As per various media reports, India is considering discouraging ethanol production to prioritize sugar availability. Recent decisions from the committee, revealed by government sources, suggest a potential limitation on using sugarcane juice for ethanol this season, as discussed privately by authorities. Although no final verdict has been reached and plans remain subject to change, this proposal, aimed at addressing local sugar shortages, caused futures to plummet, marking the most significant decline in 10 months. If approved, it could eliminate India’s possibility of importing sugar. The Food Ministry has not provided any comments on the matter officially. According to messages floating around since yesterday, the following decisions were taken in the meeting of the committee of ministers on 05.12.2023 are as follows:
Key Highlights of discussion:
- In ESY 2023-24, no ethanol from sugarcane juice and B-Heavy will be procured by OMCs with immediate effect.
- Maize is to be promoted as primary feedstock. In addition to PACS, NAFED/NCCF will also procure maize from open market at MSP and supply to distilleries for ethanol production. One LMT each will be the minimum procurement target this year.
- Supply of ‘Bharat Atta’ to be accelerated and augmented through big chain retailers and e-commerce platforms by NAFED/NCCF.
- More number of wheat Procurement Centers be opened in UP, Bihar and Rajasthan and the operations started from 15 Feb 2024.
- FCI will undertake wide publicity, with an expenditure of 25 crore, among farmers in UP, Bihar and Rajasthan for increasing procurement of wheat in these states.
- The committee took note of the sale of Wheat under OMSS (D). It was informed that the weekly quantity of sale of wheat under the Scheme will be increased to 4 LMT from 20 Dec 2023.
Below are the outcomes of these decisions:
| Sr. No. | Decision Made | Outcome | Positive Impact | Positive Impact |
| 1 | Restriction on Ethanol Procurement
|
Immediate cessation of ethanol procurement from sugarcane juice and B-Heavy by OMCs in ESY 2023-24.
|
Reduction in diversion of sugarcane and sugar for ethanol production, stabilizing domestic sugar supply and prices. | Negative Impact: Decreased income for sugar mills and farmers, hindrance to the government’s goal of achieving 20% ethanol blending with petrol by 2025. |
| 2 | Promotion of Maize as Primary Feedstock | Promotion of maize as the primary feedstock for ethanol production, with set procurement targets.
|
Increased demand and prices for maize, especially beneficial for maize farmers in surplus states.
|
Diversification of ethanol feedstock, contributing to ethanol blending targets and reducing reliance on sugarcane. |
| 3 | Acceleration of ‘Bharat Atta’ Supply | NAFED/NCCF to boost ‘Bharat Atta’ supply through major retailers and e-commerce platforms.
|
Increased demand and consumption of wheat, particularly benefiting wheat farmers in deficit states.
|
Provision of quality and affordable wheat flour to urban consumers. |
| 4 | Expansion of Wheat Procurement Centers
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Opening of more wheat procurement centers in UP, Bihar, and Rajasthan from February 15, 2024.
|
Improved access and convenience for wheat farmers, ensuring fair and remunerative prices. | Reduction in distress sales and exploitation by middlemen. |
| 5 | FCI Publicity Campaign for Wheat Procurement
|
FCI undertaking a wide publicity campaign with a 25 crore expenditure in UP, Bihar, and Rajasthan.
|
Increased awareness and participation of wheat farmers in procurement processes. | Encouragement for farmers to adopt improved agronomic practices and enhance productivity. |
| 6 | Increase in Wheat Sale under OMSS (D)
|
Weekly quantity of wheat sale under the OMSS (D) scheme increased to 4 LMT from December 20, 2023.
|
Enhanced availability and affordability of wheat in the open market, especially benefiting consumers in deficit states. | Facilitation of government efforts to liquidate surplus wheat stocks, reducing storage and maintenance costs. |
In summary, while these decisions aim to address various agricultural challenges, they have sparked both positive and negative consequences, impacting different stakeholders in the agricultural sector.
“If the government decides to ban ethanol procurement, it raises concerns about a potential supply shortfall in the EBP Program.”
The sugar and ethanol industry may not be happy if the government’s discussion to demotivate ethanol procurement comes true. The industry finds the sudden discussion unnecessary and they’re puzzled and wonder why this discussion even started.” As it is unfair, affecting the investments and livelihoods of sugar mills and farmers who have been turning surplus sugar into ethanol. The industry may also point out the benefits of ethanol production from B-heavy molasses and juice syrup, such as reducing the sugar surplus, improving the cash flow of the mills,
Due to various steps taken by the Government in past few years, fundamentals of sugar mills have improved & sugar industry has become self-sustainable which has resulted in top line & bottom line growth of the sugar companies, which is reflected from the share prices of the listed companies which have increased 4 to 5 times in past couple of years.
DFPD is making concerted efforts to enhance the ethanol distillation capacity in the country under EBP Program. The EBP Program is a scheme that aims to blend ethanol with petrol up to 20% to reduce pollution, conserve foreign exchange and increase value addition in the sugar industry. The government has set a target of achieving 20 per cent blending by 2025.
If the government bans the procurement of ethanol from B-heavy molasses and juice syrup, This will make it difficult for the government to achieve the target of 20% ethanol blending by 2025, which requires about 1364 crore liters of ethanol per annum. The government will have to find alternative sources of ethanol and revise its blending targets.
In the past eight years, ethanol production capacity has significantly increased.
The government’s policies have boosted the sugar industry, generating over Rs. 64,000 crores in revenue for mills and distilleries. This has facilitated timely payments to farmers. These measures also contribute to doubling ethanol distillation capacities by 2025, meeting the 20% blending target.
This diversion of surplus sugar improved sugar mills’ financial health, ensuring timely payments to farmers. This also opened up investment opportunities, in setting up new distilleries, creating jobs in rural areas.
Investment under Interest Subvention Scheme:
An investment of ₹400 billion has been made under the interest subvention scheme. If decision taken to ban, this could jeopardize investments made in projects using B-heavy molasses or juice syrup for ethanol production.
Potential Ramifications:
- Negative Cash Flow: Industries using B-heavy molasses or juice syrup as feedstock may face losses and making it hard to pay farmers on time.
- New Market: The government might need to compensate or provide alternative markets for affected projects.
- Excess Sugar:, If we don’t use extra sugar to make ethanol, we might end up with too much sugar, and that could mean lower prices and less profit for sugar mills.
- Distilleries Face Challenges: Distilleries heavily relying on B-heavy molasses and juice syrup for ethanol production will face significant challenges. From 2014, more than Rs. 64,000 Crore revenue generated by sugar mills & distilleries from sale of ethanol to OMCs
- Impacts Farmers Income: Farmers producing sugarcane varieties may experience a decline in demand and face lower prices for their produce. With a view to increase the income of sugarcane farmers, Government has significantly increased FRP of sugarcane.
- Faces Revenue Loss: The government might face a temporary loss of revenue due to reduced ethanol production, impacting its budgetary plans and potentially slowing down the progress towards achieving the 20% ethanol blending target.
A Strategic and Thoughtful Reevaluation Needed:
- It is crucial to carefully reassess the ban’s effects on blending targets and investments, considering potential economic and industry-wide consequences.
- Dialogue and collaboration between the government and affected industries could help find solutions to mitigate adverse effects on both economic and sustainability fronts.
- Addressing the challenges posed by the ban on ethanol procurement requires a strategic and comprehensive approach. This includes mitigating potential fallout on the EBP Programme, investments, and the sugar industry.
Disclaimer: The views and opinions expressed in the article by Dilip Patil, Managing Director of Samarth SSK Ltd., are solely his own.
