Centre’s ‘ban’ on diverting sugar for ethanol production hits mills, farmers hard

MUMBAI: Maharashtra’s sugar industry, already grappling with financial challenges and an anticipated decline in sugar production this season, faces another major setback after the Centre’s latest policy decision on Saturday, which has effectively halted the purchase of ethanol produced from sugarcane juice, syrup and B-heavy molasses

MUMBAI: Maharashtra’s sugar industry, already grappling with financial challenges and an anticipated decline in sugar production this season, faces another major setback after the Centre’s latest policy decision on Saturday, which has effectively halted the purchase of ethanol produced from sugarcane juice, syrup and B-heavy molasses. The move threatens to deprive sugar mills of an assured revenue stream of around ₹7,000 crore, further straining their finances and potentially affecting payments to sugarcane farmers.

Centre’s ‘ban’ on diverting sugar for ethanol production hits mills, farmers hard

The government’s decision is aimed at increasing domestic sugar availability in order to prevent further price hikes ahead of the festive season and the coming year. However, it is expected to have significant financial implications for the sugar industry by restricting a key source of revenue and liquidity.

According to estimates in the presentation made to CM Devendra Fadnavis for the 2026-27 sugar season, around 99 million metric tonnes of sugarcane will be available for crushing and will produce 9.6 million metric tonnes of sugar after the diversion of 1.5 million metric tonnes towards ethanol production.

However, due to the early start of the cane-crushing season this year and a subsequently lower yield, the state is set to suffer production losses of around 1.8 million tonnes. Because of this, sugar mills recently sought financial assistance for drought-hit farmers and sugar mills, along with an increase in the minimum selling price of sugar from the present ₹31 to ₹45, ₹1,000 per tonne for farmers, ₹500 per tonne for sugar mills.

The one-year-ban of the central government on the diversion of sugarcane juice, syrup and B-heavy molasses towards the production of ethanol is not a direct one; it works through terms set out in the tenders for oil companies. The mandate is that companies will not buy ethanol made from these three types of cane; they are allowed to buy ethanol made from other crops and from C molasses, which is just around four percent of the total ethanol production in the sugar industry.

According to the Maharashtra State Co-Operative Sugar Factories Federation Ltd, the installed production capacity of sugar factories is around 3,750 million litres. In the 2025-26 season, they supplied 1,250 million litres of ethanol, which shows around 30% use of installed capacity. “With the average rate of ₹60 per litre, the total revenue received from the sale of ethanol was around ₹7,500 crore,” said a sugar industry expert.

The expert said that the central government, instead of announcing a direct ban, played a sly game by laying down these conditions in their tenders to oil companies. “With this decision of oil companies, Maharashtra sugar factories will lose revenue of over ₹7,000 crore this year,” he said. “It will put the sugar industry in another financial crisis.”

Farmer leader Raju Shetti said the decision would affect cash flow to sugar factories, which is used to pay sugarcane farmers, and thus prove detrimental to both farmers and the financial health of factories. “The government should hike the rate of ethanol from C molasses to ₹70 to minimise the financial damage,” he said.

Harshvardhan Patil, president of the National Federation of Cooperative Sugar Factories (NFCSF), said that in response to the central government’s policy to promote ethanol use, sugar factories in Maharashtra invested over ₹35,000 crore in ethanol production plants. “Ethanol saved India foreign exchange on fuel and also became a source of revenue for sugar factories and farmers,” he said. “Due to the new decision, the ethanol plants will be mostly stranded, as C-molasses is barely used in ethanol production. Instead of a complete ban on the diversion of three types of cane products, the Centre should have reduced the quantity of diversion.”

The NFCSF’s Prakash Naiknavare, however, said the decision was only for this year and the policy would hopefully change in 2027.