India to Raise Ethanol Output to Help Mills Supplement Earnings

India, the world’s biggest consumer of sugar, is planning to increase ethanol production to protect mills from falling prices of the sweetener as the country expects a bumper crop next year, Farm Minister Sharad Pawar said.

“Instead of producing other products, the industry should make more of ethanol,” Pawar said in an interview on May 3. “If they produce more ethanol and get a good price, farmers will also get a good price for their sugarcane.”

The government in 2007 made the sale of ethanol-blended gasoline compulsory to help sugar mills cope with a slump in prices of the sweetener caused by a record harvest. Higher sales of the fuel next year may help makers of the sweetener supplement their earnings. A panel of ministers last month asked refiners to buy ethanol from sugar mills at 27 rupees a liter for six months compared with 21.5 rupees earlier, Pawar said. The price will need approval of the federal cabinet, he said.

The government has provided loans of 3 billion rupees ($67 million) to sugar mills in the past three years to build additional annual ethanol production capacity of 365 million liters, according to the food ministry. The current capacity in the country is about 1.8 billion liters.

Net Exporter

India, the biggest sugar buyer, may become a net exporter next crop year starting October as output is likely to exceed demand for the first time in three years, Pawar said.

Cane plantings in the nation’s main growing states of Uttar Pradesh, Maharashtra and Karnataka have been “very good,” he said.

An increase in production of byproducts such as ethanol will help the government tide over any crisis that may arise due to excess production of sugar, he said.

India has been a net buyer of sugar since 2008 after cane growers switched to planting wheat and oilseeds, and last year’s drought ravaged crops, pushing prices in New York to a 29-year high in February. Increased production of the sweetener from the Asian country may weigh on prices that have plunged 46 percent this year on bets that rising supplies will erase a global deficit.

Refined sugar prices in Mumbai, India’s biggest wholesale market for the commodity, have fallen 30 percent from a record 4,050 rupees per 100 kilograms on Jan. 8 after the government extended duty-free imports of white sugar until Dec. 31.

--Editors: Abhay Singh, Sam Nagarajan

source: businessweek