India is considering limiting the use of cane to produce ethanol in order to control the record-high market for sugar

Two government sources and two industry insiders said that India may restrict the amount of sugarcane used to produce ethanol during the season starting October in order to increase sugar production and to try and calm record prices.

Sources declined to name themselves because they were not able to reveal the details of the discussions. They said that the reduced rainfall in Maharashtra, and Karnataka - India's two biggest sugarcane producing states - has led them be concerned about the sugar production for next year.

Prioritising sugar over ethanol could help India avoid sugar imports as production drops. A decision on this issue "could" be made at the end of the month.

The government spokesperson didn't immediately respond to the request for comment.

SUGAR - ABOUT 3 MILLION METRIC TONS AT STAKE

Mills diverted around 3 million metric tonnes of sugar or 10% of the total production to ethanol during the current year to the end September.

Sources said that limiting the amount of sugar produced next season would offset the drop in production due to the weak rains expected in the largest cane-growing state.

Last week, it was reported that Indian sugar prices had risen by 10% in the past month, reaching a new record. They are expected to stay high for the next three to four months, as the supply tightens and the demand increases due to the Indian festival season when more people travel.

In order to maintain its 20% ethanol blend in petrol programme, the government will need to increase corn and rice production for ethanol to compensate the reduction from sugarcane. There are plenty of corn and rice.

Sources who were directly involved in the matter stated that mills would have to stop producing ethanol from sugarcane juice, and B-heavy Molasses (a byproduct with high sugar content).

They said that mills will be allowed to produce most of their ethanol from C-heavy Molasses. This is a byproduct after the majority of sugar has been removed.

Sources said that the ethanol allocation for sugar industry for the marketing year starting November will be finalised just before the season begins. State fuel retailers then plan to launch tenders for ethanol purchase.

New Delhi has already banned sugar exports, and last month it imposed a limit on the stocks that dealers could hold.

Industry officials say that the new restrictions are unlikely to have a significant impact on the sugar industry, because mills will earn more money from selling and producing sugar than by diverting sugarcane to ethanol. (Reporting and editing by Barbara Lewis; Mayank Bhardwaj, Rajendra Jadhav)

(source: Reuters)