- India is pushing for more cars to run on ethanol made from sugar, a move which risks raising the cost of the sweetener globally.
The government will quickly-track an ethanol program that will contribute as much as 6 million tons of sugar annually to fuel production by 2025, according to the food ministry. That's almost the entire amount that India, the world's second largest producer after Brazil, exports currently to the global market.
Prime Minister Narendra Modi advanced a target in June for blending 20% ethanol in gasoline to 2025, five years later than planned. It will reduce air pollution, cut India's oil import bills and increase investment in rural areas.
This move may be the biggest change in years for the sugar industry and could drive a bull market, according to Czapp, Czarnikow's new portal for Agri-food Analysis. Prices have soared to the highest since 2017 amid a supply crunch, partly due to wild weather in Brazil. A further surge will add to food inflation risks, with global food costs already near a decade high.
It's 'good news for the world if India takes sugar to produce more ethanol as it will reduce global surplus, said Rahil Shaikh, the managing director of Meir Commodities India Pvt, a trading company. 'But eventually if there is higher demand, some countries including India will have to expand their cane acreage.
To meet its 2025 target, India will have to almost triple ethanol production to about 10 billion liters a year, according to the country's oil secretary Tarun Kapoor. This would require $75 billion of investment, and the challenge would be to create the kind of capacity that is needed in a span of three to four years.
The government is offering financial support to sugar mills to set up or expand distilleries. Companies including Balrampur Chini Mills Ltd. will stop producing sugar in some mills and instead it will start processing cane juice to make ethanol.
Brazil pursuing a similar strategy to India, which has promoted sugarcane-based ethanol for more than 40 years to ease its sugar glut, curb dependency on oil imports and increase energy security. Today Brazil owns the largest fleet of flex-fuel vehicles that can run on any fuel mix (Ethanol and Gasoline).
Also India will allow the production of ethanol-based flex engines, Media Trust of India reported. Higher use of biofuels in transport can ease India's economic burden from rising crude prices and help third largest oil importer save $4 billion annually, according to government estimates.
'They will kill two birds with one stone, said Michael McDougall, the New York-based marketing manager of Paragon Global Markets. 'It is a step in the right direction.
The move will also cut India's sugar export subsidies by about $500 million. The government helps cash-strapped mills to boost shipments as a way to lower local prices and increase the competitiveness of exports. Rivals including Brazil and Australia have complained about subsidies to the World Trade Organization.
This year India will export a record amount of sugar with the help of subsidies. Volumes are projected at 6.5 million tons.
The surplus will be small after 2025 and the need to export will not remain at such high levels, said Abinash Verma, Director General of the Indian Sugar Mills Association. Depending on domestic and global prices, there may still be small quantities of exports, he said, declining to give a forecast.