India considers curbing use of sugarcane for ethanol to tame record-high sugar market
The government is reportedly considering restricting the diversion of sugarcane juice and B-heavy molasses to ethanol production in the sugar season beginning October, to boost sugar output and stabilise record-high sugar prices
Domestic sugar prices have risen sharply in recent weeks, with concerns over reduced rainfall in key producing states affecting the outlook for the next season's cane output
To keep the ethanol blending programme on track despite reduced cane-based ethanol, the government may encourage greater use of corn (maize) and rice as alternative feedstocks
Sugar mills in the current season have diverted a significant share of sugar-equivalent output toward ethanol production
Ethanol Blended Petrol (EBP) Programme and the 20% Blending Target
The EBP Programme, launched in 2003, mandates progressive blending of ethanol with petrol to reduce crude oil import dependence, cut vehicular emissions, and support agricultural income. The target for blending was substantially advanced under the National Policy on Biofuels, 2018.
Key Details
- National Policy on Biofuels, 2018 originally set an indicative target of 20% ethanol blending (E20) by 2030; this was advanced to 2025-26 in 2021
- 10% blending was achieved in June 2022 (ahead of schedule); blending rose to approximately 18% by early 2025 and the 20% (E20) target was reported achieved in 2025, ahead of the revised deadline
- Feedstock sources for ethanol include sugarcane juice, B-heavy and C-heavy molasses, damaged food grains, and surplus rice/maize (permitted under revisions to the biofuels policy to allow grain-based ethanol alongside sugar-based ethanol)
- The programme is administered jointly by the Ministries of Petroleum and Natural Gas, Consumer Affairs, Food and Public Distribution, and Agriculture, with Oil Marketing Companies (OMCs) procuring ethanol at government-notified prices
Restricting cane-to-ethanol diversion to protect sugar supply directly affects the feedstock mix underpinning the blending target; the reported pivot toward corn and rice is a policy lever to preserve the blending percentage without depending on cane, which is now needed for sugar production.
Fair and Remunerative Price (FRP) and the Sugarcane (Control) Order, 1966
The FRP is the legally mandated minimum price that sugar mills must pay cane farmers, distinct from the market price of sugar or ethanol. It anchors farmer incentives and is central to why cane allocation between sugar and ethanol matters economically for both farmers and mills.
Key Details
- FRP is determined under the Sugarcane (Control) Order, 1966, and approved for each sugar season (October–September) by the Cabinet Committee on Economic Affairs (CCEA), based on recommendations of the Commission for Agricultural Costs and Prices (CACP)
- The Statutory Minimum Price (SMP) mechanism was replaced by FRP through an amendment to the 1966 Order in October 2009; FRP factors in cost of production, sugar recovery rate, and a reasonable margin for farmers
- Several states additionally announce a State Advised Price (SAP), which can be higher than the FRP, adding a Centre-state dimension to cane pricing
- Mills' revenue from diverting cane to ethanol (at government-notified ethanol prices) competes with revenue from selling cane-derived sugar, so relative sugar and ethanol prices influence how much cane mills allocate to each use
With sugar prices at record highs, mills have a market incentive to reduce ethanol diversion in favour of sugar production even without regulatory intervention; the reported government move to formally restrict cane/B-heavy molasses ethanol use would reinforce this shift and protect consumer-facing sugar supply.
Sugar Sector Regulation and Buffer Stock Mechanisms
India regulates the sugar sector through a combination of production/export controls, minimum selling price rules, and stock-holding limits to balance farmer remuneration, mill viability, and consumer price stability.
Key Details
- The government periodically uses tools such as minimum indicative export quotas, stock limits on mills, and Minimum Selling Price (MSP) for sugar to manage domestic availability
- India is typically among the world's largest sugar producers and consumers, alongside Brazil; domestic price stability policy therefore has implications for both farmer income and global sugar trade flows given India's role as a swing exporter
- Reduced rainfall in key cane-growing states (such as Maharashtra and Karnataka) affecting the next season's cane yield outlook adds a monsoon-dependency dimension typical of Indian agricultural commodity cycles
The considered curbs on ethanol diversion sit within this broader toolkit of sugar-sector interventions, aimed at using existing cane output more toward sugar rather than expanding cane area, in a season where rainfall-linked yield concerns already constrain supply.
- EBP Programme launched: 2003
- National Policy on Biofuels: notified 2018; E20 target advanced from 2030 to 2025-26 (announced 2021)
- 10% ethanol blending achieved: June 2022 (five months ahead of schedule)
- 20% (E20) blending target: reported achieved in 2025, ahead of the revised 2025-26 deadline
- FRP legal basis: Sugarcane (Control) Order, 1966; SMP replaced by FRP via October 2009 amendment
- FRP approving authority: Cabinet Committee on Economic Affairs, based on CACP recommendation
- Sugar season: October to September
- Current-season cane diversion to ethanol: reported at roughly 3 million tonnes of sugar-equivalent, about 10% of total sugar production