India's curbing its sugar surplus by incentivising ethanol production

• The Indian government has announced a 25% increase in the price of ethanol produced from B-heavy molasses of sugarcane.
• A sustainable increase in production of the alternative fuel could also serve to meet India's energy requirements.
• Producing is ethanol is more profitable for the economy and there’s excess demand to be met.

Sugar produce in India might see a decline with the government announcing incentives on the production of ethanol from B-heavy molasses. Historically, India has been the largest consumer of sugar in the world but the focus on meeting that demand has led to a surplus in the market.

Not only is the demand for ethanol higher, but it is a more profitable option as well. The main boon of the policy lies in the fact that India is the fourth largest producer and consumer of energy. And, ethanol, serves as an alternative fuel.

Nitin Gadkari, the Union Transport Minister, made a statement saying that switching over the alternative fuels like ethanol could serve as a important catalyst in driving down the prices of petrol and diesel that currently rising at an increasing pace.

The new policy could be a boon to stabilise sugar prices, increase the income of farms and reduce India's dependency on foreign crude oil, all in one sweep.

What are B-heavy molasses?

Molasses are basically any fluid substance resulting from refining sugar cane into sugar. So far, mills only derived ethanol from C-heavy molasses because without remuneration backed by policy, using the B-heavy molasses wouldn’t be profitable.

But with this policy allowing for a 25% increase in the price of ethanol from B-heavy molasses from ₹47.5 per litre to ₹52.43, sugar mills have a margin they can rely on.

Demand-supply disparity

According to the India Sugar Mills Association, India is set to produce 35.5 million tonnes of sugar between October 2018 and September 2019 but the demand is only at 25 million tonnes.

Even historically, reports show that India sugar consumption has remained stable at around 20 kilos per capita a year.

So, a decline in sugar output through incentivising B-heavy molasses might not only be good for the economy but a more sustainable solution as well.

There are three crucial outcomes tied in with each other. One, the current level of sugar output will decrease leading to an increase in price. That will take the burden off the government who’s currently set the MSP at ₹29/kg, which is above the global average hurting the product’s export competitiveness.

Two, the farmers who are owed money will quickly be remunerated. Currently, the debt is expected to reach around ₹30 billion if the output isn’t curbed.

And, three, the economy would benefit as a whole since ethanol is more profitable and there is excess demand is waiting to be addressed. It also serves as an alternative fuel that could potentially reduce India's dependence on crude oil. And, addressing the price disparity of sugar would increase the global demand for sugar, a market that's currently sluggish as is.