IIn 2022, about 1 million metric tonnes of rice from the Food Corporation of India stock was sold at subsidized prices to produce ethanol. According to ministry of consumer affairs, this rice was fit for human consumption. A similar change of crops is taking place in the country for rice, corn and sugarcane to produce ethanol in the open markets, where food and feed processors (and food consumers) are competing with oil manufacturing companies for grain .
In December 2022, the country’s retail annual inflation rate for cereals was about 13.7 percent, for rice it was about 10.5 percent and for maize it was 17.5 percent. We explain the government policy behind this trend in ethanol production and what is involved.
India’s ethanol blending program
The Ethanol Blending Program (EBP) was launched in India in 2003. In 2018, it was given a new thrust under the National Policy on Biofuels (NPB). Among other things, the NPB is a guide for the production of bioethanol which will be blended with petrol. As per the policy, India was to achieve 10 per cent blending rate (E10) by Ethanol Supply Year (ESY) 2021-22 and 20 per cent (E20) by ESY 2025-26. statistics shows India has already achieved E10 with an annual average blending rate of around 9.5 per cent.
Through blending, the government seeks to reduce greenhouse gas (GHG) emissions and India’s dependence on imported fuels (and huge drain of foreign exchange). According to policy commissionBlending 20 percent ethanol in petrol will reduce carbon monoxide emissions by 50 percent in two-wheelers and 30 percent in four-wheelers. Similarly, the country’s crude oil import bill is expected to decline by about $4 billion annually under E20.
Ethanol is produced from grains, their stalks, rotten potatoes, sugarcane juice, sugarcane molasses, and agricultural and industrial waste. When ethanol is produced directly from crops such as rice, corn and sugarcane, the technology is referred to as 1G. When crop waste, non-food crops, industrial waste, and lignocellulosic (dry matter of plants) feedstocks are used, the technology is 2G. Despite NPB’s preference for 2G technology, most ethanol (for blending) in the country is produced using 1G. Except for a few pilot projects recently launched by some oil manufacturing companies, 2G remains commercially unviable in India.
In ESY 2021-22, 3.75 billion liters of ethanol was produced for blending in India. About 84 per cent of this came from sugarcane (juice, B-heavy and C-heavy molasses), about 10 per cent from FCI’s rice stock, and the remaining 5 per cent from maize/damaged food grains.
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forecasting crop surplus
As part of ongoing research on Indian crops, we are studying the surplus in crops that can be made available to achieve the E20 target by ESY 2025-26. We created balance sheets of rice, maize and sugarcane by simulating different scenarios for their future demand and supply. The study, among other things, accounted for potential supply shocks due to climate change or yield improvements. Demand is projected based on crop income elasticities and their historical trends.
NITI Aayog shares estimates in terms of demand. By ESY 2025-26, India will need 10.16 billion liters of ethanol to obtain E20. Of this, 55 per cent or 5.59 billion liters will come from sugarcane (and its products) and the rest from cereals including rice (from FCI and open market), maize, and others. Assuming that rice and maize together will produce the remaining 4.57 billion liters of ethanol, then as per our demand projections, India would need around 626 MMT sugarcane, 6.02 MMT maize and 5.4 MMT rice to meet the E20 target. , In the case of maize and rice, food and feed requirements will compete more directly with ethanol targets, but in the case of sugarcane the competition is less direct as ethanol is a by-product of sugar processing.
As per our estimates, in terms of crop supply, while rice will be sufficient, maize will be in short supply. There may be competition between poultry feed manufacturers and ethanol producing units for corn, which directly affects the cost and prices of poultry products such as chicken meat and eggs. Sugarcane has emerged as an interesting case. While most of the ethanol produced in the country comes from sugarcane (juice and molasses), its surplus is expected to dwindle by FY 2025-26. In sugarcane, there appears to be a trade-off between meeting the demand for sugar (domestic and export) and ethanol. If India is to meet its domestic sugar demand of 28-29 MMT and continue to export 7-8 MMT, ethanol supply is likely to fall short of the target by ESY 2025-26.
Is the E20 the wrong priority?
In light of climate change and the increasing vulnerability of crops, there is no doubt that we need more and better food to feed ourselves and the world. According to the Global Hunger Index, India still has Highest Child wasting rate in the world. Ensuring adequate nutrition for all is rightly a key focus of the country. While rice, for example, is vital to the country’s food security, its diversion to ethanol will compete directly with the country’s nutritional security ambitions where efforts are being made to diversify the area from rice to crops such as pulses. As the country progresses, the need for high value food like fruits, vegetables, poultry also increases.
Furthermore, the benefits of ethanol are not well established.
Globally, the United States and Brazil are leaders in ethanol production and blending – the former producing it primarily from corn and the latter from sugarcane. According to the World Resources Institute (WRI), aggressive blending mandates in Brazil have resulted in serious environmental concerns with increasing instances of deforestation and conversion of pastures to crops due to ethanol mandates.
In addition, the crops themselves release emissions and have environmental costs. For example, rice and sugarcane are miners of water. So, what would be the net effect on emissions? This topic requires another deep dive.
According to NITI Aayog, for two-wheeler and four-wheeler owners, E20 blended petrol is predicted to reduce fuel efficiency by 5 to 7 percent. This will increase the overall fuel requirement for running the vehicle, thereby affecting the household budget.
According to the Food and Agriculture Organization (FAO), the conversion of crops for biofuels and climate change are the most potent threats to the long-term food security of countries globally. There is no doubt that India, like other countries, needs to reduce emissions and diversify to improve its energy security. But the pressing question is about its scarce resources such as land, soil and water. Should they be used to produce crops for food or fuel? We are, or will soon be, the most populous nation in the world with clear threats to our crop yields from climate change. Can fuel still be preferred over food?
Furthermore, are the ethanol targets over-ambitious? Could growth in sales of electric vehicles ease some of the burden from the aggressive ethanol blending mandate?
Overall, it appears that while E10 has been achieved and can be maintained in the future, the goal of E20 may need to be reconsidered.
Saini is an agricultural economist and co-founder of Arcus Policy Research where Khatri is a senior advisor. Hussain is the former Agriculture Secretary, Government of India. Thoughts are personal.
(Edited by Hamra Like)