India wants ethanol to fuel its cars, but food inflation is a major risk

 The government will fast-track an ethanol program that will divert as much as 6 million tons of sugar toward fuel production annually by 2025, according to the food ministry

India is pushing for more cars to run on ethanol made from sugar, a move that risks raising the cost of the sweetener globally.

The government will fast-track an ethanol program that will divert as much as 6 million tons of sugar toward fuel production annually by 2025, according to the food ministry. That’s almost the entire amount that India, the world’s second-biggest producer after Brazil, currently exports to the global market.

Prime Minister Narendra Modi advanced in June a target for blending 20% ethanol in gasoline to 2025, five years earlier than planned. The advantages are multifold: it will reduce air pollution, cut India’s oil import bills, help soak up a domestic sugar glut and increase investment in rural areas.

For the rest of the world, the move may be the biggest change in years for the sugar industry and could drive a bull market, according to Czapp, Czarnikow’s new portal for agri-food analysis. Prices have soared to the highest since 2017 amid a supply crunch, partly due to wild weather in Brazil. A further surge will add to food inflation risks, with global food costs already near a decade high.

It’s “good news for the world if India diverts sugar to produce more ethanol as it will reduce the global surplus,” said Rahil Shaikh, managing director of Meir Commodities India Pvt, a trading company. “But eventually if there is higher demand, some countries including India will have to expand cane acreage.”