India’s ETHANOL programme runs short of sugar; Maize fills gap but at a ‘PRICE’

India is preparing to take sugarcane out of most of its ethanol programme. A slew of media reports say that the Central Government will restrict the use of sugarcane juice, syrup and B-heavy molasses for ethanol in the 2026-27 supply year, which begins on 1 November. A formal notification was described as expected soon. We could not confirm that a gazette order has been issued at the time of writing.

WHY NOW

The trigger is sugar. Production in 2025-26 was estimated at about 306 lakh tonnes in August, against an initial estimate of roughly 343 lakh tonnes, after crop disease, waterlogging and adverse weather in Maharashtra and Karnataka. Opening stocks on 1 October stood at 37.5 lakh tonnes, down from 50 lakh tonnes a year earlier. Mills diverted about 30 lakh tonnes of sugar, nearly 10% of output, to ethanol last season. An analyst note dated 26 August added that the government faces pressure to contain sugar prices during the festival season, and had signalled that ethanol from surplus rice would play a larger role in 2026-27, since rice stocks are far more comfortable than sugar.

The policy has swung before. In December 2023 the government barred cane juice and syrup for ethanol, reversed within about a week with a cap of 17 lakh tonnes on diversion, and fully allowed all three feedstocks again for 2024-25. The coming restriction continues that pattern of changing direction.

GRAIN DOES THE HEAVY LIFTING

The programme can absorb the change because it has already shifted. Around three-quarters of India’s ethanol now comes from grains, maize in particular, and the share of sugar diverted fell from about 12% in 2022-23 to about 9% in 2025-26. Officials say the E20 programme is unaffected.

The arithmetic is still tight. Oil marketing companies allocated 1,048 crore litres (10.48 billion litres) for 2025-26, of which about 289 crore litres came from cane-based feedstock, according to one estimate. The same analysis expects demand of 1,150 to 1,200 crore litres for 2026-27 and suggests that less than 200 crore litres may be available from C-heavy molasses, the one cane feedstock likely to stay in the programme. The rest has to come from grain.

India has swapped a sugar problem for a feedstock-cost problem.

WHAT THE SWAP COSTS

Maize is the most expensive route. In a Lok Sabha reply, the petroleum ministry put the weighted average ex-mill price for 2025-26 at ₹66.61 per litre, with oil marketing companies paying more than ₹71 after GST and transport. On the first allocation cycle, maize ethanol was priced at ₹71.86 per litre, damaged food grains at ₹64 and sugarcane juice, syrup and sugar at ₹65.61. Moving a litre from cane to maize therefore adds roughly ₹6, by our calculation.

The benefits are real. The petroleum ministry said in June that blending had saved over ₹1.91 lakh crore in foreign exchange and displaced 30.2 million tonnes of crude oil imports. Against that, has also been observed that fuel crops are displacing food crops and that progress on ethanol from agricultural waste has been slow.

THE GLOBAL BACKDROP

International pressure is pointing the same way. A recent report says that the US grain interests are promoting maize ethanol for India’s higher blends, flex-fuel vehicles and sustainable aviation fuel, anticipating that India’s ethanol needs may eventually exceed its domestic feedstock. The European Commission is weighing E20 blends with zero-rating under its forthcoming ETS2 carbon market, according to Carbon Pulse, so demand for grain-based fuel is not confined to India.

Three tests will show whether the new mix holds: whether maize prices stay stable as ethanol demand claims more of the crop, whether farmers in cane states are compensated for losing the juice route, and whether second-generation feedstocks move beyond pilot scale. Energy security has been gained; cost and land are unresolved.