Rice Allocation for Ethanol – Is It the Right Move?

After the rules were changed, Karnataka was unable to buy grains from the Food Corporation of India’s central pool stock for INR 3,400 per quintal. But the lifting of rice for ethanol production and blending of petrol continues at the rate of INR 2,000 per quintal.

In order to check food inflation, the Union government has taken several steps which include a ban or restrictions on exports, imposition of stock limits and a ban on future trading. On June 13, 2023, the government decided (i) not to issue wheat and rice to state governments under the Open Market Sale Scheme (OMSS) and (ii) to reduce the lot size for individual bidders under OMSS auctions for private trade. As a result, Karnataka was refused rice under OMSS for which it was willing to pay INR 3,400 per quintal.

However, the allocation and lifting of rice from the Food Corporation of India (FCI)’s central pool stock for ethanol production and blending of petrol continue at the rate of INR 2,000 per quintal.

Government of India (GOI’s) NFSA Commitments and central pool stocks
Under the National Food Security Act 2013, the Union government is mandated to distribute about 60 million tonnes (MT) of rice and wheat in the country to about 813 million identified beneficiaries annually.

To meet these commitments, the government procures, stores, and distributes rice and wheat through the state governments. In some years, procurement is much higher than the requirement of the public distribution system (PDS) and welfare schemes.

The central pool stock position for rice and wheat for the last 8 years is presented below. As of June 1, 2023, it had about 41.4 MT of rice (including paddy equivalent) and about 31.4 MT of wheat. The stock position of wheat is below the 2016 levels.

OMSS and the Notification of June 13, 2023
The objective of OMSS is to check the inflationary trend of food prices. The quantity of (excess) stock in the central pool which can be sold by FCI is decided by the government.
When the central pool stocks are much higher than the buffer norms, the OMSS has also been used to reduce the excess stock. In these situations, the Union government welcomed the states which took food grains under OMSS and paid a much higher price than they paid for food grains allotted to them under the NFSA.

For example, from January to May 24, 2023, state governments lifted 0.116 MT of grains under OMSS at a rate of INR 3,400 per quintal. Out of this, Karnataka alone lifted 0.112 MT of rice.

Ethanol and Rice
Close to 86% of India’s fuel needs are met via imports. To reduce this dependence, the government is running an aggressive mandate-led mission of ethanol production and blending.

Three crops are critical for domestic ethanol production: sugarcane, maize, and rice. The government allocates the rice which can be issued by FCI for ethanol production.

This rice (Fair Average Quality) is one of the main feedstocks for distilleries producing ethanol in the country as it has higher starch levels and is therefore preferred by distilleries compared to buying similarly priced rice from the open market. For ethanol, the government has fixed the price of rice at INR 2,000 per quintal, much below the rate of INR 3,400 per quintal fixed for the state governments for rice taken by them under OMSS.

The policy for rice allocation for ethanol is based on a document titled ‘Roadmap for Ethanol Blending in India 2020-25’ prepared by an expert committee under the aegis of NITI Aayog.

It projected 20% blending of petrol with ethanol (E20) by 2025-26 for which ethanol requirement was estimated to be about 10.16 billion litres. It was estimated that 45% of this demand (4.66 billion litres) will come from grains sourced from the FCI or from the open market.

The NITI Aayog report also projected a demand of 3.34 billion litres for potable alcohol and pharmaceutical industry for which 2 billion litres was estimated to be met from food grains, mostly rice.

The report projected that 30.9 MT of rice will be surplus in the central pool every year. The Union government’s decision to stop the allocation of rice to state governments under OMSS makes it clear that NITI Aayog’s projections of surplus rice were overstated.
Yet, the sale of rice for ethanol from the FCI’s central pool stock continues. In the financial year 2021-22 (December to November), 1.06 MT of rice was sold by FCI to distilleries for ethanol production. This year, the rice allocation for ethanol is 1.5 MT.

In our view, the use of rice for food should be prioritized over its use as fuel. It would be imprudent to allow the use of rice as raw material for producing ethanol, particularly when states are not allowed to buy rice for food requirements.

Source: The Wire