Duty-free sugar imports to ease supply crunch, moderate price rise: Crisil

The government has permitted duty-free imports of 1 million metric tonnes (MMT) of raw sugar under the Tariff Rate Quota (TRQ) scheme until October 31, 2026, in a bid to contain rising sugar prices and improve market availability ahead of the festive season.

A report by Crisil states that the move comes amid tightening sugar inventories. Closing stocks for Sugar Season 2026 (SS26) are estimated at 3.9 MMT, down 25% from SS25 and 40% below the five-year average of 6.5 MMT.

To prevent hoarding and ensure adequate availability, the government has also imposed stock limits on dealers, wholesalers, and bulk consumers. Dealers and wholesalers can hold a maximum of 4,000 quintals of sugar for no more than 30 days. Bulk consumers using more than 10 metric tonnes of sugar per month can maintain inventories equivalent to only 15 days of consumption between September 1 and November 30, 2026.

According to Crisil, the duty-free imports are expected to raise SS26 closing inventories to 4.9 MMT, improving the stock cover from around 1.5 months to nearly two months of domestic consumption.

The additional supply is also expected to moderate the rise in sugar prices. Crisil has revised its estimate for average SS26 sugar price growth to around 7%, from 9% projected earlier.

Sugar supply remains tight

Sugar production has declined for two consecutive seasons, falling 3% in SS24 and 18% in SS25, primarily due to lower yields and reduced acreage. At the same time, increased diversion of sugar equivalent towards ethanol has further tightened inventories despite steady growth in domestic consumption.

Ethanol diversion has risen consistently over the past five years, from around 0.8 MMT in SS20 to more than 3 MMT in SS26, with further increases expected in SS27. The resulting supply tightness, coupled with rising cane costs due to higher Fair and Remunerative Price (FRP) and State Advised Price (SAP), has supported a sharp rise in sugar prices.

Although sugar production is estimated to recover by around 8% in SS26, robust domestic demand and low opening stocks are expected to keep inventories under pressure.

In July 2026, Mumbai S-30 and Delhi M-30 sugar prices were around 11% higher year-on-year, while prices rose 11% and 7%, respectively, on a month-on-month basis.

Crisil expects sugar prices to continue rising during August-September despite the import approval. However, the magnitude of the increase is now likely to be 300-500 basis points lower than the earlier estimated 15-20% rise. As a result, the rating agency has revised its SS26 average sugar price growth forecast to around 7%, from 9% earlier.

Margins to see modest improvement

For SS26, integrated sugar mills are expected to see only a modest 50-basis-point expansion in margins despite the sharp increase in sugar realisations. Higher sugar prices and moderate volume growth are likely to be largely offset by rising cane costs. FRP and SAP are expected to increase by 4.4% and 8.3%, respectively.

Profitability in the distillery and cogeneration segments is expected to remain broadly stable, supported by steady ethanol prices despite softer distillery volumes.

For SS27, lower closing inventories are expected to support sugar price realisations, while improved performance in the distillery and cogeneration segments could strengthen overall profitability. Industry margins could expand by 100-200 basis points during the season.