India’s ethanol blending program (EBP), a key initiative to reduce fossil fuel dependence and boost the agricultural sector, is undergoing a dramatic transformation. While the initial focus was on sugar-based ethanol, recent policy shifts and pricing mechanisms have favoured grain-based alternatives like maize and rice. This has significant implications for the sugar industry, farmers, and the nation’s biofuel ecosystem.
The bitter pill: Unviable sugar-based ethanol
A major challenge for the sugar industry is the stagnation of ethanol prices derived from sugarcane juice (SCJ) and B-heavy molasses (BHM). Despite the annual increase in the Fair and Remunerative Price (FRP) for sugarcane, the government has held SCJ and BHM ethanol prices steady for the past three years. This squeeze, coupled with rising input costs and fluctuating sugar prices, puts immense financial pressure on sugar mills.
Conversely, the government has increased the price of C-molasses (CHM) ethanol, making it a more attractive option for oil marketing companies (OMCs). This price disparity incentivizes CHM ethanol production (an end-product of sugar manufacturing) over SCJ or BHM ethanol, further impacting the sugar industry’s profitability.
Grain power: The rise of maize and rice
The government’s growing emphasis on grain-based ethanol, particularly from maize and rice, adds another layer of complexity. Cooperative sugar mills with existing ethanol plants are being encouraged to convert to multi-feed facilities capable of processing maize. The government has pledged to ensure maize availability through agencies like Nafed and NCCL, with prices linked to the Minimum Support Price (MSP). This strategic move aims to secure a stable feedstock supply and reduce reliance on sugarcane.
For Ethanol Supply Year (ESY) 2024-25, the government has allocated approximately 70% to grain-based ethanol and 30% to sugar-based ethanol. This marks a significant departure from previous years, where sugar-based ethanol dominated. The rationale is clear: grain-based ethanol, especially from maize and FCI rice, is now considered a more cost-effective and sustainable option, particularly given the lower sugar production estimates for SS 24-25. This also serves as a safeguard against diverting excessive sugar towards ethanol production in the face of potentially reduced sugar output.
The price of ethanol: A balancing act
The economics of ethanol production explain the government’s preference for grain-based feedstocks. Currently, SCJ ethanol commands the highest price (next to maize-based ethanol), making it less appealing to OMCs, who view ethanol as a homogenous product regardless of its origin. The reduction in FCI rice prices and the introduction of MSP-linked maize ethanol have made these options economically advantageous.
Calculations show that FCI rice-based ethanol is now the most beneficial option for both OMCs and ethanol manufacturers, thanks to subsidized rice availability. Similarly, maize-based ethanol, with its assured supply chain and MSP-linked pricing, offers a stable and cost-effective alternative. Consequently, sugar-based ethanol, despite its historical importance, is being eclipsed by grain-based alternatives.
The sugar industry’s dilemma
This shift has several repercussions for the sugar industry:
* Financial Strain: Stagnant ethanol prices and rising FRP for sugarcane make it increasingly difficult for sugar mills to sustain SCJ and BHM ethanol production, impacting their revenue streams.
* Diversification: The push for multi-feed ethanol plants, while offering diversification opportunities, requires significant investment in infrastructure and technology.
* Farmer Impact: Sugarcane farmers, dependent on the sugar industry, may face challenges if mills reduce ethanol production. Conversely, the promotion of maize and rice could benefit farmers growing these crops, provided the MSP-linked mechanism works effectively, but also poses a threat to sugarcane cultivation as farmers might diversify to maize.
* Environmental Concerns: While grain-based ethanol offers economic advantages, its environmental impact must be considered. Sugarcane-based ethanol has a lower carbon footprint, and a shift away from it could compromise the EBP’s sustainability goals.
* Ethanol blending programme (EBP) targets and progress: The government target for EBP for ESY 24-25 is 20%, and till date, approximately 18% has been achieved. The government plans to further increase the EBP target and is also aiming for 5% blending with diesel.
Charting a sustainable course
A balanced approach is crucial for the long-term success of India’s EBP. The government needs to address the sugar industry’s concerns by revisiting the pricing mechanism for SCJ and BHM ethanol. Simultaneously, promoting multi-feed plants and grain-based ethanol should be coupled with support for sugarcane farmers and a focus on environmental sustainability.
Key Recommendations:
* Price Revision: Increase SCJ and BHM ethanol prices to reflect rising FRP and ensure sugar mill viability.
* Incentivize Diversification: Provide financial and technical support for the conversion to multi-feed plants.
* Protect Farmers: Implement policies to safeguard sugarcane farmers’ interests while promoting alternative feedstocks, including MSP guarantees and procurement mechanisms for all ethanol feedstocks.
* Balance Sustainability: Carefully evaluate the environmental impact of grain-based ethanol and strive for a balance between economic viability and sustainability.
Conclusion: A balancing act
India’s ethanol policy is at a crucial juncture, with a clear move towards grain-based feedstocks. While this shift has benefits, it also presents challenges for the sugar industry and sugarcane farmers. A holistic approach that considers all stakeholders and prioritises sustainability is essential. Only then can India realize the full potential of its biofuel ecosystem and achieve its energy security and climate goals. The sugar industry must adapt, but the government must also recognize its contributions and ensure that policies don’t inadvertently harm a vital sector. With collaboration and informed decision-making, a sustainable future for India’s ethanol industry is within reach
(The author is Managing Director of Samarth SSK Ltd and Co-Chairperson of the Sugar Bioenergy Forum (SBF) under the Indian Federation of Green Energy.)