Sugar stocks fall as government halts sugar diversion for ethanol to protect domestic supply

The government has directed state-run oil marketing companies to halt the diversion of sugar for ethanol production in the 2026-27 supply year, prioritising domestic consumer availability and keeping prices stable ahead of the cane crushing season.

In a clear step to protect households from food price inflation and ensure ample reserves, public sector oil firms were ordered to seek zero sugar diversion for the upcoming supply cycle. A nationwide tender issued by Bharat Petroleum Corporation Ltd on behalf of state-run oil marketing companies explicitly excluded ethanol derived from sugarcane juice, sugar syrup, and B-heavy molasses.

Shares of sugar manufacturing companies adjusted on the stock exchanges on Monday morning as markets priced in the shifted focus.

Securing food supplies and protecting consumers

Domestic sugar prices had risen over 10% during the recent festive period, while uneven rainfall in major producing states including Maharashtra and Karnataka raised output considerations. By prioritising the domestic food market, the government has ensured that essential kitchen supplies remain accessible and affordably priced.

India is the world's largest consumer of sugar, and maintaining strong buffer stocks protects retail consumers against sudden market fluctuations.

Maintaining energy momentum through grain feedstocks

The policy action maintains India's green energy progress while safeguarding food security. The tender issued on 16 October seeks bids for approximately 11 billion litres of ethanol, fully supporting the country's flagship 20% petrol blending (E20) goal for the period between November 2026 and October 2027.

To meet this target, the government is expanding the role of grain-based feedstocks. Distilleries will supply ethanol manufactured from maize, broken rice, surplus rice procured through the Food Corporation of India, and C-heavy molasses.

Under the updated terms, the procurement price for maize-based ethanol stands at Rs 68.86 per litre, supported by an additional incentive of Rs 2.79 per litre. The strategic recalibration ensures that energy security and agricultural welfare move forward together seamlessly.