India’s ethanol vision needs a feedstock reality check - The Indian Express

The price of sugar has gone up. This is part of a normal cycle based on how sugar output moves. But, it comes at a time when there has been a push for the production of ethanol to reduce the import of crude oil. Some pertinent issues have been raised considering that sugarcane is also an important feedstock for producing ethanol. At a broader level, will this lead to pressure on crop supplies?

Ethanol can be produced from maize, rice and sugarcane-derived products. Around 45 per cent comes from maize and 20-25 per cent from rice, with the balance being sugar based. The economics of the mix is interesting. Maize is most preferred as 1 tonne of maize yields 380-400 litres of ethanol. In case of rice, it is slightly lower at 370-385 litres; for sugarcane it is 220-280 litres. Therefore, maize is highest in the pecking order among the three. Besides, there is also the availability issue which favours maize.

Maize again comes at the lowest cost which is around Rs 20,000-21,000 per tonne. In case of rice, it is around Rs 38,000-39,000 per tonne while for sugar it works out to approximately Rs 37,000 per tonne. Therefore, companies would prefer to use maize. But, all three guzzle a lot of water. In the case of maize, it takes 500-900 litres to produce one kg, which goes up to 1,500-2,500 litres for sugarcane and 2,000-3,500 litres for rice. Hence, ideally more maize should be diverted for ethanol production.

For maize, there are three sources of demand. First, households, who account for a small part of the demand. Second, maize is also used for supporting cattle and poultry and accounts for 60 per cent of the total feed. Third, for industrial use, where starch is the product. Ethanol will now be the fourth dimension. Considering that production using GM variety seeds is not permitted for maize, output growth and, as a consequence, demand has to be met by using existing domestic seeds. This can be a problem as demand for ethanol is now going to rise with E20 being made mandatory. Higher demand could potentially increase prices which will trickle to prices of dairy, meat and related products. A tempting solution would be to allow the use of GM seeds to enhance output for only ethanol production.

Presently, the excess stocks of rice held by the FCI, which were procured earlier, have been sold in the market. As the quality of rice was low, it made sense to sell these stocks in the open market. But this cannot be the strategy going forward while considering a feedstock for producing ethanol. The higher water usage for rice and sugarcane may make maize a preferred feedstock. But the incremental output will only add to the pressure on water resources in the country. Curiously, there has also been a big push for the creation of data centres which are also heavy consumers of power and water. The supply of water will be a key challenge going ahead for the Indian economy.

The writer is chief economist, Bank of Baroda, and author of Corporate Quirks: The Darker Side of the Sun. Views are personal