India’s ambitious plan to reduce fossil fuel dependency through ethanol blending is causing unintended consequences in the form of a tightened sugar supply and rising retail prices for consumers. As the government fast-tracks its ethanol blending ratio to 30 percent by volume in petrol, up from the already achieved 20 percent target set for 2025, sugar diversion for biofuel production has become a major concern.

The bulk of India’s ethanol is produced from sugarcane molasses and juice, which are traditionally used to produce white and brown sugar for household, industrial, and commercial use. With the escalation in blending targets, more sugarcane is being rerouted toward ethanol production, reducing its availability for direct sugar manufacturing.

This transition comes at a time when sugarcane production in India has been steadily declining since 2022 due to irregular monsoons, changing climate patterns, and reduced sowing acreage in key states such as Maharashtra, Uttar Pradesh, and Karnataka.

In response, the Central Government recently announced a hike in the Fair Remunerative Price (FRP) for sugarcane to safeguard farmer interests and ensure that cultivation remains financially viable. However, this increase has amplified input costs for sugar mills, which are now caught between fulfilling ethanol quotas and meeting domestic sugar demand.

The resulting supply crunch is already visible in the market. Wholesale sugar prices have risen between 12 to 18 percent in the last quarter alone. In retail markets, sugar that previously sold at ₹40-₹42 per kilogram is now trending at ₹48-₹52 per kilogram in several cities.

While the government justifies the ethanol push on grounds of energy security, environmental benefits, and import bill reduction, critics argue that it is exacerbating the food vs fuel debate in a country where food inflation is a politically sensitive issue.

Economists warn that as more sugarcane is used for biofuel, India may need to import raw sugar to stabilize its reserves, especially ahead of festive seasons when demand spikes. This could have adverse effects on the trade deficit, nullifying part of the economic gains from reduced petroleum imports.

According to data from the Ministry of Consumer Affairs, India produced around 32 million tonnes of sugar in 2024, out of which approximately 4 million tonnes were diverted for ethanol production. With the new target, this diversion could double by 2026, reducing sugar available for direct consumption by over 25 percent if sugarcane output does not recover.

The Indian Sugar Mills Association (ISMA) has issued a cautious statement supporting the ethanol policy but urged for balanced implementation, recommending dual price support for both ethanol and sugar to prevent industry imbalance.

Meanwhile, small and medium-scale food processors, who rely heavily on sugar for their products, have started feeling the pinch. Bakers, confectioners, and beverage manufacturers have raised concerns about operational costs and profit margins, with many indicating potential price hikes for end products.

Farmers, on the other hand, are caught in a dilemma. While ethanol contracts offer stable and timely payments, traditional sugar buyers often delay procurement or negotiate aggressively. This has prompted some sugarcane growers to prioritize ethanol mills, leaving less for conventional sugar crushing.

Environmentally, the ethanol strategy supports India's commitments under the Paris Climate Accord, helping reduce greenhouse gas emissions and promoting renewable energy. But its social impact—particularly on urban and rural consumers—needs immediate review.

Analysts suggest the government could mitigate the issue through a staggered blending approach, such as regional ethanol quotas, off-season blending surges, or the promotion of alternative biofuel feedstocks like rice straw, maize, or food-processing waste.

Several pilot studies in Tamil Nadu and Punjab have shown the viability of second-generation ethanol production methods, which do not interfere with food crops. However, these technologies require substantial capital investment and have not yet been scaled nationwide.

To ensure sustainable ethanol policy, experts recommend:

1. Enhancing irrigation infrastructure in sugarcane regions to stabilize yields

2. Incentivizing research into non-food feedstocks for ethanol

3. Creating buffer stock mechanisms for sugar to prevent retail price volatility

4. Implementing transparent pricing formulas that balance both sugar and ethanol economics

In conclusion, while India’s aggressive ethanol blending plan is admirable for its environmental and energy objectives, it risks creating a sugar supply crisis unless production scales up or alternative feedstocks are introduced. A careful, multi-sectoral approach is now critical to ensure that the country does not trade one dependency—fossil fuel—for another—imported sugar.

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