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

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

State-run oil marketing companies have excluded ethanol produced from sugarcane juice, sugar syrup and B-heavy molasses from their latest procurement tender for the 2026-27 supply year for petrol blending, prompting sugar mills to urge the government to retain these feedstocks in future procurement cycles. The mills warn that a prolonged exclusion could strain their finances when sugar production rises and prices fall sharply.

The tender, issued on 16 October by Bharat Petroleum Corporation Ltd (BPCL) on behalf of other oil marketing companies (OMCs), seeks bids for around 11 billion litres of ethanol for the supply year beginning November to meet the requirement of 20% ethanol blending. Under the current procurement tender, ethanol made from sugarcane juice, sugar syrup and B-heavy molasses has been excluded, while C-heavy molasses-based ethanol remains eligible.

“The Government of India has issued directions that sugar diversion for ethanol be reduced to zero for ethanol supply year 2026-27,” the tender document said. “No offers have been sought for ethanol produced from sugarcane juice, sugar or sugar syrup and B-heavy molasses in this quantity bid tender,” it added.The tender allows bids for ethanol produced from maize, broken rice, surplus rice procured by the Food Corporation of India (FCI) and C-heavy molasses, according to the document.

Shift in sourcing

The restrictions mark a shift in feedstock sourcing for the ethanol-blended petrol programme, which has relied on both grain-based and sugarcane-based ethanol to reduce crude oil imports and cut vehicle emissions. The development comes at a time when there have been concerns among consumers over the likely impact of ethanol-blended petrol on the vehicles’ fuel efficiency. The government has dismissed these concerns as misplaced, and has stressed that the 20% ethanol blended petrol, in fact, enhances acceleration.

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

The move is aimed at maintaining adequate domestic sugar supplies by limiting the diversion of recoverable sugar for ethanol. According to the agriculture ministry data, India’s sugarcane acreage declined by 26,000 hectares to 5.86 million hectares in 2026-27 compared to 2025-26. The decline in sugarcane acreage and the potential impact of El Niño have raised concerns among policymakers over the prospect of lower sugar production.

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

Concerns raised

The Indian Sugar & Bio-energy Manufacturers Association (ISMA), a lobby group of sugar mills, raised concerns over the government’s preferential procurement from Dedicated Ethanol Plants (DEPs) holding long-term offtake agreements (LTOAs). It argued that extending the arrangement to subsequent years could restrict sugar mills’ participation in ethanol procurement tenders, particularly during periods of surplus production when diverting excess sugar to ethanol helps support domestic prices and mills’ realisations.

“While the preferential allocation provided to Dedicated Ethanol Plants holding Long-Term Offtake Agreements under the current tender for ESY 2026–27 is already in place, its continuation in subsequent years could seriously prejudice the interests of the sugar industry,” said Deepak Ballani, director general, ISMA.

According to ISMA, sugarcane is a cyclical crop, and its availability and the resulting sugar production vary from season to season. During seasons of surplus output, the diversion of surplus sugar towards ethanol is essential to prevent excess supply in the domestic market, which could depress prices and ex-mill realisations. “If preferential allocation to DEPs continues to restrict the access of sugar mills to ethanol procurement in such seasons, it would deprive them of an important revenue stream, aggravate their financial stress and impair their ability to make timely FRP (fair and remunerative price) payments to sugarcane farmers,” added Ballani.

Revision sought

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

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

“We recognise the government’s efforts to adopt a balanced approach in the ESY 2026–27 tender, taking into account the evolving agricultural landscape, feedstock availability and the country’s growing ethanol requirements. With the possibility of changing monsoon patterns and associated agricultural uncertainties, maintaining a diversified feedstock base is essential to ensuring the resilience and long-term sustainability of India’s ethanol programme,” said Vijendra Singh, president, All India Distillers’ Association.