The sugar in India’s kitchen and the fuel in its cars increasingly have something in common: sugarcane. India’s ethanol programme is altering the economics of a crop that already has to satisfy the country’s enormous appetite for sugar. With domestic production now expected to fall well below previous estimates, the government has opened duty-free imports to ease pressure on the market. Ethanol is not the sole reason for the current shortage, but it has added another demand for sugarcane.

The crop now has to meet demand for sugar, ethanol and exports. When production falls short, producers need room to adapt to changing market conditions. The immediate problem is clear. India’s sugar production is now expected to be around 30.6 million tonnes, significantly below the government’s earlier estimate of 34.4 million tonnes. Exports were approved before the scale of the shortfall became clear, with around 800,000 tonnes shipped before restrictions were imposed. The result is a tighter domestic market and higher prices at a time when demand is expected to rise ahead of the festive season.

The decision to allow an additional one million tonnes of raw sugar into the country duty-free should provide consumers and businesses with another source of supply. The Food Secretary has subsequently said ex-mill sugar prices fell 18 per cent to Rs 55 per kilogram, although that reduction has not yet fully reached retail consumers. The move is a useful reminder that when domestic supply falls short, access to........

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