Low Closing Stocks to Force India's Hand on Sugar Exports and Ethanol Diversion in 2026-27

The Food Ministry has set the August 2026 sugar sales quota at 22.5 lakh tonnes (lt), matching the year-ago figure — a deliberate move to arrest further retail price increases. The cumulative allocation for October 2025 through August 2026 now stands at 245.5 lt, which is 2.6 per cent below the 252 lt released in the corresponding period a year earlier.

Yet mills have been outselling their quotas. Industry sources reveal that against an allocation of 201 lt for October 2025 to June 2026, actual sales reached 214 lt — meaning the physical market was running well ahead of official entitlements. In response, the government has been cutting quota allotments for mills that exceeded their limits and, on July 24, announced it would conduct physical stock verification at every mill during the first fortnight of August. Stock limits have also been imposed across the trade.

The arithmetic heading into the festival season is tight. G K Sood, former India head of a global trading firm, estimates that even assuming an opening stock of 35 lt on October 1, 2026, and first-month production of no more than 5 lt — consistent with historical crushing patterns — total availability in October would peak at 40 lt.

If the government holds the October 2026 domestic sales quota at the prior-year level of 24 lt, a surplus of only 16 lt would remain heading into November. The timing compounds the challenge: Diwali falls on November 8 this year, and cane crushing traditionally accelerates only after the festival when field labour returns to work. This means early-season production will not offer much of a buffer, leaving the government with limited room to simultaneously supply domestic consumers and divert cane juice for ethanol.

Industry sources say the government may have little choice but to ban sugarcane juice diversion to ethanol for the first three months of 2026-27 to ensure adequate domestic sugar supply. If juice diversion is restricted, the only remaining ethanol feedstocks are B-heavy and C-heavy molasses.

• B-heavy molasses route means less sugar is extracted from cane, reducing overall production.
• C-heavy molasses can yield roughly 300 crore litres of ethanol, but demand from liquor, pharmaceutical, chemical, and other industrial users competes for the same supply.

An industry veteran quoted in the source was blunt: "All these steps show panic reaction after allowing sugar for export and ethanol without ensuring adequate reserve for the domestic market." The episode, sources say, is likely to make the government far more cautious about permitting sucrose-based ethanol in 2026-27. If exports and diversion are both kept off the table, Sood projects closing stock could recover to ~50 lt by September 2027.

Government data show sugarcane sowing has been completed, with the area reported at 57.58 lakh hectares (lh) — marginally below the final 2025 figure of 58.84 lh. Among the three states that together account for 85 per cent of India's sugar output:

State 2026 Area (lh) 2025 Final (lh) Uttar Pradesh 28.97 28.02 Maharashtra 11.82 13.72 Karnataka 6.61 6.51

Maharashtra is the key downside outlier, with area falling from 13.72 lh to 11.82 lh. Sood estimates that at current crop conditions and acreage, 2026-27 production will at best match this season's output. However, Param Jeet Singh Hudda, a sugarcane farmer in Shamli district of western Uttar Pradesh, noted that crop conditions are currently very good and yields could improve year-on-year, given that pest attacks in mid-August 2025 had depressed 2025 yields across much of the western UP belt.

Despite the broadly constructive crop outlook, Sood underlined that the fate of India's sugar balance in 2026-27 will ultimately depend on how rainfall and temperatures play out over the next two months. A weather setback — whether excess moisture causing disease or a dry spell affecting cane growth — could further crimp production and tighten an already strained supply picture.

For now, the policy direction is becoming clearer: export allocations and ethanol diversion approvals are unlikely to receive government clearance until domestic stocks are on firmer ground. Mills and ethanol offtake planners should factor a constrained feedstock window into their early-season projections, while domestic consumers and FMCG buyers can expect the government to lean on quota management and stock-limit enforcement to keep retail prices in check through the October–November peak demand period.