Challenges for the sugar and ethanol industry in India after the elections

The post-election challenges facing the sugar and ethanol market in India, discussed by Vipul Bhandari – Head of Desk at Hedgepoint

June 6, 2024

Hedgepoint Global Markets

In recent years, India’s sugar and ethanol industry has experienced significant changes. Since 2017, political and economic reforms have transformed market dynamics, impacting the production, export, and distribution of these commodities within the country. In this blog post, we can explore how these factors have shaped India’s sugar and ethanol industry, the effects on the global market, and the future implications for producers and consumers.

The Indian elections of 2024 concluded in the first week of June, reaffirming Narendra Modi as Prime Minister. This continuity in leadership is expected to further stabilize and support India’s agricultural sector, including the sugar and ethanol industry. The government’s ongoing reforms aim to maintain the country’s position as a leader in commodity production while driving significant advancements in agriculture and energy towards becoming a global powerhouse by 2047.

We spoke to Vipul Bhandari, Hedgepoint’s Head of Desk EMEA, who provides a detailed analysis of India’s challenges. He points out that although government measures have stabilized the industry domestically and increased export capacity, they have also introduced new perspectives on the global market, affecting prices and predictability in the sector.



Take a look at the points he made and have a good read:

  • Volatility in sugar cane and ethanol
  • Government policies and actions in the sugar market
  • A market that goes beyond sugar
  • Risk management in the sugar sector


India, one of the world’s largest sugar producers, faces a challenging, dynamic, and volatile scenario in the sugar and ethanol sector. Essential to the country’s economy, sugar cane production has also intensified in recent years to produce biofuel.

This move is part of an economic strategy focused on increasing biofuel production to reduce the country’s dependence on imported oil, while decreasing the country’s carbon footprint. According to Vipul Bhandari, “the ethanol movement in India is similar to that in Brazil, where the market has gradually understood and adapted to ethanol.”

 Volatility in sugar cane and ethanol

For the current season (23/24), the initial production estimates for sugar were much lower to the tune of 28 to 28.5 MMT. Government had to intervene and put a pause on the Ethanol program from cane. The government restricted the diversion of 1.7 MMT sugar equivalent to Ethanol.

However, as the season progressed, estimates started to improve and ultimately production was close to 32 MMT. From a lower production estimate initially, the mills and traders are of the view that Government should now allow at least a million MT export. And if we look from the Government point of view, they would be okay to let the mills carry the stock over for next year and re-focus on Ethanol program for the 24/25 season.

Concerning ethanol, the Indian government, along with soft loans, has built capacity to produce ethanol independently. The government has also made efforts to increase ethanol blend in gasoline, currently at 12%, a significant increase compared to 2% before 2014.

This increase not only reduces dependence on oil imports and helps reduce the overall import bill, but also offers farmers an additional market for corn and other agricultural products used in ethanol production.

An interesting fact is the blending target is lagging its original planning. For the 23/24 crop season, the government has set a 15% target, however, given the lower raw material availability, the country managed to reach 12%, prioritizing sugar stock rebuilding. It is expected, however, that from now on, the government will go back to prioritizing the ethanol program, fighting to reach 20% in 24/25.

Government policies and actions in the sugar market 

Faced with the current policies practiced by the government, the country is seeking to improve sugarcane cultivation, guarantee financial stability for farmers, and establish a more robust market for ethanol and sugar exports.

India lost a WTO dispute over sugar subsidies in 2021 and has since abided by the ruling. Despite this, the country’s exceptional sugar production and export capabilities led to an all-time record in 2021/22.

Other factors that must be taken into consideration are the Indian government’s measures to control domestic prices. Regarding the Fair and Remunerative Price (FRP) of sugarcane, which sets a minimum price that sugar mills must pay to sugarcane farmers, it is directly linked to a basic sugar recovery rate, with a premium paid to farmers for higher recoveries. The FRP was ₹315 per quintal in the 2023-24 commercial year.

The Minimum Support Price (MSP) was created to protect farmers and ensure that they receive a fair price for their crops, aiming to encourage food production and guarantee food security in the country. In February 2023, the Indian government announced the MSP for 22 agricultural crops for the 2023-24 marketing period. The increase in the MSP ranged from 6% to 14% compared to the previous year’s levels.


Vipul Bhandari points out that “having clear government policies is key to having more predictability in the domestic and foreign sugar and ethanol markets, along with a focus on independent research for the sugarcane areas and production estimates”.

A market that goes beyond sugar

The management of imports and exports of commodities such as wheat and rice are also in a critical state in India. This movement alternates between import and export issues to balance domestic and global supply and demand.

Recently, the government replaced wheat with rice in the food distribution system to deal with domestic production deficits and fluctuations in the global market. Wheat production in India remains low, which could lead to significant imports in the second half of the year.

This strategic decision aims to ensure food security but also reflects the challenges faced by India in balancing its domestic needs with participation in the global market.

Risk management in the sugar sector

The reforms and policies implemented by the Indian government since 2017 have transformed the country’s sugar and ethanol industry. These policies can have a direct impact on production and trade operations.

According to Vipul Bhandari, “It’s important that hedging doesn’t just focus on production forecasts, but also takes into account the interrelationship with other commodities in the country.”

Production, export, and import strategies can be shaped not only by market and weather conditions, but also by the political decisions that emerge after the elections. In this sense, Vipul Bhandari concludes by highlighting that the “complexity of this industry and the importance of well-calibrated policies are key to ensuring both domestic growth and the stability of Indian sugar in the global market.”

According to Vipul, hedging products are good tools for protecting risks in these situations. He explains that this is also the case when some various scenarios and volatilities could impact the sugar market, for example. Market situations can be managed with the knowledge of hedging.

To do this, it is important to rely on specialized professionals who know about market fluctuations and the possible financial risks for those working with commodities. At Hedgepoint Global Markets, you can count on an experienced team to help your company protect itself from these variables.

Find out more about our hedging tools and protect your business from price fluctuations.

This document has been prepared by Hedgepoint Global Markets LLC and its affiliates (“HPGM”) solely for informational and instructional purposes, without the purpose of instituting obligations or commitments to third parties, nor is it intended to promote an offer, or solicitation of an offer of sale or purchase relating to any securities, commodities interests or investment products. Hedgepoint Commodities LLC (“HPC”), a wholly owned entity of HPGM, is an Introducing Broker and a registered member of the National Futures Association. The trading of commodities interests such as futures, options, and swaps involves substantial risk of loss and may not be suitable for all investors.  Past performance is not necessarily indicative of future results. Customers should rely on their own independent judgment and outside advisors before entering any transaction that is introduced by the firm. HPGM and its associates expressly disclaim any use of the information contained herein that directly or indirectly results in damages or damages of any kind. In case of questions not resolved by the first instance of customer contact ([email protected]), please contact our internal ombudsman channel ([email protected]) or 0800-878 8408/[email protected] (only for customers in Brazil).

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