India may devote more sugar to ethanol in blow to export hopes

India may allow sugar mills to use more of the sweetener to make ethanol, in a move likely to reduce the odds of easing export curbs any time soon, according to a person familiar with the matter.

The government is considering a proposal to permit factories to use an additional 800,000 tons of sugar for biofuel this year, as the crop is likely to be higher than predicted, said the person, who asked not to be identified as the talks are confidential. That would be on top of 1.7 million tons allocated earlier.

A spokesperson representing both the food and commerce ministries didn’t immediately comment.

The second-biggest sugar producer will refrain from releasing any export quota in the near future, said the person, damping industry’s hopes of shipping as much as 1 million tons in the current season ending September. The move by India is likely to support global sugar prices that have fallen this month. 

The nation extended its export restrictions in October to protect domestic supplies ahead of national elections. The administration of Prime Minister Narendra Modi, who is seeking a third five-year term in polls starting this month, has taken several steps to contain high food prices. It curbed shipments of wheat and rice, sold grains from state reserves in the open market and cracked down on hoarding.

The move would help sugar mills and ethanol distilleries that have invested as much as 150 billion rupees ($1.8 billion) in three years to increase cane-based ethanol capacity. It will also help the factories make timely payments to farmers. The country has a goal to blend 15% of ethanol in gasoline in 2023-24. 

India’s sugar production may total 34 million tons in 2023-24, compared with a forecast of 33.05 million in January, on higher-than-expected cane supplies in Maharashtra and Karnataka, according to the Indian Sugar and Bio-energy Manufacturers Association. Sugar output figures are calculated before the diversion of sweetener to make ethanol.