When the government launched the Ethanol Blended Petrol (EBP) programme in 2003 to encourage the use of alternative and environmentally friendly fuels and reduce dependency on energy imports, the sugarcane industry rejoiced; it created a new revenue stream for the struggling sugar mills and improved their financial capacity.
As a result, the blending of ethanol with petrol has increased from a mere 1.5% in 2014 to 20% in 2025—five years ahead of the government’s target, despite some recent concerns regarding its effects on mileage and vehicle longevity. Ethanol, a biofuel derived from starch-rich crops such as sugarcane, maize, and wheat, has traditionally depended heavily on sugarcane as its main source.
Until recently, sugarcane-based ethanol accounted for more than 70% of India’s ethanol blending programme. However, with the increase in foodgrain production and emphasis on diversified feedstocks, grain-based ethanol has now emerged as the top contributor, accounting for nearly 72% of the blend, while sugarcane’s share has dropped to 27%, leaving sugar mills.
In 2024-25, grain-based ethanol production climbed to 650 crore litres, while sugar-based output stood at 250 crore litres. This marks a sharp shift from 2017-18, when grain-based ethanol was almost negligible and sugar was the primary feedstock, as per data from the National Federation of Cooperative Sugar Factories (NFCSF). This sharp change, as per industry stakeholders, has placed considerable pressure on the sugar industry.
Bitter taste
Thanks to the ethanol blending programme, the sector has attracted investment of more than Rs 40,000 crore since 2018, resulting in a 140% increase in India’s ethanol production capacity, as per the Indian Sugar & Bio-Energy Manufacturers Association (ISMA). However, this rapid expansion has raised concerns about the ability of sugar mills to adapt to the shifting dynamics as well as the potential risks for banks with significant exposure to the sector. With grain-based ethanol production now dominating the market, demand for sugarcane has weakened, directly affecting mill revenues.
While the sugar industry has welcomed the government’s move on September 1, 2025, to allow unrestricted ethanol production from sugarcane juice, syrup, and all types of molasses during the 2025-26 ethanol supply year , starting November 1, stagnant ethanol prices continue to erode margins, making it harder for mills to remain financially sustainable.
Harshvardhan Patil, President of NFCSF, during the industry leaders’ meeting in Pune, noted that the surge in grain-based ethanol production has posed a major challenge for sugar mills, many of which have invested heavily in ethanol infrastructure. Industry stakeholders highlight that the ethanol production capacity is being underutilised, with sugar mills producing less ethanol due to unviable prices.
Deepak Ballani, Director General of ISMA, says that the sugar industry’s challenges are evident if one looks at the sector’s balance sheet. “The problem of financial viability is bound to surface. This is a fully regulated industry where the government decides both the raw material cost and the price of the end-product and co-product. If the cost of sugarcane keeps rising but the end-product/co-product prices remain unchanged, how are mills expected to manage? That is where the core issue lies.”
Ethanol prices have remained unchanged for the past three years, while the fair and remunerative price (FRP)), the minimum price mills must pay farmers for sugarcane, has increased by nearly 17%, and the cost of producing ethanol from juice has also risen significantly. The minimum selling price of sugar, last revised in 2019, has also remained static despite a 27% rise in cane prices since then, putting additional pressure on mill finances and, consequently, on banks.
“If ethanol prices are not revised in line with sugarcane prices, proper diversion of cane towards ethanol won’t happen. Without this diversion, excess sugar will be produced, pushing domestic prices down and hurting the overall viability of the sector. The entire cycle needs to work in sync. With investments of nearly Rs 40,000 crore already made in the sector for putting ethanol capacities, mills and those who have taken bank loans could face serious stability issues,” says Ballani.
