India's Sugarflation Paradox: Production, Inventories, Ethanol, Global Prices and the Economics of the 2026 Sugar Shock
Year: 2026
Type: preprint
Abstract: India's sugar economy is entering another period of heightened price volatility. Retail sugar prices monitored by the Government of India increased from ₹48.18/kg on 20 July 2026 to ₹55.70/kg on 20 August 2026, while international sugar prices increased from US$474/tonne on 30 June to US$552/tonne on 20 August 2026. At the same time, the Government of India has stated that sufficient stocks exist to meet domestic requirements until the next crushing season and has linked the recent increase to lower-than-expected production, weather damage, seasonal demand, global tightening, speculation and stocking behaviour. This paper investigates whether the 2026 price episode can be explained by physical scarcity alone. An author-compiled annual dataset for 2002–2025 is used to estimate a structural sugar-price model with log price, production, stock coverage and cane FRP, using heteroskedasticity- and autocorrelation-consistent (HAC) inference. A second internationally augmented model incorporates world sugar prices for 2014–2024. The structural model explains approximately 90.2% of the variation in annual sugar prices. The FRP elasticity is approximately 0.55 and statistically significant, while production and stock coverage carry the expected economic signs but are statistically weaker after controls. The internationally augmented model shows a statistically significant positive pass-through from global sugar prices. Using the estimated models as a benchmark, the 2026 market price lies modestly to materially above the model-implied range, depending on specification. The paper therefore interprets the current episode as a layered market event in which fundamentals, global transmission, inventory expectations and policy uncertainty interact. The evidence does not justify the claim that speculation alone caused the price increase. Instead, the economically stronger interpretation is that the market is pricing tighter future availability faster than aggregate physical inventories can adjust. The paper proposes a Sugar Pressure Index and a dynamic sugarcane remuneration framework to improve policy coordination between farmers, mills, ethanol producers and consumers. JEL Classification: Q11, Q13, Q18, E31, E37, L66
Source: Research Square
Authors: RONAK MEHTA, Garv Nijhara
Institution: P P Savani University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7204882940