India orders states to enforce zero sugar diversion for ethanol supply

India has instructed sugar-producing states to prevent mills and distilleries from producing ethanol from sugarcane juice and B-heavy molasses during the 2026-27 ethanol supply year (November-October), formally enforcing a zero-sugar-diversion policy that shifts more of the country's blending requirement toward grain-based feedstocks.

The Department of Food and Public Distribution directed the principal secretaries and excise secretaries of all sugar-producing states on Oct. 22 to issue instructions to implement the restriction and to monitor mills and distilleries for compliance.

"Diversion of sugar for ethanol production shall not be permitted during the ensuing Ethanol Supply Year 2026-27," the department said in its order.

"Accordingly, sugar mills and distilleries shall not be permitted to produce ethanol from sugarcane juice and B-heavy molasses during the said Ethanol Supply Year."

The prohibition will apply from Nov. 1, 2026, through Oct. 31, 2027. State excise departments have been asked to ensure that no ethanol is produced through the two restricted routes during that period.

The order provides the state-level enforcement mechanism for feedstock restrictions included in an Oct. 16 joint tender from India's state-run oil marketing companies seeking around 11 billion liters of denatured anhydrous ethanol for ESY 2026-27.

The tender does not accept offers for ethanol produced from sugarcane juice, sugar, sugar syrup or B-heavy molasses. Eligible routes include corn, damaged food grains, surplus rice procured from the Food Corporation of India, C-heavy molasses and other feedstocks permitted under the National Policy on Biofuels.

Grain and rice dependence increases

The state enforcement order reinforces India's shift toward grain ethanol as policymakers prioritize domestic sweetener availability.

The OMC tender allocates 7.2 million metric tons of surplus FCI rice to the blending program through June 30, 2027, equivalent to up to 3.24 billion liters of ethanol. Rice-ethanol allocations are capped at 1.08 billion liters in each of the first three supply quarters, with no FCI rice offers permitted for August-October 2027.

Corn-based ethanol carries a basic procurement price of 66.07 rupees /liter and an incentive of 2.79 rupees/liter, giving an effective rate of 68.86 rupees/liter.

FCI rice-based ethanol is priced at 60.32 rupees/liter, damaged-grain ethanol at 64 rupees/liter, and C-heavy molasses ethanol at 57.97 rupees/liter.

The All India Distillers' Association has asked the government to reconsider the reduced corn incentive and raise the procurement price for FCI rice-based ethanol, arguing that grain distillers face pressure from raw-material, energy, processing and logistics costs. It has also sought future flexibility to use sugarcane juice and B-heavy molasses when domestic sugar availability permits.

The Indian Sugar & Bio-Energy Manufacturers Association welcomed restrictions designed to safeguard sugar supplies, but sought an increase in the C-heavy molasses ethanol price to 62.23 rupees/liter from 57.97 rupees/liter and full allocation of eligible C-heavy volumes offered by mills.

C-heavy molasses remains permitted because it allows mills to produce ethanol without diverting the recoverable sugar associated with sugarcane juice and B-heavy molasses, according to the association.

The tender's projected ethanol requirement comprises 3 billion liters in each of the first two quarters and 2.5 billion liters in each of the final two quarters. Allocations remain provisional and may be revised based on government directions, market conditions or the outcome of pending court proceedings concerning the OMC allocation methodology.

An India-based ethanol buyer said it may take some time to assess the impact of the decision on prices, but said it could soften ethanol prices. The impact will be seen once the harvest starts in November, as an imported shipment landed this month, easing pressure on buyers.

The measure could also alter operating plans and feedstock economics for integrated sugar mills and distilleries ahead of the new supply year. Producers that had expected to supply ethanol from sugarcane juice or B-heavy molasses will need to reassess their production programs and contractual positions in line with state-level compliance instructions.

Platts, part of S&P Global Energy, assessed anhydrous ethanol shipment one month ahead (M1), down $6/mt at $758/mt CFR India on Oct. 20, for November shipment, while anhydrous ethanol shipment two months ahead (M2) was assessed down $4/mt at $750/mt CFR India on Oct. 20, for December shipment.