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India: Ethanol price hike sweet for sugar mills but aftertaste could be bitter

The government on Wednesday approved an increase in ethanol prices for the 2018-19 sugar season, starting October. The level of the price increase suggests that the centre wants to incentivize ethanol output and investments in capacity addition. But the industry may still be wary, given that these incentives were to paper over the structural cracks in the sugar industry, which may raise the risk of a volatile future.

First, a quick recap of the sugar situation. Farmers want sugar cane prices to increase, even when sugar prices fall. The central government supports this desire with a minimum price that never declines. Sugar mills don’t pay farmers when they are making losses. The government offers sops to the mills to clear arrears. But the government will also not let sugar prices increase because voters have a sweet tooth.