Sugar mills in Karnataka stare at loss to the tune of Rs 4,000 crore

Sugar mills in Karnataka are staring at huge losses this year, owing to payment of additional cane price to farmers, lower allocation of ethanol by oil marketing companies (OMCs), and non-revision of MSP for sugar.

Chief Minister Siddaramaiah, in his order dated November 8, 2025, ordered sugar mills to pay Rs 400 per tonne more than the fair and remunerative price (FRP) to farmers. As a result of this unscientific and illegal order, mills are likely to suffer a loss of between Rs 50 crore and Rs 200 crore, said Yogesh Shrimant Patil, President, The South Indian Sugar Mills Association (SISMA), Karnataka.

Going by this estimate, the cumulative loss of sugar mills will be in the range of Rs 4,000 crore, sources said.

In a memorandum submitted to the chief minister, Patil urged him to lead a delegation to the Central Government to demand an increase in the MSP of sugar from Rs 31 per kg to Rs 42 per kg. He has also demanded the state government to sign a power purchase agreement for 10 years with sugar mills to buy surplus power generated from the mills at Rs 6.5 per unit. The association has also demanded purchase of entire ethanol produced by the mills.

“The payment of additional cane price will only compound the problems of sugar mills this year as they are already burdened with the lower allocation of ethanol by the OMCs and non-revision of MSP for sugar,” he said.

Siddaramaiah had ordered the sugar mills to pay Rs 3,300 per tonne of sugarcane with a recovery rate of 11.25%. Of this, Rs 3,250 will be paid by factory owners and Rs 50 by the government. For a recovery rate of 10.25%, Rs 3,200 will be provided per tonne of sugarcane.

The decision came after the CM’s extensive discussions with sugar factory owners and farmers’ representatives in November last year.

Dip in ethanol allocation

The OMCs have reduced the ethanol allocation to sugar mills in Karnataka for blending with fuels by 9.25% over last year. Mills have been asked to supply 98 crore litres of ethanol (produced from sugar-based feedstock) for 2025-26, compared to 108 crore litres for 2024-25. The allocation is just about 45% of the annual installed capacity of the mills, which is about 217 crore litres. The industry is also losing very heavily due to the non-revision of ethanol prices in the last three years and minimum sugar price for the last seven years.

The Indian Sugar & BioEnergy Manufacturing Association (ISMA) said while fair and remunerative prices of sugarcane have been revised upward at Rs 355 per quintal for 2025-26 season, ethanol procurement prices from sugarcane-based feedstocks, such as sugarcane juice and B-Heavy Molasses (BHM) have not been revised since 2022-23. BHM ethanol is currently priced at Rs 60.73 per litre and syrup/juice ethanol at Rs 65.61 per litre.

“Ethanol production from BHM/juice requires some sugar sacrifice, which needs to be compensated for production of ethanol. Production costs and other costs are rising, but due to no revision in ethanol procurement prices, distilleries are facing cash crunch. The issue has been compounded by lower allocations of ethanol in the 2025-26 season resulting in serious issues,” Deepak Ballani, Director General of ISMA, told DH.