Govt curbs sugar diversion for ethanol, mills warn of losses during surplus year

The government has changed which raw materials qualify for ethanol procurement in the 2026–27 supply year. State-run oil marketing companies are no longer seeking offers for ethanol made from sugarcane juice, sugar syrup or B-heavy molasses. This is meant to stop recoverable sugar from being diverted into fuel when sugar supplies may be tight.

The tender, issued by BPCL on behalf of oil companies, still allows ethanol from maize, broken rice, surplus FCI rice and C-heavy molasses. C-heavy molasses is a lower-sugar residue left after more sugar has been recovered, so using it diverts less potential sugar from the food market.

The policy is a major shift from using both grain and sugarcane feedstocks. Sugar mills want the excluded materials restored in future tenders. They warn that a prolonged ban could hurt them during surplus sugar seasons, when ethanol sales can support prices and mill revenues.

Sugarcane juice is the liquid extracted directly from crushed cane. Sugar syrup is concentrated cane juice used in sugar production. B-heavy molasses is an intermediate residue that still contains substantial fermentable sugar. Fermentation converts these sugars into alcohol, which is then distilled into ethanol for petrol blending.

C-heavy molasses is produced after more sugar has been removed during processing. It contains less recoverable sugar than B-heavy molasses, but its remaining sugars can still be fermented into ethanol. That difference explains the tender’s treatment: C-heavy molasses remains eligible, while sugarcane juice, sugar syrup and B-heavy molasses are excluded.

The source explains the policy purpose, but does not give technical production steps or exact sugar content for each material. In practical terms, choosing earlier-stage materials can reduce sugar available for food, while choosing C-heavy molasses limits that diversion. The government is prioritising sugar availability this year.

The tender seeks around 11 billion litres of ethanol for the supply year beginning in November. This volume is intended to help oil marketing companies meet the requirement for petrol blended with 20% ethanol. The target matters because it sets a large national demand for domestically produced fuel.

A 20% blend means that, in a given quantity of blended petrol, ethanol is intended to account for one-fifth and petrol for the remaining four-fifths. For example, 100 litres of blended fuel would contain 20 litres of ethanol and 80 litres of petrol, assuming the target is reached. The tender is the procurement mechanism supporting that supply.

The article does not state the total petrol volume covered by the 11-billion-litre request. It says the programme is designed to reduce crude-oil imports and vehicle emissions. The government also says concerns about lower vehicle fuel efficiency are misplaced and that 20% blended petrol enhances acceleration.

The government is trying to preserve sugar for food because production could become more vulnerable this season. Sugarcane acreage declined by 26,000 hectares to 5.86 million hectares in 2026–27. Policymakers are also concerned about the possible impact of El Niño. With less cane available, diverting sugar into ethanol could leave a smaller domestic buffer.

The pressure is visible in the numbers. Sugar production in 2025–26 was around 28 million tonnes, while annual consumption is estimated at 28–28.5 million tonnes. If part of that output becomes fuel, supplies for food, drinks and other users could become tighter. The government therefore directed that sugar diversion for ethanol be reduced to zero.

This approach protects availability in the short term, but it changes the balance for sugar mills. Mills lose access to some ethanol revenues, especially when sugar production later exceeds demand. Their concern is that a policy designed for scarcity could become financially damaging if the crop recovers and sugar prices weaken.

Sugar mills use ethanol sales as a second outlet for surplus sugar. When more sugar is produced than the domestic market needs, diverting some of it to fuel reduces the quantity competing for food-market sales. If mills lose that option, excess sugar could build up, pushing domestic prices and ex-mill realisations lower.

ISMA gives the key mechanism. Sugarcane is cyclical, so production varies from season to season. In a surplus season, mills can send excess sugar toward ethanol instead of selling all of it into a crowded market. That supports prices and provides revenue. Removing this outlet could aggravate financial stress and weaken mill earnings.

The consequences could reach farmers. ISMA says lower revenues could impair mills’ ability to make timely fair and remunerative price payments to sugarcane farmers. The policy may protect consumers from scarcity now, but prolonged exclusion could hurt mills and farmers if production later rises sharply.

The tender permits ethanol made from maize, broken rice, surplus rice procured by FCI and C-heavy molasses. These materials give oil companies alternatives after sugarcane juice, sugar syrup and B-heavy molasses were excluded. That helps maintain ethanol procurement while limiting diversion of recoverable sugar.

Each feedstock responds to different supply conditions. Grain-based plants can use maize or rice, while sugar mills can use C-heavy molasses, a later processing residue. If one source becomes scarce or expensive, procurement can draw more heavily on another. This is the basic resilience benefit of a diversified feedstock base.

The article does not quantify how much ethanol each source will provide. It does show that the government is relying mostly on grain this year. Sugar mills object to losing access to tenders, while the government is balancing fuel demand against sugar availability and the financial health of the sugar sector.

Blending ethanol into petrol reduces the amount of petrol required from crude-oil refining for a given volume of blended fuel. India’s programme therefore aims to reduce crude-oil imports and vehicle emissions. It also creates demand for domestic crops, residues and sugar-processing products, linking transport policy to agriculture and food markets.

The trade-off depends on the feedstock. Grain-based ethanol uses maize or rice, while sugar-based ethanol can divert recoverable sugar from food markets. That diversion may improve sugar-mill revenues and help payments to farmers during surplus seasons, but it can tighten supplies when production is weak. C-heavy molasses offers fuel feedstock without the same level of recoverable-sugar diversion.

The government is prioritising sugar availability this year because acreage declined and El Niño could affect production. Yet sugar mills warn that permanently limiting sugar-based ethanol would remove an important revenue stream. Energy security, food supplies and farmer incomes therefore need to be managed together.