No Sugar for Ethanol in 2026-27: Why the Government Has Switched Ethanol to Grains
The government directed the oil marketing companies (OMCs: the public sector firms that sell petrol, such as Indian Oil, BPCL and HPCL) to set sugar diversion for ethanol at zero for the Ethanol Supply Year (ESY) 2026-27. "Sugar diversion" means using cane juice or sugar-rich molasses to make ethanol instead of sugar.
On 16 October 2026, BPCL, on behalf of all OMCs, invited bids for about 1,100 crore litres (11 billion litres) of ethanol for the supply year that starts in November 2026. This amount is needed to keep 20% ethanol in petrol (E20).
No bids were invited for ethanol made from sugarcane juice, sugar, sugar syrup or B-heavy molasses. Bids are open only for maize, damaged food grains, surplus rice from the Food Corporation of India (FCI), C-heavy molasses and other feedstocks allowed under the National Policy on Biofuels.
The extra incentive paid for maize-based ethanol was cut from ₹5.79 to ₹2.79 per litre.
The reason is a tight sugar supply. Weak rain in Maharashtra and Karnataka is expected to lower cane output, and mills began the 2026-27 sugar season (1 October 2026) with some of the lowest opening stocks in over ten years. Sugar prices in the market have also been high.
Shares of listed sugar companies such as Balrampur Chini Mills, EID Parry and Shree Renuka Sugars fell between 2% and 6%, because ethanol had become a steady, well-paid second income for mills.
Ethanol Blended Petrol (EBP) Programme
The Ethanol Blended Petrol (EBP) Programme is the Government of India's plan to mix ethanol, a fuel made from plants, into petrol sold at pumps. "E20" means 20% ethanol and 80% petrol. India does this to import less crude oil, cut pollution and give farmers and sugar mills an extra market. Oil marketing companies buy ethanol from distilleries every year through tenders and blend it into petrol.
For ESY 2026-27, the programme will try to keep E20 going using only grain and C-heavy molasses ethanol. This shows how the programme has changed: sugarcane was once its main base, but grains now carry most of the load, which lets the government protect sugar supply without giving up the blending target.
Sugar Sector Regulation in India: Sugarcane (Control) Order, FRP and Minimum Selling Price
India's sugar sector is one of the most tightly controlled parts of the economy. The government fixes the minimum price mills must pay farmers for cane, the lowest price at which mills can sell sugar, how much sugar can be exported, and how much cane or sugar can be turned into ethanol. It does this mainly under the Essential Commodities Act, 1955 and the Sugarcane (Control) Order, 1966.
Mills must pay farmers the FRP whether or not they can earn well from sugar. Ethanol from cane juice and B-heavy molasses had become a key way for mills to earn money and pay farmers on time. Setting sugar diversion to zero is one more supply tool, like stock limits and imports, to keep enough sugar in the domestic market, but it reduces mills' income at the same time as the FRP has gone up.
Food vs Fuel Debate: Biofuels and Food Security
The food vs fuel debate asks one simple question: should crops and land be used to feed people and animals, or to make fuel for vehicles? When crops like sugarcane, maize or rice are turned into ethanol, less is left for food, and prices can rise. Supporters of biofuels say they cut oil imports and help farmers; critics say they can push up food prices and use a lot of water.
This decision is a clear case of the food vs fuel trade-off in action. With poor rain and low sugar stocks, the government chose to keep sugar for kitchens rather than fuel tanks, and moved the ethanol burden to grains and molasses, while also lowering the maize incentive so that maize does not become the next pressure point.
- Sugar diversion for ethanol in ESY 2026-27: zero (no cane juice, sugar, sugar syrup or B-heavy molasses)
- OMC tender issued by BPCL on 16 October 2026 for about 1,100 crore litres of ethanol
- Allowed feedstocks: maize, damaged food grains, surplus FCI rice, C-heavy molasses and others under the National Policy on Biofuels
- Maize incentive cut from ₹5.79 to ₹2.79 per litre
- Ethanol Supply Year: 1 November to 31 October; sugar season: 1 October to 30 September
- E20 target advanced from 2030 to ESY 2025-26 (2022 amendment to the National Policy on Biofuels, 2018)
- ESY 2024-25 average blending: about 19.24%; sugar diverted that year: about 40 lakh tonnes
- FRP 2026-27: ₹365 per quintal at 10.25% recovery; sugar MSP: ₹31 per kg since 2019
- Domestic sugar demand: about 280 to 285 lakh tonnes a year
- Sugar company shares fell 2% to 6% after the decision