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

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 on Monday not only raised the price of ethanol produced from C-heavy or C-grade molasses but it also fixed a price for ethanol produced from B-heavy molasses and sugarcane juice for the first time, something which has been a rarity in India until now.

So far, in India, 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 a restriction on directly manufacturing ethanol from sugarcane juice. Even when the curbs were removed a few years back, 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 by three different ways — directly from cane juice, from B-grade molasses, and from C-grade molasses.

Diverting sugarcane juice for directly making ethanol is a very common practice the world over. 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 between the 2016-17 and 2017-18 season to almost 32 million tonnes on the back of newer high-yielding varieties, the issue of sugar shortage seems to no longer be 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 say 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 from 2010 to 2016 largely remaining around 18-19 kilogrammes, with minor annual fluctuations, the country should have sufficient surplus cane juice to divert towards ethanol without causing any shortfall in domestic supplies. (see chart).

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 — that is 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 of ICRA Ltd, in a note.

For producing ethanol from B-heavy molasses, officials said that 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 said that setting up of a distillery having an average capacity of 40 kilo litres per day, which would require an additional investment of approximately Rs 2.5 million to Rs 5 million, would be needed.

With the Indian sugar industry passing 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 around 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, out of the total 530, having 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.

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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 kilogramme, the price of ethanol produced from B-heavy molasses, which have some amount of sugar left in them, should ideally be around Rs 53-43 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.

India’s per capita sugar consumption in kilogrammes 

Source: Business Standard – Published on: 28th June 2018