Ethanol Policy U-Turn: Government Reopens Gates for Sugar-Based Production, Balancing Sweetness and Fuel

In a significant policy reversal, the Indian government has lifted the stringent restrictions it had previously imposed on the use of sugarcane juice and B-heavy molasses for ethanol production. This move comes as a welcome relief to sugar mills and farmers, who were reeling from the earlier directive aimed at prioritizing sugar for domestic consumption.

The initial decision to curb ethanol production from these sugar-based feedstocks had sent shockwaves through the industry, impacting profitability and disrupting diversification plans for many mills.

The government's new order, issued by the Ministry of Consumer Affairs, Food & Public Distribution, permits the use of sugarcane juice, sugar syrup, and B-heavy molasses for ethanol manufacturing, provided mills obtain prior approval from the sugar department. While the gates are now open, the directive subtly nudges producers towards B-heavy molasses as the preferred raw material, suggesting a continued cautious approach to direct sugar diversion.

This policy adjustment reflects the delicate balancing act the government must perform: ensuring adequate sugar supply for its vast population while simultaneously pushing towards its ambitious ethanol blending targets.

India aims to achieve a 20% ethanol-blended petrol (E20) by 2025, a goal that requires a massive 1,350 crore litres of ethanol. For the current 2023-24 ethanol supply year (December to November), the initial restrictions had drastically cut projected ethanol supply from sugar sources to just 150 crore litres, a steep fall from the 400 crore litres supplied in the previous year.

The reality is that sugar sources currently account for only about a third of India's total ethanol production.

The bulk of the remaining supply comes from other feedstocks like maize and damaged food grains. This reliance on diverse sources will likely continue, even with the partial relaxation on sugar-based ethanol. The government's long-term strategy appears to involve reducing dependence on sugar for ethanol, moving towards grains to stabilize the sugar market and ensure food security.

While the lifting of restrictions provides immediate respite and some flexibility for sugar mills, it underscores the inherent volatility of policy decisions influenced by agricultural output and national priorities.

Sugar production estimates for the current season are around 320 lakh tonnes, which is deemed sufficient for domestic consumption. However, the government's quick pivot demonstrates its willingness to react to market dynamics and industry concerns, albeit with a clear mandate to keep consumer interests paramount.

This latest development signals a dynamic environment for both the sugar and ethanol industries, where government intervention can swiftly alter fortunes.

Mills will now cautiously resume their ethanol production plans, factoring in the nuanced guidelines and the overarching goal of national energy security and food stability.