Cap On Sugar Diversion For Ethanol Removed To Address Uttar Pradesh Cane Dues

Ethanol Supply Year is between November 1 to October 31 and it coincides with the sugarcane crushing season.

In a normal sugar season, the production of sugar is around 320-360 lakh metric tonne (LMT) as against the domestic consumption of 260 LMT. The government allowed the use of surplus sugar to be either exported or diverted to ethanol production.

During the sugar season of 2023-24, about 534 sugar mills were operating out of which 121 sugar mills were in the state of Uttar Pradesh.

Sugar mills were to pay Rs 1.11 lakh crore to farmers for cane prices in 2023-24. The cap on sugar increased the cane arrears to the farmers last year. According to a government reply to the Lok Sabha, the arrears to farmers went up further to Rs 5,188 crore in 2023-24.

The maximum arrears to farmers were in the state of Uttar Pradesh at Rs 3,440 crore last year compared to Rs 213 crore in the sugar season of 2022-23.

It is noteworthy that the government had set an ethanol blending target of 20% by Ethanol Supply Year 2025-26. This was advanced from 2030 earlier. Oil Marketing Companies have achieved an ethanol blending rate of 13% in 2023-24 despite a cap on sugar diversion last year.

Under the Ethanol Blending Programme, Public Sector Oil Marketing Companies have saved approximate Rs 80,000 crore of foreign exchange.

The ethanol production by sugar has also helped sugar mills clear the dues of farmers. For sugar season 2022-23, more than 99.6% of the cane dues were cleared and in the last sugar season 2023-24, about 95.3 % cane dues were cleared till end of July 2024. The rise in dues was primarily due to cap in diversion of sugar for ethanol production.

The government had encouraged the diversion of excess sugar towards ethanol production, but last sugar season (2023-24) it put a cap on diversion of sugar for Ethanol production at 24.12 lakh metric tonne (LMT). The government also banned export of sugar. This was done due to the drop in sugar production and to manage prices in the domestic market.

It is estimated that by 2024-2025, sugar mills will divert up to 60 lakh metric tonne of excess sugar towards ethanol. That’s nearly double the sugar diverted for production in 2023-24. This will help resolve excess inventory, reduce cane dues to farmers and bring in cashflows for the mills.

Blending of ethanol with petrol further increased to more than 540 crore litres in Ethanol Supply Season 2023-24 with increase in blending which crossed 13%. Under the ethanol blending roadmap in India for 2020-25, to meet the estimated requirement for 20% ethanol, blending in the Ethanol Supply Year 2025-26 ethanol production will have to be at approximately 1,016 crore litres.

The government had in financial year 2022 fixed ex-mill price of ethanol from C heavy molasses route at Rs 46.66 per litre and, from B heavy molasses route at Rs 59.08 per litre. It had also fixed price for ethanol from sugarcane juice, sugar, sugar syrup route at Rs 63.45 per litre.

In past five Ethanol Supply Years, sugar mills have earned over Rs 60,000 crore from the sale of ethanol to Oil Marketing Companies.