Sugar Diversion for Ethanol Cut to Zero (October 16): What the 2026-27 Tender Means for Mills and Distillers

The government has switched off sugar diversion for ethanol for the coming supply year. In the ethanol tender for 2026-27, the oil marketing companies (OMCs) said the Centre has directed that “sugar diversion for ethanol be reduced to zero”, so they have not sought any offers for ethanol made from sugarcane juice, sugar, sugar syrup or B-heavy molasses, The Hindu BusinessLine reported. The tender was issued on Friday, October 16, so this week’s sessions are the first chance for sugar and distillery stocks to price it in.

What the 2026-27 tender actually asks for

The ethanol supply year runs from November 2026 to October 2027. According to BusinessLine, the OMCs want 1,100 crore litres in total: 300 crore litres in each of the first two quarters and 250 crore litres in each of the last two. That’s the same 11 billion litres Reuters reported via The Economic Times. Mint reported that BPCL issued the tender on behalf of the OMCs, and that the volume is meant to meet the 20% ethanol-in-petrol blending requirement.

The feedstocks still allowed are C-heavy molasses, damaged food grains, surplus rice procured from the Food Corporation of India (FCI), maize and others permitted under the National Policy on Biofuels. Prices quoted by BusinessLine for the year are:

• ₹57.97 a litre for ethanol from C-heavy molasses
• ₹64 a litre from damaged food grains
• ₹60.32 a litre from surplus FCI rice
• ₹66.07 a litre from maize, plus an incentive of ₹2.79 a litre (excluding GST)

That maize incentive is the second surprise. ET reports it has been cut to ₹2.79 a litre from ₹5.79, and both ET and Mint put the maize procurement price at ₹68.86 a litre, down from ₹71.86. So grain-based distillers get a bigger share of the tender, but on thinner pricing.

Why sugar diversion for ethanol was shut off

This one is about the food side of the sugar bowl. Poor rainfall in Maharashtra and Karnataka has raised worries about lower sugar output, Mint noted, and the Reuters report says the weak weather has pushed sugar prices to record highs. Back in August, Reuters had reported the government was weighing curbs on how much cane goes into ethanol. Friday’s tender turned that into a full stop for the sugar-based routes.

Blending itself isn’t being dropped. ET points out that the government made E20 the nationwide mandatory standard earlier this year. What changes is where the ethanol comes from. BusinessLine adds that the industry hasn’t yet issued its sugar output estimates for the 2026-27 season, and the government is likely to put out its own next month.

What it means for listed sugar and distillery stocks

India has relied for years on surplus sugar to meet its blending targets, as the Reuters report puts it, and integrated mills built distilleries around that. For 2026-27, juice and B-heavy molasses are out of the OMC tender, and only C-heavy molasses stays open on the sugar side. Mills will have more sugar left to sell. If the weather-driven shortage holds, they’ll be selling it into a market Reuters describes as already at record prices. Which effect wins will differ from company to company, depending on how much of each one’s distillery volume came from the excluded feedstocks.

Grain-based players are on the other side of this trade. They get more of the volume, though the lower maize incentive eats into the per-litre economics. We’d watch whether the bids fill the full 1,100 crore litres, and the official sugar output estimate due next month.

Sugar prices also feed into food inflation, which we covered in what food inflation means for FMCG stocks. On the oil import side of the blending story, see our rupee and crude oil review for October 5-16. When these companies report results, our guide on how to analyse quarterly results helps you split sugar income from distillery income.

Disclaimer: This article is for information and education only and is not investment advice. Please do your own research or consult a SEBI-registered adviser before making any investment decision.