Government cuts sugar diversion to ethanol, mills warn of losses during surplus year

New Delhi: The government has decided to procure mostly grain-based ethanol for its petrol blending program this year as it seeks to prevent sugarcane diversion and boost sugar production at a time when acreage has declined, raising concerns about rising prices.

State-run oil marketing companies have excluded ethanol made from sugarcane juice, sugar syrup and B-heavy molasses from their latest tender for the 2026-27 supply year for gasoline blending, prompting sugar mills to urge the government to retain the feedstock in future procurement cycles. Mills warn that a longer lockout could strain their finances as sugar production rises and prices plummet.

The tender, floated on October 16 by Bharat Petroleum Corporation Ltd (BPCL) on behalf of other oil market companies (OMCs), is seeking bids for around 11 billion liters of ethanol for the supply year from November to meet the 20% ethanol blending requirement. Under the current tender process, ethanol produced from sugarcane juice, sugar syrup and molasses B has been excluded, while ethanol based on heavy molasses C remains eligible.

Read also | Nets made in Israel offer apple growers protection from hail

“Government of India has issued instructions to reduce sugar diversion in ethanol to zero for the ethanol supply year 2026-27,” the tender documents said. “In this tender, no bids were sought for ethanol made from sugar cane juice, sugar or sugar syrup and heavy B molasses,” it added. The tender allows bids for ethanol made from corn, broken rice, surplus rice procured by the Food Corporation of India (FCI) and heavy C molasses, according to the document.

A shift in resource acquisition

The restrictions mean a shift in feedstock sourcing for the ethanol-blended gasoline program, which relies on both grain-based and sugarcane-based ethanol to reduce oil imports and lower vehicle emissions. The development comes amid concerns among consumers about the likely impact of ethanol-laced gasoline on vehicle fuel efficiency. The government dismissed these concerns as misplaced, stressing that gasoline with 20% ethanol actually increases acceleration.

Queries emailed to the Union ministries of agriculture, consumer affairs, oil and gas and environment, forests and climate change, Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd were not immediately answered on Monday evening.

Read also | Affordable and versatile Vietnamese bass will catch the Indians

The move is aimed at maintaining sufficient domestic sugar supplies by limiting the diversion of recoverable sugar to ethanol. According to agriculture ministry data, the area under sugarcane in India has decreased by 26,000 hectares to 5.86 million hectares in 2026-27 compared to 2025-26. The decline in sugar cane acreage and the potential impact of El Niño have politicians worried about the prospect of lower sugar production.

Sugar production in the 2025-26 season was around 28 million tonnes. The annual consumption of sugar in India is estimated to be around 28-28.5 million tonnes. Institutional consumers such as food and beverage companies, hotels, restaurants and catering (HoReCa) and processed foods are estimated to account for 60-65% of total demand, with the remaining share coming from retail households.

There were concerns

The Indian Sugar and Bioenergy Manufacturers Association (ISMA), a lobby group for sugar mills, has expressed concern over the government’s preferential purchase of contracts from Dedicated Ethanol Plants (DEPs) that have long-term off-take agreements (LTOAs). He argued that extending the arrangement to subsequent years could limit sugar mills’ participation in ethanol procurement tenders, particularly during periods of overproduction, when diverting excess sugar to ethanol helps support domestic prices and sugar mill implementation.

“While the preferential allocation given to Dedicated Ethanol Plants holding long-term off-take contracts under the current tender for ESY 2026-27 already exists, its continuation in the coming years could seriously harm the interests of the sugar industry,” said Deepak Ballani, Director General, ISMA.

Read also | Is Indian solar facing its Icarus moment?

According to ISMA, sugarcane is a cyclical crop and its availability and resulting sugar production varies from season to season. In periods of excess production, diverting excess sugar to ethanol is essential to avoid oversupply in the domestic market, which could depress ex-factory prices and realizations. “If DEP’s preferential allocation continues to restrict sugar mills’ access to ethanol procurement in such seasons, it would deprive them of an important source of revenue, aggravate their financial stress and impair their ability to make timely FRP (fair and remunerative price) payments to sugarcane growers,” Ballani added.

Looking for a review

The ISMA has also called for a review of the heavy C molasses based ethanol purchase price, which remains unchanged at ₹57.97 per litre. The association wants to increase it ₹62.23 per litre, based on prevailing molasses prices and conversion costs. It also requested that the full amount of heavy C molasses-based ethanol offered by the sugar industry be allocated.

The All India Distillers’ Association (AIDA), the national apex body representing India’s bioethanol and alcohol industry, said that at a time when agricultural conditions remain uncertain, including the potential impact of El Niño on monsoon patterns, balancing the availability of raw materials, food security, farmers’ interests and energy security is particularly important.

Read also | Supply chain disrupted, component crisis hurts energy sector: Hitachi Energy

“We acknowledge the government’s efforts to adopt a balanced approach in the ESY 2026-27 tender that takes into account the evolving agricultural landscape, feedstock availability and the country’s growing ethanol requirements. Given the possibility of changing monsoon patterns and associated agricultural uncertainties, maintaining a diversified feedstock base is essential to ensure the resilience and long-term sustainability of India’s Ethanol Association program Vitjendras, All India President of Distjendrash.