India to divert 3.5 lakh tonnes of export sugar to local market as prices surge

Sugar refiners will divert about 3.5 lakh tonnes of sugar meant for export to the domestic market, as the government moves to ease a supply crunch ahead of the peak festival season, Bloomberg reported on Wednesday, citing people familiar with the matter.

The stockpiles could reach domestic buyers within a week, the report said. The quantity would be enough to meet India's total sugar demand for almost five days and could help bring down prices that hit a record last week.

India, the world's second-largest sugar producer, is facing a tighter supply situation after a smaller-than-expected crop. Patchy rainfall and diseases affected key growing areas.

However, on Monday, Niraj Shirgaokar, President of the Indian Sugar Mills Association, said that there was no shortage of sugar and prices had shot up due to panic buying. "For 2025-26, the net sugar production is estimated at around 279 lakh tons, with a projected closing stock of roughly 35 lakh tons. That is a healthy buffer against normal domestic demand, even after accounting for the sugar, which is diverted to ethanol," he said.

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More Sugar To Reach The Market

Under the new rules, the government will allow 1 million tonnes of duty-free sugar imports. It will also allow processors to sell some refined sugar originally earmarked for export in the domestic market.

The release of export-bound stocks would offer near-term relief without waiting for imports to arrive, the people said. Imports will still be needed later, but the additional supplies could help keep prices in check until sugar from Brazil arrives.

Indian ex-mill sugar prices averaged Rs 67 a kg at their peak last week, according to Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories Ltd.

Prices have since fallen to around Rs 54-55 a kg, following the government's Aug. 20 announcement allowing duty-free imports, Naiknavare said.

"Prices will cool down further due to timely and effective intervention by the government," he said. "This will give relief to consumers during festivals."

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Price Rise Due To Speculative Behavior

On Monday, ISMA President Shirgaokar had said that retail prices had risen due to "stocking" and "speculative behaviour".

"While retail prices have moved from around Rs 48 per kg in July to roughly Rs 55-56 per kg this month. A rise of about 16%. That increase is not driven by any actual shortfall in availability. The rise reflects several factors coming together. Domestic output for the season came in below the initial projections mainly due to the weather-related effects, lower cane yield, and lower recovery, including a higher crush rate in Maharashtra and red rot-related varietal issues in Uttar Pradesh."

Shirgaokar further said that festival season buying had also picked up. Globally, he added, lower estimated sugar production in Brazil has tightened supplies and pushed international prices from around $474 a ton in June to around $552 a ton in August.

"But the largest contributor has been speculative behavior. This has been happening for the last few weeks, and what's happening is that some bulk buyers, who would normally procure just in time, have begun stocking. This stocking, which is happening a month and a half or two months in advance, has pulled sugar out of circulation. It stays in the go-downs, creating an artificial tightness that has nothing to do with actual availability," the ISMA president said.