Maharashtra's Ethanol Production Restrictions Threaten Sugar Mills' Revenue

In Maharashtra, recent government regulations have restricted the procurement of ethanol solely to C-heavy molasses, impacting the operations of sugar mills across the state. This decision is expected to increase sugar production while simultaneously limiting the potential for sugar price hikes, as reported by Sakal. The restrictions come in response to ongoing drought conditions and the need for tighter regulation of sugarcane cultivation and molasses projects.

This new policy means that sugar factories will have to allocate more sugarcane for sugar production instead of diverting it for ethanol, which could lead to an increase in sugar supply in the market. While this may benefit consumers by keeping prices stable, it poses significant financial challenges for sugar mills that have relied on ethanol sales as an additional revenue stream. The decline in income from ethanol could exacerbate the financial difficulties faced by these factories, particularly as they prepare for the upcoming crushing season.

Maharashtra is home to 123 sugar factories with distilleries and 32 independent distillery projects, boasting a combined annual ethanol production capacity of around 375 crore liters. Experts estimate that the new restrictions could leave 65 to 70 percent of this capacity either unused or operating at diminished levels. The state has invested approximately Rs 35,000 crore to Rs 40,000 crore in these distillery projects, and underutilization could have ripple effects on both the sugar factories and the banks that financed them.

R. D. Mahuli, Executive Director of Rajarambapu Sugar Industries Group, highlighted that the central government's decision could cost the sugar industry in Maharashtra around Rs 7,000 crore this year. He noted that the country requires 1,100 crore liters of ethanol, with a significant portion expected to come from corn. However, a reduction in the subsidy for corn-based ethanol and potential decreases in corn production due to drought could further complicate the situation. Mahuli urged the government to reconsider the pricing of C-heavy corn ethanol and to ease restrictions on sugarcane ethanol production.

The shift in focus towards ethanol production from maize and other grains has raised concerns about the impact on grain prices and the poultry industry. Former Sugar Commissioner Shekhar Gaikwad remarked that while oil companies maintain a steady demand for ethanol, the government's strategy to reduce sugarcane usage in favor of maize and sorghum could lead to unintended consequences for the sugar industry. As the government navigates these policy changes, the future of Maharashtra's sugar mills remains uncertain, with stakeholders calling for a balanced approach to ensure the industry's sustainability.