INDIA HALTS SUGAR-BASED ETHANOL PURCHASES

 

BIZ MASALA  |  INVESTIGATIVE BUSINESS FEATURE

INDIA HALTS SUGAR-BASED ETHANOL PURCHASES

The sugar-versus-fuel dilemma: why the government has changed course on ethanol

By Murthy ASR  |  Biz Masala  |  18 October 2026

Ethanol production infrastructure sits at the centre of India’s shift in fuel-blending policy. Photo supplied for this story; facility identity not independently verified.

THE DECISION—AND WHAT IT DOES NOT MEAN

India’s state-owned oil marketing companies have been directed to set sugar diversion for ethanol at zero in the 2026–27 supply year. Their latest tender excludes ethanol made from sugarcane juice, sugar, sugar syrup and B-heavy molasses. C-heavy molasses remains eligible. This is not a ban on every form of sugarcane-derived ethanol; it restricts specified feedstocks in this procurement cycle.

The change exposes a difficult trade-off: India wants ethanol to displace petrol and reduce crude-oil import dependence, but sugar is also a food commodity. The tender seeks about 11 billion litres of ethanol for the supply year beginning in November 2026. Can alternative feedstocks supply enough at an acceptable cost?

WHAT CHANGES UNDER THE TENDER?

Feedstock	Tender position	Why it matters
Sugarcane juice, sugar, sugar syrup	Excluded	Prevents offers from these sugar-rich materials.
B-heavy molasses	Excluded	Retains more recoverable sugar for the food market.
C-heavy molasses	Eligible	Residual stream after more sugar is recovered.
Maize, broken rice, eligible surplus rice	Eligible	Alternative routes expected to carry more supply.
Damaged food grains	Subject to tender terms	Another potential non-sugar route.

WHY NOW? SUGAR SUPPLIES ARE UNDER PRESSURE

Industry forecasts point to a tighter sugar balance in 2026–27. The Indian Sugar & Bio-energy Manufacturers Association has projected output around 28 million tonnes, while domestic consumption is expected at about 28.5–29 million tonnes. These are forecasts, not final production figures. Poor rainfall in key producing states and lower opening stocks have intensified concerns about availability and prices.

Sugarcane harvesting illustrates the agricultural livelihoods affected by decisions on how cane is allocated between sugar and ethanol. The photograph is illustrative; location and date were not supplied.

The decision does not prove that ethanol diversion alone caused higher sugar prices. Output, stocks, demand, imports and market behaviour also matter. The narrower conclusion is that policymakers are prioritising sugar availability in the latest procurement cycle.

Sugarcane workers in the field. The policy’s effects on farm incomes will depend on procurement, cane payments and actual feedstock demand.

THE ETHANOL SUPPLY MIX IS ALREADY SHIFTING

Reported industry data show grain-based feedstocks were already the larger source of ethanol supplied through August 2026. The new tender accelerates a shift that was underway rather than creating grain-based ethanol from scratch.

Aerial view of an industrial biofuel facility. The image is used to illustrate production infrastructure, not to identify an Indian plant or a specific supplier.

Reported through August 2026: grain-based feedstocks 624 crore litres; sugar-based feedstocks 271 crore litres. Rounded shares are about 70% and 30%. These are partial-year figures, not final annual totals.

THE MAIZE QUESTION: MORE RESPONSIBILITY, LOWER INCENTIVE

The reported procurement price for maize-based ethanol has been reduced to ₹68.86 per litre, including an incentive of ₹2.79 per litre. The previous reported price was ₹71.86 per litre, with a ₹5.79 incentive. That creates a tension: the tender relies more heavily on alternative feedstocks while reducing the incentive attached to one important route.

The impact on distilleries depends on maize prices, yields, plant efficiency and logistics. Farmers may benefit from added demand, but outcomes depend on procurement arrangements and farm-gate prices. Any effect on food and feed prices must be measured rather than assumed.

Distillery infrastructure: the economics of feedstock substitution depend on plant configuration, operating costs and supply contracts. Facility identity not independently verified.

WHO GAINS—AND WHO COULD LOSE?

Stakeholder	Possible benefit	Risk or uncertainty
Sugar consumers	More sugar retained for domestic supply	Prices still depend on output, stocks, imports and demand.
Sugar mills	More cane may go into sugar production	Reduced outlet for specified ethanol feedstocks.
Sugarcane farmers	Continued demand for cane	Changes in mill economics may affect payments.
Grain distilleries	Greater opportunity to supply OMCs	Lower incentives and input costs may squeeze margins.
Maize farmers	Potentially stronger industrial demand	Farm-gate gains depend on price and competing uses.
Oil marketing companies	More diversified feedstock mix	Must secure enough eligible supply at viable prices.

THREE TESTS FOR THE POLICY

Availability: Can grain-based distilleries and C-heavy molasses producers deliver enough ethanol?

Affordability: Can suppliers meet the tender at prices that keep production viable?

Agricultural consequences: Will additional grain demand affect food, feed and farm-gate prices—and by how much?

WHAT BIZ MASALA WILL TRACK

·       OMC allocations and deliveries against the 11-billion-litre tender.

·       The share supplied by maize, rice, damaged grains and C-heavy molasses.

·       Actual sugar output, opening stocks, retail prices and import decisions.

·       Maize procurement prices, distillery margins and supplier participation.

·       Sugar-mill revenues, cane payments and any change in feedstock eligibility.

THE BIZ MASALA TAKE

The decision is a consequential adjustment in agricultural and energy policy. It seeks to protect sugar availability while keeping ethanol blending moving, but shifts more responsibility onto grain-based producers as maize-based incentives are recalibrated.

A fuel dispenser marked E20 connects ethanol procurement policy to the consumer-facing blending programme. Image supplied; station and dispenser details not independently verified.

India has built a large ethanol market. The next test is whether its feedstock strategy can remain reliable and affordable without creating new costs for farmers, consumers, distilleries or fuel suppliers. The answer will be found in deliveries, prices and crop data—not in the tender announcement alone.

SOURCES & EDITORIAL CHECKS

·       Reuters, 16 Oct 2026 — tender and feedstock exclusions — https://www.reuters.com/world/india/india-sets-zero-sugar-diversion-ethanol-202627-tender-2026-10-16/

·       The New Indian Express — C-heavy molasses remains eligible — https://www.newindianexpress.com/india/2026/Oct/18/govt-no-diversion-of-sugar-for-ethanol-fuel-blending

·       Financial Express — 2026–27 sugar output forecast — https://www.financialexpress.com/policy/economy/sugar-output-may-fall-to-28-mt-no-ethanol-diversion-industry/4363460/

·       Economic Times — reported ethanol volumes through August 2026 — https://economictimes.indiatimes.com/industry/energy/oil-gas/grain-based-feedstocks-power-nearly-70-of-indias-ethanol-supplies-in-2025-26/articleshow/134118449.cms

·       Business Standard — 2026–27 tender summary — https://www.business-standard.com/industry/news/centre-sets-sugar-diversion-for-ethanol-at-zero-in-2026-27-tender-126101601377_1.html

Verification note: sugar output and consumption figures are industry forecasts. Reported ethanol volumes are partial-year figures. The tender excludes specified sugar-rich feedstocks; it is not a blanket ban on all sugarcane-derived ethanol. Photographs were supplied for editorial use; identities, dates and locations have not been independently verified.

 

BIZ MASALA