Sugar Shortage Fears: Government May Curb Sugarcane Use for Ethanol As Prices Hit Record High

The government is considering restricting the amount of sugarcane diverted to ethanol production from the new season beginning in October, as it seeks to increase domestic sugar supplies and ease record-high prices, according to two government and two industry sources. A final decision could be taken by the end of next month.

The move comes amid concerns over next year’s sugar output after reduced rainfall in Maharashtra and Karnataka, India’s biggest sugarcane-producing states, Reuters reported. Prioritising sugar production over ethanol could add more sugar to the domestic market and potentially help India avoid imports if production falls, the sources said. Govt Signals Roadmap Beyond E20, Says Ethanol Capacity Built to Support Higher Blends and Flex-fuel Vehicles.

Around 3 Million Tonnes of Sugar at Stake

Indian sugar mills diverted about 3 million metric tons of sugar, or roughly 10% of total output, to ethanol production during the current year ending in September.

Restricting the diversion next season could add a similar volume to domestic sugar supplies, helping offset an expected decline in production caused by weaker rainfall in major cane-growing states, the sources said. The proposal has not yet been finalised. A government spokesperson did not immediately respond to Reuters' request for comment. ‘Will Pure Petrol Come From Your Father’s House?’: BJP MP Janardan Mishra’s Controversial Remark Amid E20 Fuel Row (Video).

Sugar Prices Hit Record High

Indian sugar prices have risen about 10% over the past month to a record high as supplies tighten and demand rises ahead of the festival season.

Wholesale sugar prices in Kolhapur, a major trading centre in Maharashtra, recently reached 4,716 rupees per 100 kg. Sugar inventories at the start of the new season on October 1 are expected to fall to about 3.5 million tonnes, which would be the lowest level in more than three decades, according to recent Reuters reporting.

Demand typically increases from August to November as festivals including Ganesh Chaturthi, Dussehra and Diwali boost consumption of sweets and confectionery.

Ethanol Blending Target Could Remain on Track

Any reduction in sugarcane-based ethanol would create a challenge for the government's programme to blend 20% ethanol into petrol. To maintain the target, the government would need to increase the use of corn and rice for ethanol production. Stocks of both commodities are currently considered ample, the sources said.

The sources said mills could be asked to stop producing ethanol from sugarcane juice and B-heavy molasses, which contains a relatively high amount of sugar. Instead, mills would mainly be allowed to produce ethanol from C-heavy molasses, a byproduct left after most of the sugar has been extracted.

Ethanol Allocation to Be Finalised

The ethanol allocation for the sugar industry for the marketing year beginning in November is expected to be finalised before the new season starts. After the allocation is determined, state fuel retailers are expected to float tenders for ethanol purchases, according to the sources.

India has already banned sugar exports and imposed limits on the stocks that dealers can hold as the government attempts to improve domestic availability and contain prices.

What It Means for Sugar Mills

The proposed restrictions are unlikely to significantly hurt sugar mills, according to industry officials.

With sugar prices at record levels, mills could earn more by producing and selling sugar than by diverting cane towards ethanol, making a shift towards sugar production financially attractive.

The government's latest consideration comes as India faces a delicate balance between ensuring adequate domestic sugar supplies and maintaining its ethanol-blending programme.

For consumers, the immediate focus remains on sugar availability and prices, particularly as festival demand gathers pace. The proposed policy change could increase domestic supplies next season if the government ultimately limits the quantity of cane diverted to ethanol.

(The above story first appeared on LatestLY on Aug 10, 2026 08:46 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).