Domestic sugar supplies and ethanol commitments: A tight rope walk during deficit year – Editorial by Uppal Shah
India’s sugar industry has evolved into a major ethanol producer, achieving 20% petrol blending, but tighter sugar production requires a balanced approach. The government should prioritize domestic sugar availability while allowing calibrated ethanol diversion, considering opening stocks, consumption, production estimates and ethanol economics.
The Indian sugar industry has transformed from being traditional sugar producers to being indigenously sourced green energy producers. Bioethanol produced from sugarcane molasses has changed India’s energy dynamics and substituted fossil fuel to a great extent. Today, vehicles use a blend of ethanol and petrol to power them on the road.
The genesis of ethanol production by sugar industry lies in managing surplus sugar production during years of surplus sugar production. During the seasons when the mills encountered problem of plenty taking a toll on their finances, delayed sugarcane payments etc, the idea to utilise the excess sugarcane for ethanol production took wings. And today, India has achieved 20% ethanol blending with petrol.
However, when the sugar season is facing a deficit production, a more calibrated policy approach which prioritises domestic sugar availability and sugar diversion towards ethanol production assumes greater significance.
With sugar production expected to be tighter, the government and the sugar mills, both face a delicate balancing act: ensuring adequate domestic availability and price stability while sustaining its ethanol-blending programme, which has become an important pillar of the country’s energy strategy.
The challenge is not simply about how much sugar is produced, but how it is allocated towards other use.
For sugar mills, diversion of sugar into ethanol is an important value addition which is generating profit, managing inventories and cushioning volatile sugar prices.
For the government, ethanol procurement supports the broader objective of reducing crude-oil imports and strengthening energy security. But when production tightens, every ton diverted from the sugar pool assumes greater significance.
The immediate priority of the Government is to ensure sufficient domestic availability. About 35% of the sugar consumption is done by households and the remaining is consumed by the bulk consumers- mainly the beverage and confectionary manufacturers etc. Excessive tightening of supplies could hurt consumers, especially the household consumers.
I feel the Government should give equal importance to both domestic consumption and ethanol production. And this is where policy flexibility assumes importance.
I do agree that a lower-production year warrants a more conservative approach towards diversion than a year of surplus, however, a complete halt is unnecessary, as it would impact the ethanol blending programme.
The industry also needs greater clarity on the economics of diversion. Mills make investment decisions based on expected returns from sugar, ethanol and by-products.
With sugar prices moving northwards, it is also critical for sugar mills to give equal weightage to ethanol production without compromising on profit margins.
Sugar mills opine that ethanol prices which have remained static, needs to be re-tuned to make it in parity with the rising sugar prices.
A conducive policy framework would allow mills to optimise their product mix while giving the government room to respond to changing supply conditions.
The other important variable is the opening stock. Production figures alone do not determine domestic availability. Carry-forward inventories are crucial to meet domestic demand of initial few months of new season. A transparent assessment of the overall sugar balance sheet should therefore precede major policy decisions.
Ethanol blending should remain a long-term structural reform rather than a short-term casualty of one weak sugar season. India has invested heavily in distilleries, storage, logistics and procurement infrastructure.
In years of strong production, greater diversion can support the blending target and help prevent excessive sugar inventories. In deficit years, the priority can temporarily shift towards preserving adequate sugar stocks.
In a year of tighter production, walking the tightrope is unavoidable and the ensuing season calls for nuanced policymaking. The government should closely monitor production estimates, crushing progress, opening stocks, domestic consumption before determining the appropriate level of diversion.
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Source : ChiniMandi
