Sugar ethanol diversion barred for 2026-27: why C-heavy molasses still flows

By Prakhar Shahi

Published

Flow chart of cane-to-ethanol routes for 2026-27: juice and B-heavy molasses barred, C-heavy molasses and grain allowed

The 16 October ethanol tender shuts out cane juice and B-heavy molasses to save about 3 million tonnes of sugar. C-heavy molasses and grain stay open. We trace each route and what it means for mills, cane farmers and E20.

Original report · Explained

Data as of 20 October 2026. This article is for information only and is not investment advice.

About 3 million tonnes of sugar went into ethanol in 2025-26; for 2026-27 the government wants that to be zero. The tender BPCL issued on 16 October 2026 for the oil marketing companies seeks about 1,100 crore litres of ethanol and says the government directed that "sugar diversion for ethanol be reduced to zero", BusinessLine and ChiniMandi reported (BusinessLine, 2026; ChiniMandi, 2026).

It is a bar, not a cap, but not on every cane route. We read the tender's terms as reported and traced each path from cane to fuel: which ones close, which stay open, and what that does to the sugar balance, mills and cane farmers.

Which cane routes the tender closes

No offers were sought for ethanol made from cane juice, sugar, sugar syrup or B-heavy molasses (BusinessLine, 2026; ChiniMandi, 2026). Still open, as separate categories:

That corrects a point in The Tribune's editorial, which says only corn and rice can be blended: C-heavy molasses is still eligible, per the tender and the Indian Sugar & Bio-Energy Manufacturers Association (ISMA) (ET EnergyWorld, 2026). ISMA says C-heavy ethanol uses no "recoverable sugar". No source we read explains the B-heavy and C-heavy steps in detail.

How much sugar the bar protects

ISMA's Deepak Ballani put 2025-26 gross output at 31 million tonnes (MT), with about 3 MT diverted to ethanol (Financial Express, 2026). For 2026-27, ISMA says gross will equal net, with consumption at 28.5-29 MT and opening mill stock at 3.5-3.6 MT, the lowest in over a decade.

Crisil's figures, reported by Oneindia, show diversion rising from 0.8 MT in 2019-20 to over 3 MT, with a 2025-26 closing stock of 3.9 MT, 40% below the five-year average of 6.5 MT. The stock figures differ by source.

Prices explain the urgency. Retail sugar averaged ₹57.82 a kg on 16 October, up 24% on a year, Financial Express reported.

The shortfall by state

BusinessLine's own estimate, not ISMA's, puts 2026-27 gross output at about 270 lakh tonnes, with a deficit of 15-25 lakh tonnes (BusinessLine, 2026):

Without imports, it sees closing stock in September 2027 at 5-15 lakh tonnes. Mill-level effects in UP and Maharashtra have not been reported.

What it means for E20, mills and farmers

E20 likely slips to about 18-19% in 2026-27, by BusinessLine's arithmetic: a full 20% blend needs 1,150-1,210 crore litres, against a tender of about 1,100. Grain already supplied 624 crore litres, about 70%, in 2025-26, according to the grain distillers' body AIDA (New Indian Express, 2026).

For mills, ISMA welcomed the bar but objects to preference for dedicated ethanol plants with long-term offtake deals. Sugar shares fell on 19 October: Shree Renuka by 6% and Bajaj Hindusthan by up to 8%, Trade Brains reported, with Balrampur Chini, EID Parry, Triveni and Dhampur also lower.

For farmers, the cane price (FRP) is ₹365 a quintal for 2026-27, up 3% (Financial Express, 2026). Karnataka growers want ₹4,500-5,500 a tonne against ₹3,650 now; a panel under Ramesh Chand is examining their case (BusinessLine, 2026). Of ₹1.12 lakh crore payable for 2025-26, 88.6% was paid by 20 April 2026, and Maharashtra's arrears were ₹4,898 crore on 28 February.

What the editorial argues

The Tribune (20 October) calls the move pragmatic, given record retail prices and weak rain in Maharashtra and Karnataka. It says mills diverted about 10% of output to ethanol this year, and warns: "A fuel blending programme dependent entirely on food crops will remain vulnerable to the shifting demand-supply dynamics." It wants crop-residue ethanol pushed.

The industry case is narrower. ISMA backs the bar ("Domestic sugar consumption must remain the foremost priority") but objects to the allocation rules, and mill shares fell. The Tribune does not do the litre arithmetic or note that C-heavy molasses stays open.

Risks and what could change

What happens next

Crushing may start on 22-23 October if on schedule, BusinessLine reported. The ethanol supply year starts on 1 November, with the government's sugar output estimate due in November (BusinessLine, 2026).

Questions people are asking

Is sugar-based ethanol banned in 2026-27?

Ethanol from cane juice, sugar, syrup and B-heavy molasses is excluded from the tender; C-heavy molasses is allowed (ET EnergyWorld, 2026).

Is it a cap on ethanol diversion?

No. The tender says sugar diversion should be "reduced to zero", a bar on the sugar-rich routes rather than a percentage cap.

Will E20 survive?

BusinessLine's estimate implies about an 18-19% blend in 2026-27.

Will sugar get cheaper?

Retail was ₹57.82 a kg on 16 October; officials see ₹52 as crushing starts (Financial Express, 2026).

This article is for information only and is not investment advice. Readers should consult a registered adviser before investing.

References

How we did this

We read the terms of BPCL's 16 October tender as reported by BusinessLine and ChiniMandi, and set them against ISMA's sugar balance in Financial Express, Crisil's figures and BusinessLine's state estimates, all published between February and October 2026. We did not see the government's direction itself. We opened The Tribune's editorial in full, summarised it in our own words and quoted it once. The hero is our flow chart of the cane-to-ethanol routes; the first step is our plain-language framing.

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