Sugarcane (Control) Order, 2026: Ethanol Gets Legal Status, Stronger Farmer Safeguards, and a Shift Toward an Energy-Centric Sugar Industry

–By Dilip Patil

Draft Sugarcane (Control) Order, 2026 – Key Features This new draft modernizes a 60-year-old legislation. The significant changes are as follows:_

1. FRP (Fair and Remunerative Price) to be Linked with Ethanol
   An equation establishing that 600 liters of ethanol produced from sugarcane juice or syrup is equivalent to 1 ton of sugar will be adopted. Consequently, the FRP may now also be determined based on ethanol production.
2. Fixed Timeframes for IEM (Industrial Entrepreneur Memorandum)

• First 3 Years: To take ‘effective steps’ (acquisition of land, machinery, and construction).
• 3–5 Years: To commence commercial production.
• Extension: Will be granted only for compelling reasons (such as court cases or natural calamities), subject to the provision of an additional bank guarantee.

1. Ban on Transfer of IEM License Prior to Commencement of Production
   The license (IEM) cannot be sold or transferred to a third party before commercial production has commenced. This measure aims to curb the black marketing of licenses.
2. Cancellation of Registration if Closed for 7 Years
   If a factory remains non-operational for 7 consecutive crushing seasons, its IEM (license), plant code, and ‘Short Name’ will be automatically cancelled. This will open up the sector to new entrepreneurs in that region.
3. Khandasari Units Brought Under the Ambit of FRP
   Khandasari units will now be required to pay sugarcane growers the FRP as determined by the Central Government, and obtaining a license will be mandatory. This will put an end to the exploitation of farmers and unfair competition.
4. Valuation of By-products
   For the purpose of calculating the FRP, the value of by-products—namely Bagasse, Molasses, and Press Mud—will be determined based on their ‘Transfer Price’ (rather than on the profit derived from the final product). This will bring transparency to the process.
5. Payment within 14 Days + 15% Interest
   If a sugar factory fails to make payments to farmers within 14 days, it will be required to pay interest on the outstanding amount at an annual rate of 15%. This shall constitute a statutory obligation.
6. Recovery through the District Collector
   Outstanding dues will be recovered through the District Collector as ‘Land Revenue Arrears’ (by attaching or selling the factory’s assets).
7. Minimum Distance: 25 km
   No new sugar factory may be established within a radius of 25 km from an existing factory. The State Government may increase this distance but cannot reduce it. This condition is already in force in Maharashtra; it will now be implemented in other states as well.
8. Digital Reporting via API
   Real-time data must be submitted to the government via an ‘API’ (Application Programming Interface). This data will not be shared with any third party.
9. Search and Seizure under BNSS 2023
   The new Code of Criminal Procedure (BNSS, 2023) will now apply, replacing the old CrPC.
10. Exemption from Bank Guarantee
    Only plants engaged exclusively in ethanol production (those procuring raw material from external sources—i.e., where sugarcane crushing does not take place) will be exempted from the performance guarantee requirement of ₹2 crore. However, if they undertake sugarcane crushing operations to run their ethanol project, this guarantee requirement will become applicable.

The Government of India’s draft “Sugarcane (Control) Order, 2026” marks a decisive turning point for the country’s sugar and biofuel sectors. Released on April 20, 2026, by the Department of Food & Public Distribution under the Ministry of Consumer Affairs, the draft has been opened for comments from state governments, sugar mills, cooperatives, and industry bodies until May 20, 2026. Set to replace the long-standing 1966 order, this framework is widely regarded as the most significant structural reform in the sugar industry since independence.

600 litres ethanol = One tonne sugar

At the core of the draft is a fundamental policy shift: ethanol has been formally integrated into the legal framework of the sugar industry. Facilities producing ethanol, rectified spirit, Extra Neutral Alcohol (ENA), or fuel-grade ethanol directly from sugarcane juice, syrup, or sugar will now be classified as “sugar factories.” This effectively brings the entire cane-to-ethanol value chain under a single statutory umbrella, aligning the sugar sector more closely with India’s broader energy transition strategy.

The draft also introduces, for the first time, a clear and technical equivalence for pricing purposes. It states that 600 litres of ethanol derived from sugarcane will be treated as equivalent to one tonne of sugar for the calculation of the Fair and Remunerative Price (FRP). This equivalence is strictly for FRP determination and does not imply a physical conversion. It is expected to make decisions between sugar production and ethanol diversion more transparent and economically rational.

A significant revision has been made to the distance norm between factories. The minimum distance between two sugar mills has been increased from 15 km to 25 km, and this rule also applies to standalone ethanol plants. However, such ethanol-only units are exempt from the bank guarantee requirement. This measure is likely to protect existing mills while encouraging more balanced regional distribution of new investments.

The approval process for setting up new units has been tightened through a strengthened Industrial Entrepreneur Memorandum (IEM) framework. Filing an IEM is now mandatory for new projects. Sugar mills involving cane crushing must furnish a ₹2 crore bank guarantee, whereas ethanol plants not involving crushing are exempt from this requirement. Developers must take “effective steps”—such as land acquisition, machinery contracting, and commencement of construction—within three years of obtaining the IEM. Commercial production must begin within five years, failing which the approval will be canceled and the guarantee forfeited. Limited extensions may be granted in exceptional circumstances, such as legal disputes or natural disasters, but only with additional safeguards.

Farmer protection at the centre of the reform

One of the most impactful provisions in the draft is the complete prohibition on the sale or transfer of IEMs before the commencement of production. Previously, such licenses were often traded, leading to speculative practices. Under the new framework, transfers will be permitted only under the direction of courts, the National Company Law Tribunal (NCLT), or financial institutions. This move is expected to eliminate speculative trading of factory licenses and bring greater discipline to capacity creation.

Farmer protection has been placed at the center of the reform. Sugar mills are required to make payments to farmers within 14 days, failing which an interest of 15% per annum will apply. In cases of default, dues can be recovered by district authorities as arrears of land revenue, giving the provision real enforcement strength. Recovered amounts must be credited to farmers within 10 days, and any unclaimed dues after three years will be redirected toward sugarcane development.

The draft also introduces greater transparency in the valuation of by-products such as molasses, bagasse, and press mud. Their valuation will be based on imputed value or transfer price, without considering downstream profits from products like ethanol, electricity, or fertilizers. This ensures a more balanced and realistic FRP calculation.

For the first time, the khandsari sector has been brought under strict regulatory control. Units in this segment will now be required to obtain licenses, pay FRP to farmers, and adhere to the same payment discipline as sugar mills. This move is expected to create a level playing field across the industry.

Another important provision is the automatic cancellation of registration for sugar mills that remain non-operational for seven consecutive seasons. This includes cancellation of their plant code and IEM, thereby preventing inactive units from blocking capacity and distorting industry dynamics.

On the governance and technology front, the draft mandates real-time digital reporting through APIs. The data will be strictly limited to government use and will not be shared with third parties. Additionally, inspection and enforcement provisions have been updated in line with the Bharatiya Nagarik Suraksha Sanhita, 2023, replacing earlier legal references.

New investments may move …

For Maharashtra, which has the highest ethanol production capacity in the country, the implications are particularly significant. The state’s sugar sector is poised to transition more formally into an energy-centric economy. The 25 km distance rule will protect existing mills, while new investments may move toward less saturated regions. At the same time, cooperative mills will need to strengthen compliance, particularly in digital reporting, interest calculation, and financial discipline.

Fundamental shift in the philosophy

Overall, the Sugarcane (Control) Order, 2026 represents not just a regulatory update but a fundamental shift in the philosophy of the sugar industry. It moves the sector away from a purely sugar-centric model toward an integrated, energy-oriented framework. By legally embedding bioenergy, strengthening farmer safeguards, curbing speculative practices, and promoting transparency, the policy lays the foundation for transforming sugar mills into modern bio-energy hubs. If implemented effectively, it will play a crucial role in achieving India’s ethanol blending targets and ensuring long-term sustainability of the sector.