Karnataka Farmers Seek Ethanol Nod for Jaggery Units

 

Sugar Price Surge: Karnataka Farmers Seek Nod for Jaggery Units to Produce Ethanol

Karnataka sugarcane farmers are pushing for a policy change that could reshape how small jaggery-making units participate in the ethanol economy. The Karnataka farmers ethanol production demand comes at a time when sugar prices have risen sharply across India, triggering a wider debate over sugarcane diversion, ethanol production, domestic availability and farmer incomes.

The Karnataka State Sugarcane Growers’ Association has asked the government to allow local jaggery and khandsari units to produce ethanol, arguing that the economic benefits of the biofuel market should not remain concentrated with large sugar mills.

The proposal is significant because ethanol has become an important revenue stream for India’s sugar industry under the country’s ethanol-blending programme. But the current sugar-price spike has also exposed the tension between using sugarcane for fuel and ensuring adequate sugar supplies for consumers.

Why Are Karnataka Farmers Asking for Ethanol Permission?

According to the farmers’ association, sugar mills are generating substantial revenues from ethanol while sugarcane growers continue to face concerns over remunerative returns.

Association president Kurubur Shanthakumar has called for a simpler policy framework that would allow farmers to produce ethanol at their own local jaggery-making units. The proposal would effectively give smaller cane processors access to a market that has traditionally been dominated by integrated sugar mills and distilleries.

Farmers have also suggested that ethanol produced by these units could potentially be used as an environment-friendly fuel for household cooking and for farmers’ vehicles and tractors.

However, permission to produce ethanol would not automatically mean that every jaggery unit could start manufacturing fuel. Ethanol production involves technical, safety, environmental and licensing requirements, making regulation an important part of any policy change.

Sugar Prices Have Risen Sharply

The farmers’ demand comes against a backdrop of a significant rise in sugar prices.

The Union government said the average retail price of sugar increased from ₹48.18 per kg on July 20, 2026, to ₹55.70 per kg on August 20, 2026. That is an increase of roughly 16% in one month.

Karnataka has also experienced pressure in wholesale markets. The New Indian Express reported that wholesale sugar prices in the state had risen from around ₹45 per kg at the beginning of August to about ₹63 per kg by August 26. The report attributed the increase to factors including deficient rainfall, lower supply, festive demand and ethanol-related demand.

The situation is therefore more complicated than simply saying that ethanol caused the sugar-price surge.

Is Ethanol Really Responsible for the Sugar Price Rise?

This is where the policy debate becomes important.

The central government has rejected the argument that ethanol diversion is the main reason for the recent increase in sugar prices.

According to the Press Information Bureau, the proportion of sugar diverted towards ethanol has actually declined from around 12% in 2022-23 to about 9% in 2025-26. The government also said nearly three-fourths of India's ethanol production now comes from grains, particularly maize.

The government has instead pointed to several factors behind the price increase, including lower-than-expected sugar production, weather-related crop damage, stronger festive demand, tighter global supplies and speculation or hoarding.

Reuters also reported that India has been considering measures to prioritise sugar production over cane-based ethanol as domestic sugar prices climb.

So, while ethanol remains an important part of the sugar-market equation, the available evidence suggests that the current price rise has multiple causes.

Why Jaggery Units Could Matter for Farmers

Karnataka is a major sugarcane-producing state with a large network of traditional jaggery and khandsari units.

Farmers' representatives argue that these smaller processing facilities could become another route for adding value to sugarcane instead of sending virtually all cane through large sugar factories.

A report citing the farmers' association said Karnataka produces roughly 600 lakh metric tonnes of sugarcane annually, while only around 30–40 lakh metric tonnes is currently processed through jaggery units. The association has argued that policy support could expand the role of such units substantially.

For farmers, diversification could potentially mean more local processing opportunities and another source of demand for sugarcane.

But the economics would depend on the cost of setting up distillation facilities, access to technology, feedstock availability, licensing, environmental compliance and the price at which ethanol can actually be sold.

Ethanol Has Become an Important Part of India's Sugar Economy

India's ethanol policy has fundamentally changed the economics of the sugar sector.

The Department of Food and Public Distribution says the government has encouraged ethanol capacity creation and allowed ethanol production from sugarcane juice, sugar syrup and different grades of molasses. For ethanol supply year 2024-25, the government-listed ex-mill price for ethanol made from sugarcane juice, sugar or sugar syrup was ₹65.61 per litre, while B-heavy molasses-based ethanol was priced at ₹60.73 per litre.

The government's broader objective has been to increase ethanol blending in petrol. Official data shows ethanol blending reached 19.24% in 2024-25, with a target of 20% for 2025-26.

For sugar mills, this creates an alternative revenue stream and can help reduce dependence on volatile sugar prices.

The farmers' argument is essentially that smaller producers should also have access to this growing value chain.

What Could This Mean for Sugar Companies?

For listed sugar companies, any change in ethanol policy could affect the relative attractiveness of sugar and ethanol production.

If the government encourages more ethanol production from smaller jaggery units, large sugar mills could face greater competition for feedstock and potentially for ethanol-related opportunities.

On the other hand, the current high sugar prices could make producing sugar more attractive for mills than diverting additional cane-derived feedstock into ethanol.

This is particularly relevant because the government has been monitoring sugar availability closely. The Department of Food and Public Distribution says it regulates production, sale, stocks and international trade of sugar to maintain domestic availability and stable prices.

Investors therefore need to watch policy decisions rather than assume that rising sugar prices automatically translate into higher profits for every sugar company.

What Investors Should Watch Next

For investors tracking sugar stocks, ethanol companies and the broader agro-processing sector, several developments could become important.

First, watch the government's response to the Karnataka farmers' demand. Permission for jaggery units would represent a meaningful policy development, but implementation details would matter more than the headline.

Second, monitor sugar production estimates for the next season. Weather conditions in major sugar-producing states such as Karnataka and Maharashtra could influence supply and prices.

Third, track ethanol diversion rules. Any move to prioritise sugar production could change the product mix and profitability calculations for integrated sugar companies.

Finally, watch domestic sugar prices during the festive season. Higher retail prices could encourage additional government intervention through imports, stock controls or other supply-side measures.

The Bigger Picture: Farmers Want a Larger Share of the Value Chain

The Karnataka proposal is not only about ethanol. It reflects a broader issue in Indian agriculture: who captures the value created after a farm commodity leaves the field?

Sugarcane can generate revenue through sugar, molasses, ethanol, bagasse and other by-products. Large integrated mills are positioned to monetise several of these streams.

Farmers' organisations now want smaller local processing units to gain similar opportunities.

Whether that becomes economically viable will depend on regulation, technology and capital requirements. But the debate is likely to continue as India balances three competing objectives: affordable sugar for consumers, sustainable returns for farmers and growth in domestic ethanol production.

Conclusion

The Karnataka farmers ethanol production demand comes at a critical moment for India's sugar industry. Sugar prices have risen sharply, while ethanol continues to play a growing role in the country's energy strategy.

Farmers want jaggery and khandsari units to be allowed to enter ethanol production so that more of the value generated from sugarcane can remain with local producers. At the same time, the government maintains that ethanol diversion is not the primary cause of the current sugar-price surge.

For investors, the key issue is what policymakers do next. Changes in cane diversion rules, sugar availability, ethanol procurement and licensing for smaller units could influence both farmer economics and the profitability of sugar-sector businesses.

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This article is for informational and educational purposes only and should not be considered investment advice.