India is promoting more cars to run on sugar-based ethanol, a move that risks increasing the cost of sweeteners globally. The government will accelerate an ethanol program that will shift up to 6 million tonnes of sugar to fuel production each year by 2025, according to the Food Department. This is almost the entire amount that India, the second-largest producer in the world after Brazil, is currently exporting to the world market.
Prime Minister Narendra Modi in June set a target of blending 20% ethanol in gasoline by 2025, five years ahead of schedule. The benefits are clear: it will reduce air pollution, lower India's oil import bill, help absorb excess domestic sugar, and boost investment in rural areas.
For the rest of the world, the move could be the biggest change in years for the sugar industry and could spur a bull market, according to Czapp, Czarnikow's new agricultural product analysis portal. Prices hit their highest levels since 2017 against a backdrop of tight supply, in part due to extreme weather conditions in Brazil. A further increase would increase the risk of food inflation, with world food prices already reaching nearly a decade at their highest.
It is "good news for the world if India redirects sugar production to more ethanol production, as this will reduce the global surplus," said Rahil Shaikh, Managing Director of Meir Commodities India Pvt, a trading company. "But eventually, if demand is higher, some countries, including India, will have to expand the area of sugar cane."
To meet the 2025 target, India will need to nearly triple its ethanol production to around 10 billion liters per year, according to the country's Petroleum Minister Tarun Kapoor. This will require $7 billion in investments, and the challenge will be to build the kind of capacity needed in a short three to four years.
The government provides financial support to sugar mills to create or expand distilleries. Companies, including Balrampur Chini Mills Ltd., will stop sugar production at some mills and start turning sugarcane juice into ethanol.