The Indian government is considering restricting sugarcane diversion for ethanol production to boost domestic sugar supplies by 3 million metric tons. This move aims to stabilize record-high sugar prices, which have recently reached ₹48–50 per kg. To maintain ethanol blending targets, officials may pivot toward using more corn and rice as feedstock.
The Indian government is weighing a proposal to restrict the use of sugarcane for ethanol production in the upcoming season, which begins in October. This move is designed to increase domestic sugar availability by an estimated 3 million metric tons, addressing the recent spike in prices that has seen retail sugar trading at ₹48–50 per kg and wholesale rates near ₹4,750–4,800 per quintal.
Focusing on Domestic Supply
Recent rainfall deficits in major sugarcane-producing states, including Maharashtra and Karnataka, have lowered production expectations, causing concern about supply levels. In response, the government has already implemented stock holding limits for sugar dealers, effective from August 1 through November 30, 2026. The new proposal would likely require mills to halt the production of ethanol from sugarcane juice and B-heavy molasses, focusing instead on C-heavy molasses, which has lower sugar content and leaves more sugar available for consumption.
Balancing Ethanol Targets and Profit Margins
To ensure the national 20% ethanol-blending program remains on track, the government intends to shift the reliance toward corn and rice as primary feedstocks. For sugar mills, this transition presents a challenging financial dynamic. While higher sugar production could increase revenue volume, the profit margins for many mills have faced pressure. Ethanol procurement prices have remained largely static since the 2022-23 period, even as sugarcane costs have risen by approximately 16%.
Regulatory and Climate Risks
For investors, the primary concern remains the high level of regulatory uncertainty. The sugar sector is sensitive to frequent policy changes, such as export restrictions, feedstock controls, and stock limits, which complicate long-term operational planning. Additionally, climate risks like erratic rainfall patterns continue to pose a threat to sugarcane yields.
Investors may monitor the upcoming official notifications for definitive rules on feedstock usage, as well as production data for the new season. Understanding whether grain availability (corn and rice) can effectively offset the loss of sugarcane-based ethanol without significantly raising input costs will be essential for assessing the sector's financial performance in the coming quarters.