he Union Food Ministry has directed sugar-producing states to ensure that sugar mills and distilleries do not divert sugarcane juice, sugar syrup or B-heavy molasses for ethanol production during the Ethanol Supply Year (ESY) 2026-27, beginning November 2026. The decision comes amid concerns over domestic sugar availability, lower production prospects and tightening stocks.
The Ministry issued separate communications to sugar mills and state excise departments, confirming that diversion of sugar for ethanol production would not be permitted during November 2026–October 2027. State governments have been instructed to issue necessary directions and monitor compliance to prevent ethanol manufacturing from the restricted sugar-based feedstocks. 
The directive follows the decision by oil marketing companies (OMCs) to exclude ethanol produced from sugarcane juice, sugar syrup and B-heavy molasses from their latest procurement tender. The restriction represents a significant shift in India's ethanol blending programme, which has traditionally relied partly on sugarcane-derived feedstocks.
The government has also extended the validity of duty-free raw sugar import permits until December 31, 2026, from the earlier October 31 deadline. The Directorate General of Foreign Trade (DGFT) confirmed that other conditions under its August 20 notification would remain unchanged. Earlier, the Centre had permitted imports of up to 10 lakh tonnes of raw sugar, with permits reportedly issued for approximately 8 lakh tonnes.
However, industry sources indicated that imports have not materialised because of unfavourable price parity following a decline in domestic sugar prices. Traders have reportedly surrendered 3–4 lakh tonnes of import quota, although this could not be officially confirmed.
Meanwhile, approximately 70 sugar mills in Maharashtra have commenced crushing operations, producing around 1.25 lakh tonnes of sugar despite lower recovery rates. The government has allowed mills to sell sugar produced during October and November without additional approval, over and above their regular monthly sales quota.
Sugar availability remains a concern, with closing stocks estimated at 32–35 lakh tonnes on September 30, 2026. Delayed crushing operations in Uttar Pradesh could further complicate supplies, as mills reportedly face recovery rates potentially falling below 7%, raising concerns over financial viability.
The latest restrictions underline the government's priority of protecting domestic sugar supplies while maintaining its ethanol blending objectives through alternative feedstocks. The policy could significantly affect sugar-based distilleries, particularly those dependent on ethanol procurement contracts, and increase reliance on grain-based ethanol during 2026-27.
