Amid supply concerns India shifts focus from ethanol to sugar production

To secure sufficient sugar supplies amid concerns about a potential decrease in production due to below-normal rainfall in key growing states, India is considering measures to discourage the diversion of sugar for ethanol production, according to government and trade sources cited by Reuters.

This move is aimed at boosting sugar output and may involve urging mills not to use sugar cane juice and B-heavy molasses for ethanol production. The decision is in response to the demand-supply situation, with the government intending to prioritize sugar production in the current marketing year, which started on November 1. This potential shift is considered a setback for an industry that has made significant investments in increasing ethanol production capacity over the last five years.

Government sources, speaking anonymously, indicated that authorities might allow mills to produce ethanol only from C-heavy molasses, a cane by-product with minimal sugar content.

This decision aligns with the government’s focus on addressing the challenges posed by patchy rains in Maharashtra and Karnataka, key sugar cane-growing states. These weather conditions have raised concerns about a potential decline in sugar output for the 2023-24 marketing year. The Indian Sugar Mills Association has projected an 8% drop in sugar production, estimating it at 33.7 million metric tons.

Ethanol procurement guidelines for the ongoing marketing year are expected to be finalized soon, with oil marketing companies likely to honor contracts already awarded. The government’s decision to prioritize sugar production is seen as a short-term setback by industry insiders, who hope for a shift in focus back to ethanol once sugar cane supplies improve.

India’s fuel retailers, blending ethanol with gasoline, have been paying higher prices for ethanol produced from sugar cane juice and B-heavy molasses. The potential restriction on using these sources for ethanol production could impact the economics of the industry, which has already seen local sugar prices surge to their highest levels in nearly 14 years.