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Informist, Wednesday, Sept. 3, 2025

 

By Afra Abubacker

 

NEW DELHI – The sugar industry has welcomed the government's order allowing mills to freely divert sugarcane-based feedstocks for ethanol production in 2025-26 (Nov-Oct). But experts say the order is routine and largely technical, and the market's excitement about this may be misplaced.

 

On Monday, the Centre allowed sugar mills and distilleries to produce ethanol from sugarcane juice, sugar syrup, B-heavy molasses, and C-heavy molasses without any restriction in the ethanol supply year starting November.

 

"This was a routine order under clause 5 of the Sugar (Control) Order, enabling mills to divert sugarcane and its derivatives for producing ethanol," said G.K. Sood, chairman of MEIR Commodities. The order does not allow sugar diversion for ethanol production by default, Sood said, explaining the relevance of the notification.  

 

Industry officials emphasised that the order does not mean "unlimited" sugar can be diverted for ethanol. "While determining the quantity that can be diverted, the government will prioritise the requirement of sugar as food," Sood said. Oil companies accept ethanol supply offers from mills as per their requirements of timing, place, and quantity, he added.

 

Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories, said Monday's notification was necessary after the Sugar (Control) Order was amended earlier this year as the government formally included restrictions on sugar diversion in the order. "It was imperative for the government to notify that mills can freely divert sugar for ethanol. The industry welcomed it as it gives flexibility to produce ethanol as per capacity and marketability," he said. 

 

On Monday, the Supreme Court dismissed a petition challenging the nationwide rollout of 20% ethanol-blended petrol. The apex court said the petitioner was just a front, and a lobby was behind him. The same day, the government released the notification on free sugar diversion for ethanol production. 

 

Sugar stocks rose sharply after the notification, with Shree Renuka Sugars, Balrampur Chini Mills, and Praj Industries gaining 6–12% on the Nifty 500. But Sood called the rally "misplaced and unjustified", stressing that the crop was still in fields, and oil marketing companies were yet to float supply orders for 2025-26 (Nov–Oct).

 

The government has allowed free sugar diversion for ethanol production due to expectations of good sugar production in 2025-26. According to the first preliminary estimates by the Indian Sugar Mills & Bio-Energy Manufacturers Association, India's gross sugar production is likely to rise 18.3% on year to 34.9 million tonnes in 2025-26 (Oct-Sep). But Sood pointed out that this simply brings sugar production back to "normal" levels, slightly above 2023-24 and still well below 2022-23.

 

According to experts, the extent of diversion in 2025-26 will depend not only on availability of sugar but also on ethanol prices and the procurement plans of oil companies. ISMA hopes to see 5.0 million tonnes of sugar diverted, while Joint Secretary (Sugar) Ashwini Srivastava estimates the figure at 4.0–5.0 million tonnes, based on expectations of good output.

 

However, early sugar output estimates often carry a high margin of error. Over the past two years, initial forecasts diverged sharply from actual production, forcing the government to tighten ethanol diversion in 2023-24 and then lift curbs in 2024-25.

 

In 2023-24, lower output projections prompted the government to restrict sugar diversion at 2.5 million tonnes, but the actual output later exceeded expectations and led to surplus stocks. Unlike the 2023-24 sugar season, the government did not impose any restrictions on sugar diversion in 2024-25. Despite an 18% drop in sugar production, mills and distillers were free to divert as well as export sugar, as the country entered the season with ample carryover stocks.

 

Yet, sugar diversion for 2024-25 is not as strong as expected. Mills are likely to have diverted about 3.0 million tonnes of sugar so far for ethanol production, short of the earlier estimated 4.0 million tonnes. Industry players say the drop in diversion this year was largely due to lower sucrose availability and smaller ethanol procurement allocations from oil companies.

 

Meanwhile, the sugar sector's share in the ethanol basket has receded and is being replaced by grains. As of Jul. 20, oil companies gave orders for 11.26 billion litres of ethanol in 2024-25 (Nov-Oct) – 69% will come from grains, and about 31% will be sourced from sugar-based feedstocks. 

 

Rising production costs have also added to concerns for mills. ISMA has been pressing for higher ethanol procurement prices. For 2024-25 (Nov–Oct), the government raised the rate for ethanol made from C-heavy molasses to INR 57.97 per litre from INR 56.28, but left prices of ethanol from sugarcane juice at INR 65.61 per litre and from B-heavy molasses at INR 60.73 per litre, unchanged since 2022-23. 

 

Sood warned of a structural mismatch. While oil companies run the year round, sugar mills are seasonal. Ethanol supply from mills tapers off as crushing activities slow down. Ultimately, he said, supply in 2025-26 will hinge on the commercial arrangements between mills and oil marketing companies.  End

 

Edited by Avishek Dutta

 

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