Authorities are studying a proposal to limit the use of sugarcane juice to produce the biofuel for the current season, according to people familiar with the matter, who asked not to be identified as the discussions are private. No final decision has been made, and plans could still change, the people said. 

   

The proposal, which would help ease local sugar shortages if approved, sent futures plunging as much as 7.9% in New York on Wednesday, the biggest decline in 10 months. It would also crush any potential for India to import the sweetener.

 

The Food Ministry didn’t respond to a request for comment.

 

Poor rainfall harmed sugarcane crops in India, prompting the world’s second-biggest sugar producer to extend restrictions on exports beyond Oct. 31. Limiting ethanol production would keep sugar inventories in India from falling further, said Michael McDougall, managing director at Paragon Global Markets.

 

While the measure could help India tame food inflation, it may have limited impact, the people said. That’s because some ethanol has already been sold at a tender earlier this year and will need to be produced, according to the people.