In a first, the government on Wednesday decided to allow mills to produce ethanol from the so-called B-heavy molasses and sugarcane juice \u2014 which usually have some sucrose content left in them for sugar production \u2014 from the next ethanol marketing year starting December 1. The move will enable mills to trim surplus sugar output (in times of excessive cane supplies) by diverting a portion of B-heavy molasses for ethanol production, without further extracting sugar out of it, so that prices of the sweetener don\u2019t crash unreasonably and cane arrears are cleared at the earliest. The move follows the government\u2019s decision earlier this month to make available subsidised loans of Rs 4,440 crore to sugar mills to create additional ethanol capacity. At present, ethanol is allowed to be made only of C-heavy molasses, a cane by-product that has no sugar content left in it. The move, while providing limited relief to mills, will hardly be a substitute for the rationalisation of cane prices by the Centre and states like Uttar Pradesh \u2014 a long-pending demand of the sugar companies. As such, ethanol makes up for less than 10% of mills\u2019 revenue. Nevertheless, to encourage mills to divert B-heavy molasses for ethanol production, the Cabinet Committee on Economic Affairs (CCEA) has decided to offer a premium of Rs 3.79 per litre for the ethanol so manufactured. So while ethanol produced out of the usual C-heavy molasses will fetch mills Rs 43.70 per litre in 2018-19 marketing year for blending with petrol, compared with Rs 40.85 now, such bio-fuel made out of the B-heavy molasses will be priced at Rs 47.49 per litre. Assuming that ethanol supplies for blending with petrol will touch 5% (or around 160 crore litres) in 2018-19, the hike in prices of the bio-fuel (produced out of the usual C-heavy molasses) in 2018-19 will raise the mills\u2019 realisation by `456 crore and inflate costs of oil marketing companies accordingly. However, it will reduce the losses of mills by just Rs 1.6 on purchases of each quintal of cane at the fair and remunerative price (FRP) fixed by the Centre. According to Isma, the losses currently stand at Rs 63 per quintal, based on the Rangarajan panel\u2019s linkage formula. The losses, based on the benchmark prices fixed by states like Uttar Pradesh, are even higher. Also, mills have to fork out more for cane prices next year once the Centre and states announce the revised rates. Already, cane arrears this season have exceeded a staggering Rs 22,000 crore. Isma director general Abinash Verma said: \u201cThis innovative step to encourage diversion of \u2018B\u2019 heavy molasses and sugarcane juice away from surplus production of sugar into ethanol, will go a long way in balancing surplus sugarcane availability in future.\u201d The industry would respond positively by creating new ethanol production capacities in the next few years. Elevated cane prices have encouraged farmers to keep producing cane, leading to a record production of over 31 million tonne in 2017-18, when domestic consumption stands at around 25 million tonne.