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A worker carries a bundle of harvested sugarcane on his head at a farm near Modinagar, Uttar Pradesh, India. / Reuters-Yonhap

The Indian government, the world's second-largest sugar producer, is considering limiting the diversion of sugarcane to ethanol production starting with the new season in October, aiming to stabilize sugar prices that have hit record highs.

According to Reuters on the 11th (local time), reduced rainfall in Maharashtra and Karnataka — India's top sugarcane-producing states — has raised concerns over lower output next year. Four government and industry sources told Reuters that prioritizing sugar supply over ethanol could help avoid the need for imports even if production falls.

Indian sugar mills currently divert about 3 million metric tons — roughly 10% of total production — toward ethanol. Restricting this volume next season would add a similar amount of sugar to the domestic market, potentially offsetting the drought-driven decline in output, the sources explained.

The materials the government is considering restricting are sugarcane juice and B-grade molasses, a byproduct with relatively higher sugar content. Mills are expected to be asked to stop producing ethanol from these two inputs, and would only be permitted to produce ethanol from C-grade molasses, the residue left after most of the sugar has been extracted.

India's government maintains a target of blending 20% ethanol into gasoline. As sugarcane-based ethanol output declines, the country will need to increase ethanol production from corn and rice, both of which currently have sufficient stockpiles.

India's government has already imposed a full ban on sugar exports and, last month, set limits on the amount of stock distributors can hold. Behind the consideration of further measures lies mounting price pressure. Indian sugar prices have risen about 10% over the past month to a record high, and with festival-season demand for travel also picking up, there are concerns that elevated prices could persist for the next three months.

Still, industry sources say the measure is unlikely to deal mills a major blow, since with sugar prices currently elevated, producing and selling sugar directly is more profitable than converting it to ethanol. Ethanol allocation volumes are finalized before the sales year begins in November, after which state-run fuel distributors will hold tenders to purchase ethanol.

                                                                                                            Jeong Ri-na