Modi government bans sugar diversion for ethanol amid record-high prices
What's the story
The Indian government has banned the diversion of sugar for ethanol production during the 2026-27 supply year. The move is aimed at ensuring domestic availability and controlling record-high retail prices amid fears of inadequate rainfall affecting sugar production. The decision comes as part of a broader strategy to balance clean-fuel targets with domestic sugar demand.
Policy impact
Government directs oil firms to stop sugar-based ethanol procurement
The government has directed oil marketing companies to stop sugar-based ethanol procurement for 2026-27.
This excludes ethanol made from sugarcane juice, sugar syrup, and B-heavy molasses from the latest tender.
The move highlights India's long-standing reliance on surplus sugar production to meet its ethanol-blending targets, while also addressing the challenge of maintaining adequate sugar stocks for domestic consumption amid rising prices.
Tender details
OMCs invite bids for alternative feedstocks
Three state-run oil marketing companies, Indian Oil Corporation, Bharat Petroleum Corporation, and Hindustan Petroleum Corporation, have invited bids for 11 billion liters of ethanol for the supply year starting November 2026.
The tender allows manufacturers to bid for ethanol made from corn, broken rice, and surplus rice procured by the Food Corporation of India.
This is part of India's efforts to secure alternative feedstocks while ensuring sugar supplies amid high domestic prices.
Production challenges
Poor rainfall raises concerns over sugar production
Poor rainfall in Maharashtra and Karnataka, two major sugar-producing states, has raised concerns over sugarcane availability and the outlook for production this season.
In August, Reuters reported that the government was considering restrictions on sugarcane for ethanol to boost sugar output and control prices.
The decision comes as India expands its ethanol-blending program to cut oil imports and curb vehicular pollution.
Economic adjustments
Procurement economics for corn-based ethanol revised
The latest tender also revises the procurement economics for corn-based ethanol. Oil marketing companies have reduced the incentive for corn-based ethanol to ₹2.79 per liter from ₹5.79 per liter, lowering the procurement price to ₹68.86 per liter from ₹71.86 per liter.