Making ethanol under new method could solve India's sugar surplus problem

Experts said that making ethanol from B-heavy molasses and cane juice would allow the possibility of a reduction in sugar surpluses, thus indirectly supporting sugar prices

The Centre this week not only raised the price of ethanol produced from C-heavy or C-grade molasses but also fixed a price for ethanol produced from B-heavy molasses and sugarcane juice for the first time.
 
Ethanol has been produced from C-heavy molasses, as production from the other two varieties wasn’t remunerative enough in the absence of any stable policy regime.
 
Further, for many years, there was restriction on directly manufacturing ethanol from sugarcane juice. Even when the curbs were removed a few years ago, there weren’t many takers, as it required additional investment in setting up new distilleries, while there wasn’t a clear policy as to who would purchase the product and at what price.
 
Cane-based ethanol can be produced three different ways — directly from cane juice, from B-grade and C-grade molasses.
 
Diverting sugarcane juice for directly making ethanol is a very common practice across the world. In fact, almost all the ethanol produced in Brazil, the world’s largest sugar producer, is directly made from sugarcane juice. In contrast, in India, because of sugar shortage and prejudices associated with the diversion of a food crop for producing fuel, this wasn’t allowed for many years.  However, with sugar production jumping by a record 12 million tonnes in the 2016-17 season to almost 32 million tonnes in the 2017-18 season on the back of newer high-yielding varieties, the issue of sugar shortage no longer appears relevant at least for the next few years.
 
Further, this year’s production is much higher than the annual domestic demand of 25 million tonnes. This problem of plenty has led to sugar prices crashing below the cost of production.
 
Going forward, experts said that India might not see a big drop in output in the coming years and even if there is a fall, it will overturn sooner than expected.


 
That apart, with some studies showing India’s per capita sugar consumption in the last 10 years or so has largely remained consistent at around 20 kg per year, with minor annual fluctuations, the country should have sufficient surplus cane juice to divert towards ethanol without causing any shortfall in domestic supplies.
 
According to industry estimates, if the entire 1.13 billion litres of ethanol was produced from B-heavy molasses instead of the current practice of producing it from C-heavy molasses, then sugar production would be approximately 11 million tonnes less because the former contains some amount of sugar in it as well.
 
This fall in sugar production could go up further if ethanol is produced directly from sugarcane juice.  In other words, if all the existing sugar mills with distilleries had produced ethanol from B-heavy molasses and sugarcane juice, then India’s actual sugar production in 2017-18 could have been 10-11 million tonnes less — somewhere around 20-23 million tonnes, which is sufficient to meet domestic needs if opening and closing stocks are added.
 
This could have kept prices at reasonable levels, without letting them fall so sharply and leading to sugarcane dues of over Rs 220 billion accruing to farmers.
 
“While the realisations from pure ethanol production are lower than the ones obtained from sugar and ethanol as in conventional practice, this measure (of making ethanol from B-heavy molasses and cane juice) would allow the possibility of a reduction in sugar surpluses in overproduction scenarios, thus indirectly supporting sugar prices,” said Sabyasachi Majumdar, senior vice-president, ICRA Ltd, in a note.
 
For producing ethanol from B-heavy molasses, officials said not much might be required in terms of additional investment as they are intermediary molasses produced, along with C-heavy molasses.


 
However, that’s not the case with producing ethanol directly from sugarcane juice. For this, officials s aid that setting up of a distillery having an average capacity of 40 kilo litres a day, which would require an additional investment of about Rs 2.5 million to Rs 5 million. With the Indian sugar industry going through a difficult phase, it remains to be seen how much of these additional investments would actually materialise.
 
A few weeks ago, the Centre, for its part, decided to give loans amounting to about Rs 44 billion at subsidised interest rates to sugar mills to set up new distilleries and upgrade their existing distilleries.  It remains to be seen how many of the 140 sugar mills, which have distilleries attached to them, opt for this..
 
The second point of contention is the price fixed for ethanol produced from B-heavy molasses and directly from sugarcane juice.
 
A section of the industry feels that 1 tonne of sugar diverted usually leads to producing 600 litres of ethanol.
 
As B-heavy molasses have some amount of sugar left in them, to compensate for the loss of revenue from sugar, ethanol produced from them should be priced 1.5-1.6 times the cost of producing sugar.
 
With the price of ex-mill sugar hovering around Rs 35 a kg, the price of ethanol produced from B-heavy molasses, which have some amount of sugar left in them, should ideally be around Rs 52-53 a litre.
 
The Centre on Wednesday fixed a procurement price of Rs 47.49 per litre for Oil Marketing Companies for purchasing ethanol produced from B-heavy molasses and sugarcane juice.
 
However, going forward, it might revise the price if mills convert en masse in producing ethanol from intermediary molasses or B-heavy molasses and directly from sugarcane juice.