Sugar-to-Ethanol Diversion Economics

Suppose a mill could take the same tonne of sugarcane and choose, on essentially a season-by-season basis, whether to process it into sugar or divert it toward ethanol production instead, with the choice driven purely by which product pays better once input costs are accounted for. That is genuinely the position Indian sugar mills sit in, and it's why cane diversion toward ethanol, distinct from the broader national ethanol blending target covered elsewhere on this site, swings so sharply from year to year.

The swing has been dramatic, sugarcane's contribution to India's overall ethanol blending pool fell from 73% in 2022-23 to just 28% in 2024-25, a collapse the industry attributes directly to profitability, distillery procurement prices for ethanol hadn't kept pace with rising cane and input costs, making sugar production the more attractive choice for mills weighing where to send their cane.

For the 2025-26 season, the government lifted quantitative restrictions on ethanol production from cane juice, syrup and all types of molasses entirely, letting mills and distilleries produce ethanol without the caps that had constrained diversion in recent years, a policy reversal explicitly aimed at reviving cane-based ethanol's declining share, with roughly 40 to 45 lakh tonnes of sugar-equivalent diversion now anticipated.

Watching whether this restriction removal actually pulls cane-to-ethanol diversion back up from 28% toward its earlier 73% share is one of the clearest real-time signals of whether India's broader ethanol blending ambitions, covered elsewhere on this site, can keep relying on sugarcane as a primary feedstock, or whether the economics genuinely favour alternative feedstocks like grain and rice going forward instead.