The recent spike in the retail price of sugar illustrates the widening mismatch between feedstock availability and fuel demand, according to a new policy paper by Ashok Gulati and Tanmoy Adhikary of the Indian Council for Research on International Economic Relations (ICRIER).
Titled Food vs Fuel: Recalibrating India’s Ethanol Blending Strategy, the paper argues that India’s rapid expansion of ethanol blending has outpaced the growth of agricultural commodities used as feedstock, creating increasing competition between food, feed and fuel.
It said low opening stocks, weaker production and continued diversion of sugar towards ethanol coincided with a 44 per cent rise in modal retail sugar prices — from Rs 45 per kg in July to Rs 65 per kg by August 29, 2026.
The authors warn that similar pressures could eventually emerge in maize markets, affecting poultry and livestock feed and potentially raising prices of eggs, meat and milk.
The paper argued that India should retain its ambitious E20 ethanol blending programme but make it more flexible and responsive to agricultural supply conditions.
India achieved the target of blending 20 per cent ethanol in petrol during the 2025-26 ethanol supply year, five years ahead of schedule.
The authors note that ethanol supplied to oil marketing companies surged from 1.73 billion litres in 2019-20 to a projected 12 billion litres in 2025-26, representing an annual growth rate of about 38 per cent.
In comparison, maize production grew by 11.4 per cent annually, sugarcane by 5.1 per cent and rice by 4.4 per cent during the same period, highlighting a widening mismatch between fuel demand and feedstock availability.
ICRIER also questions whether existing ethanol pricing adequately reflects the true economic cost of feedstocks.
It highlights that FCI rice supplied to ethanol distilleries was priced at Rs 2,320 per quintal, against an estimated economic cost of over Rs 4,170 per quintal, implying that administered prices may conceal substantial public subsidies embedded in procurement, fertiliser and irrigation support.
Rather than abandoning E20, the authors recommend an adaptive framework under which sugar diversion is reduced during years of tight availability, FCI rice is used only for genuine surplus stocks, and temporary imports of sugar or ethanol are considered as market stabilisers.
They also suggest that India undertake a comprehensive, feedstock-specific assessment of the energy, environmental and economic costs of sugarcane, maize and rice ethanol, while gradually shifting towards second-generation ethanol made from agricultural residues and non-food biomass.
