In 2022, close to 1 million metric tonnes of rice from the Food Corporation of India’s stocks was sold at subsidised prices to produce ethanol. As per the Ministry of Consumer Affairs, this rice was fit for human consumption. Similar diversions of crops to produce ethanol have been happening in the open markets for rice, maize and sugarcane in the country, where food and feed processors (and food consumers) are competing with oil manufacturing companies for grains.
In December 2022, the retail annual inflation rate for the country’s cereals was about 13.7 per cent, it was about 10.5 per cent for rice and 17.5 per cent for maize. We explain the government policy behind this trend in ethanol production and what it entails.
India’s ethanol blending programme
Ethanol Blending Programme (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, NPB is a guide to producing bioethanol that would 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. Data shows India has already achieved E10, with an annual average blending rate of about 9.5 per cent.
Via blending, the Government wants to reduce greenhouse gas (GHG) emissions and India’s dependence on imported fuel (and heavy outgo of foreign exchange). As per NITI Aayog, petrol blended with 20 per cent ethanol would reduce carbon monoxide emissions by 50 per cent in two-wheelers and 30 per cent in four-wheelers. Likewise, the country’s crude oil import bill is expected to fall annually by about $4 billion 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, maize, and sugarcane, the technology is referred to as 1G. When crop waste, non-food crops, industrial waste, and lignocellulosic (plant dry matter) 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. Barring a few pilot projects recently undertaken by some oil manufacturing companies, 2G remains commercially unviable in India.
In ESY 2021-22, 3.75 billion litres of ethanol for blending was produced in India. About 84 per cent of it came from sugarcane (juice, B-heavy and C-heavy molasses), about 10 per cent from FCI’s rice stocks, and the remaining 5 per cent from maize/damaged food grains.
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Projecting crop surpluses
As part of an ongoing research on Indian crops, we are studying surpluses 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, accounts for possible supply shocks due to climate change or from yield improvements. Demands are projected on the basis of crop income elasticities and their historical trends.
In terms of demand, NITI Aayog shares the estimates. By ESY 2025-26, India will need 10.16 billion litres of ethanol for achieving E20. Of this, 55 per cent or 5.59 billion litres will come from sugarcane (and its products) and the remainder from grains, including rice (from FCI and open market), maize, and more. Assuming that rice and maize will together equally provide for producing the remaining 4.57 billion litres of ethanol, then as per our demand projections, India would need about 626 MMTs of sugarcane, 6.02 MMTs of maize, and 5.4 MMTs of rice to meet the E20 target. In the case of maize and rice, food and feed needs would compete more directly with ethanol targets, but in case of sugarcane the competition is less direct since ethanol is a by-product of sugar processing.
In terms of crop supplies, as per our estimates, while rice will be enough, maize will be deficient. There may be competition between poultry feed manufacturers and ethanol-producing units for maize directly impacting the costs and prices of poultry products like chicken meat and eggs. Sugarcane emerges as an interesting case. While most of the ethanol in the country is produced from sugarcane (juice and molasses), its surpluses are predicted to dwindle by FY 2025-26. In cane, there appears to be a trade-off between meeting sugar (domestic and export) and ethanol demands. If India wants to meet its domestic sugar demand of 28-29 MMTs and continue exporting 7-8 MMTs, then the supply of ethanol by ESY 2025-26 is likely to fall short of the target.
Is E20 a misplaced priority?
In light of climate change and growing 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 the highest child wasting rate in the world. Ensuring adequate nutrition for all is rightly the prime focus of the country. While rice, for example, is important for the country’s food security, its diversion to ethanol will directly compete with country’s nutritional security ambitions where efforts are being made to diversify rice area to crops like pulses. As the country progresses, need for high value food like fruits, vegetables, poultry is also bound to rise.
Besides, gains from ethanol are also not well-established.
Globally, the United States and Brazil are front-runners in ethanol production and blending — the former producing it mainly from corn and the latter from cane. As per the World Resources Institute (WRI), aggressive blending mandates in Brazil have resulted in serious environmental concerns with increased instances of deforestation and conversion of pastures to crops due to ethanol mandates.
Besides, the crops themselves release emissions and have environmental costs. Rice and sugarcane, for example, are water guzzlers. So, what will be the net impact on emissions? This topic requires another deep dive.
For owners of two- and four-wheelers, E20 blended petrol is predicted to reduce fuel efficiency by 5 to 7 per cent, according to NITI Aayog. This will increase the overall fuel requirement for running a vehicle, impacting household budgets.
As per the Food and Agriculture Organization (FAO), crop diversion to biofuels and climate change are the most potent threats to long-term food security of countries globally. There is no doubt that India, like other countries, need to reduce emissions and diversify to improve its energy security. But the potent question is about its scarce resources like land, soil, and water. Should they be used to produce crops for food or for fuel? We are, or will soon be, the most populous country in the world with palpable threats on our crop yields from climate change. Can fuel be prioritised over food just yet?
Besides, are the ethanol targets over-ambitious? Can the surge in the sale of electric vehicles take some burden off the aggressive ethanol blending mandates?
Overall, it appears that while E10 is achieved and may be sustained in future, the target of E20 may require a rethink.
Saini is an Agricultural Economist and Co-Founder of Arcus Policy Research where Khatri is Senior Consultant. Hussain is former Agriculture Secretary to GOI. Views are personal.
(Edited by Humra Laeeq)