Ethanol policy reset: Sugar mills may break even, maize-based producers take the hit
Ind-Ra estimates that additional sugar sales could offset much of the revenue lost by integrated sugar mills, while lower maize ethanol prices could reduce industry earnings by Rs 1,500 crore.
India’s revised ethanol procurement policy for 2026-27 is likely to create different financial outcomes for sugar mills and grain-based ethanol producers. The government has excluded ethanol made from sugarcane juice, sugar syrup and B-heavy molasses from its latest procurement tender, while reducing the price paid for maize-based ethanol by Rs 3 per litre.
The changes aim to protect domestic sugar supplies while ensuring adequate ethanol availability for blending with petrol. However, they could also affect how companies earn money, depending on the raw materials they use and their ability to manage production costs.
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India Ratings and Research (Ind-Ra) expects the policy to widen the gap in performance between different types of ethanol producers. The overall impact on integrated sugar companies, which manufacture both sugar and ethanol, is expected to remain broadly neutral, as additional sugar sales could compensate for much of the income lost from ethanol.
Additional sugar sales could offset revenue losses
Ind-Ra estimates that stopping the diversion of sugar for ethanol production could release around 3 million tonnes of additional sugar into the domestic market. At prevailing prices, this could generate revenue of Rs 13,500 crore to Rs 15,000 crore.
The agency estimates that integrated sugar mills could lose more than Rs 10,000 crore in ethanol revenue because of the policy change. Selling more sugar could therefore offset a substantial part of that loss.
However, additional revenue does not automatically mean higher profits. If the increase in sugar supplies pushes prices down, mills may earn less than expected. Production costs, sales volumes and the prices received will determine the final financial impact.
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The change also comes at a time when sugar has become relatively more attractive than ethanol. According to Ind-Ra, sugar prices have risen over the past three years, while ethanol prices have remained broadly unchanged. This has improved the economics of selling sugar rather than using certain sugarcane-derived products to make fuel.
Impact will vary across sugar companies
Not all sugar mills will benefit equally from the revised policy. Companies with strong sugar sales, manageable debt and sufficient cash reserves may be better placed to absorb the loss of ethanol revenue.
In contrast, mills that depend heavily on sugar-based ethanol or have invested substantially in equipment designed for its production could face greater pressure. Their ability to redirect production and manage costs will influence how quickly they adjust.
The availability of additional sugar could also affect market prices. If supplies rise sharply, prices may soften, reducing the benefit of higher sales volumes.
Ind-Ra’s broadly neutral assessment of the impact on integrated sugar companies should therefore not be interpreted as a guarantee that every company will maintain its earnings.
Maize-based ethanol producers face lower earnings
Grain-based ethanol manufacturers face a more direct challenge. Under the revised tender, the price paid for maize-based ethanol has fallen from Rs 71.86 to Rs 68.86 per litre.
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Ind-Ra estimates that this Rs 3-per-litre reduction could lower industry earnings before interest, taxes, depreciation and amortisation by around Rs 1,500 crore.
The pressure could increase in the second half of the 2026-27 financial year if maize prices rise while ethanol selling prices remain unchanged.
Maize is a major raw material for these producers. If manufacturers have to pay more for grain while receiving less for ethanol, their profit margins will narrow. Companies that secure maize at competitive prices and operate efficient plants may be better placed to manage the reduction.
Maize is also used by poultry feed manufacturers and industries producing starch and other products. Greater demand from ethanol producers could increase competition for the grain, particularly if crop supplies are limited.
Greater reliance on rice and other grains
With several sugar-based feedstocks excluded from the tender, India will need to rely more heavily on alternative raw materials, including maize, broken rice and surplus rice supplied by the Food Corporation of India (FCI). Ethanol made from C-heavy molasses remains eligible under the tender.
FCI rice could help meet some of the additional demand, but its availability will depend on government stock requirements and food security priorities.
The policy also raises questions about the competing uses of agricultural commodities. If ethanol production increases demand for maize, prices could rise for other industries that depend on the grain. The government will need to balance fuel requirements with the need to maintain adequate and affordable food supplies.
What it means for India’s ethanol blending programme
India has expanded ethanol blending with petrol to reduce its dependence on imported crude oil and support domestic agricultural markets. The revised tender does not automatically mean that the country will miss its blending objectives, but it increases the importance of securing sufficient supplies from alternative feedstocks.
Oil marketing companies have invited bids for around 11 billion litres of ethanol for the 2026-27 supply year, beginning in November 2026.
Meeting demand will depend on whether eligible producers can supply enough ethanol at prices that make production financially viable. If grain costs rise sharply, manufacturers may find it harder to maintain output without a further squeeze on earnings.
For sugar mills, the key factors will be domestic sugar prices, additional sales and the revenue lost from ethanol. For grain-based producers, maize prices, production costs and contracted supply volumes will be more important.
The revised policy highlights the challenge of expanding domestic fuel alternatives without creating additional pressure on agricultural markets. While integrated sugar mills may recover much of their lost ethanol income through sugar sales, maize-based producers face a more immediate threat to profitability. The final outcome will depend on crop availability, commodity prices and how effectively companies adjust their operations.
