability.