The Ethanol Push Threatening India's Traditional Sugar Industry
Get ready to kiss your favourite desi sugars – jaggery, khand, boora – goodbye. The Union government's new Sugarcane (Control) Order, 2026, could mark the beginning of the end of traditional khandsaris. These small-scale, rural, raw and unprocessed sugar making units that dot the sugarcane belt, especially in Uttar Pradesh during the harvest season, are expected to comply with tough new rules and regulations that so far applied to high-tech sugar mills.
In western Uttar Pradesh, farmer organisations are protesting this order, fearing it will threaten the rural sugar economy, if it is enacted. The order is currently a draft, which was open for objections and comments until May 21. The changes the order proposes could destroy 25 lakh livelihoods in one stroke, and khandsari operators are raising their voice against it too. The issue could prove critical in the politically significant rural belt before the state assembly elections next year.
What explains the contents of the latest control order? Is the government seeking the welfare of farmers, or is it a ploy to help the ethanol industry devour the informal sugarcane economy?
A few things to consider at first: Khandsari is a traditional small-scale unit where sugarcane juice is turned into unrefined sugars like jaggery, khand, shakkar and boora. For centuries, these cottage units have processed sugarcane for India and the world.
In a recent press statement, the government revealed just how significant these units are to the rural economy. India, it said, was the “world’s largest jaggery producer”, with “over 70% of global jaggery production”. About “20-30%” of sugarcane production is used for jaggery production. Not just that. Being one of India’s “major agro-processing industries”, these units employ roughly “2.5 million [25 lakh] people” in rural India.
The sector is especially unique, the statement said, because of its “decentralised processing, low transport costs, small-scale entrepreneurship”. Khandsaris exported about 471,900 tonnes of sugars (including jaggery) in 2024-25, that fetched about $406.8 million for the country.
Controlling sugarcane in 2026
To regulate this unorganised sector, the government of India passed the Sugarcane (Control) Orders in 1966, under the essential commodities act. In 2025, it replaced the 1966 order and now, the proposed Sugarcane (Control) Order, 2026 is in the picture, broadening the definition of a sugar “producer” to include entities using sugarcane juice, sugar or molasses for downstream production of commodities like biofuels, alcohol, etc.
The 2026 order brings ethanol production formally under the sugar regulation sector. It recognises by-products like bagasse, molasses and press mud (a residue of sugarcane processing), and it also aligns sugar-regulation definitions with existing food safety laws.
A worker handles bagasse, the fibrous residue left after crushing sugarcane, at a traditional khandsari unit in Shahpura, Muzaffarnagar, western Uttar Pradesh, December 2012.
The draft brings khandsari units under the FRP system for sugarcane, meaning that they will pay farmers the same minimum price as sugar mills for sugarcane. Khandsari operators have argued that sugar recovery in their units is significantly lower than in large sugar mills, making it difficult for them to pay the same FRP.
Significantly, the 2026 order links ethanol production with sugar pricing by treating 600 litres of ethanol as equivalent to one tonne of sugar. This is part of the growing focus on ethanol blending and biofuel production.
The order preserves the government's power to regulate cane supply through reserved mill areas and mandatory supply agreements. That is, the present system wherein a modern sugar mill is exclusively licensed to operate within a specified sugarcane producing belt, is retained, though the order says no new sugar mill can come up within 25 kilometres of an existing one, raising the existing 15 kilometre limit.
The 2026 draft also proposes mandatory licensing for khandsari units along with crushers and power crushers. It empowers the Union government to regulate where these units can operate, how much sugarcane they can procure and their hours of operation. It allows authorities to inspect/search premises, demand records and seize equipment in cases of alleged violations.
The draft defines “khandsari sugar” as unrefined sugar made from sugarcane juice using the open-pan process. It may be crystalline or powdered and must be free from dirt, impurities, iron and added colouring agents – impurities are capped at 0.25% by weight. Food-grade sodium bicarbonate may be added.
It classifies khandsari sugars into two types, desi (with minimum 93% sucrose content, maximum 1.5% moisture and not over 0.7% acid-insoluble ash) and Khandsari Sugar (Sulphur), a category with minimum sucrose content of 96.5%, 1.5% maximum moisture and not over 0.5% acid-insoluble ash.
Both categories must comply with the Food Safety and Standards Regulations, 2011, which the government may revise from time to time. In effect, the government no longer wants to treat khandsari units as decentralised, cottage and rural-agri-based, but as factories, and expects them to be placed under rigorous checks and quality specifications for both desi and sulphur classifications.
The proposed order also sharply expands the definition of a khandsari "factory". The 2025 Sugar (Control) Order applied only to mechanised khandsari units with at least 20 workers and a crushing capacity of 500 tonnes crushed per day (TCD).
The new draft removes the 500 TCD threshold and lowers the worker requirement to 10, bringing more such units under the ambit of regulation.
Farewell, khandsari?
A worker at a khandsari unit in Shahpura, Muzaffarnagar, western Uttar Pradesh, December 2012.
How the draft threatens khandsaris
Khandsari units employ local labour – they are not corporate processing centres with the capacity to “test” every batch or to align them with industrial-level “quality” standards. They are rooted in the rural economy and their quality and taste are tested locally. The quality of sugarcane they receive and the (generational) skill of the processors at each khandsari is known to the rural folk. It is unrealistic to believe that these small-scale outfits will scale up and purchase equipment to test and conform to a new code.
Additionally, by attaching the Food Safety and Standards Regulations caveat to their output, the government will effectively set up the traditional craftsmen (and women) to failure. Even the biggest corporate players in the food sector, be they Nestle, Amul or Cadburys, cannot keep up with those standards from time to time, so how will khandsaris in remote sugarcane fields adhere to FSSAI codes?
Similarly, the digital reporting systems in the new order would simply have many village owners and workers opt out of the additional burden, leading to closures. That is what the government is, in effect, saying in its draft order – enter the formal sugarcane economy or become a defaulter.
Khandsaris might end up operating in the grey zone, vulnerable to official scrutiny, or shut shop and let the sugarcane juice to go the nearest sugar factory – or ethanol plant.
Ethanolisation
But why would any government want to undermine its own traditional sugar sector? One word: ethanol. Prime Minister Narendra Modi’s government silently eroded the unorganised unrefined sugar sector. In low sugarcane production years, the khandsari network absorbs the sugarcane juices that ethanol producers also need. To stabilise supplies of sugarcane for ethanol production, the government feels it must divert sugarcane away from traditional uses.
Since it came to power in 2014, the Modi government has steadily expanded India’s ethanol blending programme to reduce crude oil imports. The Union government revived the Ethanol Blended Petrol (EBP) programme by easing procurement norms and fixing ethanol prices. A major shift came with the National Policy on Biofuels, 2018, which widened the range of feedstock allowed for ethanol production – including sugarcane juice, heavy molasses, damaged food grains and surplus rice.
Subsequently, the government introduced differential pricing to encourage sugar mills to divert excess cane towards ethanol production. In 2020, it advanced the target of achieving 20% ethanol blending in petrol from 2030 to 2025–26, followed by the launch of the Ethanol Blending Roadmap 2025, in 2021.
India achieved 10% blending ahead of schedule in 2022, with the government highlighting benefits such as lowering the oil import burden and improved payments to sugarcane farmers. However, concerns over sugar availability later prompted restrictions on the diversion of sugarcane juice and syrup for ethanol production. This was when the government started to tighten its grip on the unorganised sector.
Khandsaris were asked to opt for voluntary registration with the government. Last year, because this drive failed to yield the desired results, the government introduced the draft of the Sugarcane Control, 2026 to force formalisation and industrialisation. The government tried to bring the larger units into the Sugarcane Control Order mechanisms. The government even put a 5% GST on khandsari sugars, discouraging rural producers.
To conclude, this new policy push has increasingly transformed sugar mills into integrated sugar and biofuel producers, with recent draft regulations formally linking ethanol production to sugar sector pricing and oversight. Meanwhile, government ministers like Nitin Gadkari are already dreaming of 100% ethanol blending!
Given the agro-climatic conditions, India can only grow a limited amount of sugarcane and so the government is slowly using legislation to create obstacles for the traditional khandsari. Then all the juice can flow into ethanol, but the government is also choosing to sacrifice the world’s biggest jaggery economy in the process.
Khandsaris are just another offering at the altar of Corporate India. Only time will tell what benefits this will bring to the country.
Indra Shekhar Singh is an independent agri-policy analyst and writer.
This article went live on May twenty-second, two thousand twenty six, at six minutes past one in the afternoon.The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.
