As India is battling a domestic sugar shortage that is threatening to send prices sky-high, the government is considering reducing the production of ethanol from sugar cane to reduce the demand for the sweetener.

According to sources familiar with the matter, government authorities are studying a proposal to restrict the use of sugar cane juice in the production of ethanol for the current harvest season. The sources asked not to be identified, due to the private nature of the conversations. The sources emphasized there has been no final decision, and plans could still change going forward.

The move would be consistent with other efforts by the government to control domestic food prices before the national elections in 2024, when Prime Minister Narendra Modi will be campaigning for a third term as the leader of the nation. Previously, the government has extended the restriction on the export of rice, and more recently, it extended restrictions on the sales of sugar overseas.

On Thursday, Indian sugar companies saw shares slump. Balrampur Chini Mills Ltd. fell up to 7.6% in Mumbai, extending losses of more than 7% a day prior. Shree Renuka Sugars Ltd. fell 5.5%, as Bajaj Hindusthan Sugar Ltd. tumbled 7.4%. While those stocks fell on Wednesday, there was a drop of almost 8% in New York sugar futures, the biggest fall in 10 months.

The sugar harvest has been hampered this year by poor rainfall in India, leading the second biggest producer in the world to extend its restrictions on the export of the sweetener past October 31st. By reducing the production of ethanol, sugar inventories will be prevented from falling further, according to Michael McDougall, managing director at Paragon Global Markets.

According to data from the National Federation of Cooperative Sugar Factories Ltd., a millers group, the production of sugar in the first two months of the season that began Oct. 1, fell over 10% from a year earlier, to 4.32 million tons.

Earlier in the month, the group had noted that government estimates indicated that roughly 4 million tons of sugar would be diverted to ethanol production, in 2023-2024. Because of that, the net production of sugar for that period would only be 29.15 million tons, instead of the 33.1 million tons from one year prior.

Analysts noted that although the proposed measure could help to contain food inflation, its overall impact may prove limited. They note that there was already a sale of ethanol at a tender earlier in the year, and that will need to be reproduced and replaced, leaving little choice but to divert the sugar to make it ultimately.