'Could seriously hurt sugar industry': ISMA warns against continued preference for dedicated ethanol plants

The Indian Sugar & Bio-Energy Manufacturers Association (ISMA) on Monday welcomed the government's decision to prioritise domestic sugar supplies by restricting sugar diversion for ethanol production in 2026-27, but warned that continued preferential treatment of dedicated ethanol plants in future tenders could hurt sugar mills, strain their finances and delay payments to sugarcane farmers.

The government has excluded ethanol produced from sugarcane juice, sugar syrup and B-heavy molasses from its latest procurement tender for the 2026-27 ethanol supply year, in a move aimed at protecting domestic sugar supplies.

The tender, issued by Bharat Petroleum Corporation Ltd (BPCL) on October 16 on behalf of state-run oil marketing companies, seeks bids for around 11 billion litres of ethanol for the supply year running from November 2026 to October 2027.

"The Government of India has issued directions that sugar diversion for ethanol be reduced to zero for ethanol supply year 2026-27," the tender document said.

ISMA backs sugar supply protection, but flags risks

In a statement issued on October 19, the ISMA welcomed the government's decision to prioritise domestic sugar availability, particularly amid emerging El Niño conditions and weather uncertainty that could affect sugarcane production.

Under the current tender, C-heavy molasses-based ethanol remains eligible for procurement, allowing sugar mills to continue producing ethanol without diverting recoverable sugar.

However, the industry body raised concerns over preferential allocation to Dedicated Ethanol Plants (DEPs) holding Long-Term Offtake Agreements (LTOAs).

ISMA said that while the arrangement is already in place for 2026-27, extending it to future years could seriously damage the sugar industry's financial position.

Sugarcane production follows a cyclical pattern, with output fluctuating between surplus and deficit years. During surplus seasons, mills depend on ethanol production to absorb excess sugar and prevent a sharp decline in domestic prices.

If dedicated ethanol plants continue receiving preferential treatment, sugar mills could lose access to a crucial revenue source even when sugar production is high, the association warned.

Deepak Ballani, Director General of ISMA, said continued preference for dedicated plants could weaken the financial viability of sugar mills and affect farmers.

"The continued preference for DEPs would, therefore, not only undermine the financial viability of sugar mills but also adversely affect sugarcane farmers, defeating the very objective of introducing the ethanol blending programme as a means of improving the industry's financial liquidity and facilitating timely payment of cane dues," Ballani said.

ISMA seeks higher ethanol price

The association also called for an increase in the procurement price of ethanol produced from C-heavy molasses.

The current price remains unchanged at ₹57.97 per litre despite increases in sugarcane prices and operating costs, including labour, fuel, chemicals and compliance.

ISMA has requested that the procurement price be raised to ₹62.23 per litre, an increase of ₹4.26, or about 7.3%, from the existing rate.

It has also sought allocation of 100% of the C-heavy molasses-based ethanol quantities offered by the sugar industry.

According to ISMA, adequate pricing and assured procurement would help mills utilise their existing distillery capacity and generate funds to clear sugarcane dues.

Without these measures, substantial distillery capacity could remain idle or underutilised, the association cautioned.

ISMA has also proposed a transparent pricing formula linking ethanol procurement rates to the Fair and Remunerative Price (FRP) of sugarcane. This would allow ethanol prices to adjust automatically when cane prices increase, reducing uncertainty for mills and lenders.

The association urged the government to review the preferential allocation framework for future ethanol supply years. It also argued that sugar mills must retain the flexibility to divert surplus sugar towards ethanol production when domestic supplies are abundant.