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India wants to use food grain stock for ethanol. That’s a problem in a hungry country

The Modi government plans to use India’s central pool stock of grain like rice to match its ethanol commitments. In an undernourished country, that’s a bad policy.

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The worst fears of using food grains for the manufacture of ethanol are coming true. What is even more worrisome is that the Narendra Modi government is using central pool stocks, procured from farmers at Minimum Support Prices or MSP, for this purpose. A report in The Indian Express has quoted the government’s decision to allot 78,000 tonnes of rice to distilleries for the manufacture of ethanol. And it does not stop here. It seems that the rice has been priced at Rs 2,000 per quintal. The MSP for common paddy in the Kharif marketing season 2021-22 (October to September) is Rs 1,940 per quintal. At 67 per cent recovery of rice from paddy, the cost of rice at MSP comes to Rs 2,895.5 per quintal. The economic cost of rice is Rs 4,293.8 per quintal.

It means that the distilleries will get rice at a price much lower than the economic cost and lower than even the MSP derived cost.

The ground for this decision has been prepared by a June 2021 expert committee report of Niti Aayog and the Ministry of Petroleum and Natural Gas (MoPNG). It presents a roadmap for ethanol blending by 2025. This document has been prepared by a committee of senior officers from Niti Aayog, MoPNG and Ministries of Food and Public Distribution and Road Transport and Highways. There was no representation from any organisation or think tank concerned with food security.

India imports about 85 per cent of its petroleum requirement. According to the estimate of the expert committee, India’s import bill of petroleum products in 2020-21 was about $55 billion. A saving of about Rs 30,000 crore can be done if ethanol blending of 20 per cent is achieved.

Also read: Modi govt’s ethanol blending plan aims to get Rs 41,000 cr investment, lower oil import bill

Does sugar work?

In 2018, the Union government had approved the National Policy on Biofuels, which fixed a target of 20 per cent ethanol blending by 2030. In December 2020, it decided that India should aim at 20 per cent blending of ethanol in gasoline by 2025. The Cabinet Committee on Economic Affairs (CCEA) in its meeting dated on 30 December 2020 approved the proposal of the Department of Food and Public Distribution (DFPD) for providing financial assistance for producing ethanol from rice, wheat, barley, corn, sorghum, sugarcane, sugar beet, etc. Promptly, the DFPD announced an interest subvention scheme for such distilleries.

In the current sugar season 2020-21 (October-September), it is estimated that about 20 lakh tonnes of sugar will be diverted to ethanol. The expert committee has estimated that 684 crore litres of ethanol will be produced by the sugar industry by 2025-26. Thus, 60 lakh tonnes of surplus sugar can be expected to be diverted to produce ethanol.

Use of excess sugar for producing ethanol is desirable because India produces about 300-310 lakh tonnes of sugar, while the domestic demand is 250-260 lakh tonne. The diversion of sugar to ethanol can improve the viability of sugar mills and they would be able to pay cane due to farmers in time. However, in a ten-year horizon, the government policy should not be incentivising production of sugarcane and setting up new sugar mills, especially in water-deficient regions of India.

Sugarcane is a highly remunerative crop due to which farmers prefer it to other crops. In water-stressed Maharashtra, about 70 per cent irrigation water is used for sugarcane. Moreover, sugarcane is the only crop for which even the private sector has to pay a remunerative price. So, sugarcane farmers do not face the price risk which farmers growing other crops face.

In the last five years, while India was producing more than its domestic requirement, due to low global prices, export of sugar was not viable and the government had to provide subsidies in different forms to promote export of sugar.

It is a good policy to reduce production of sugar by diverting it to ethanol. However, due to various reasons, ethanol blending of only about 5 per cent was achieved in ethanol year 2019-20 (December to November). So, incentive to sugar mills to set up distilleries for manufacture of ethanol was a sound idea, even though the price of ethanol fixed by the government is higher than the global prices. In a way, this is also a subsidy to the sugar sector.

Also read: Lockdowns due to Covid spike could leave the world with either too much or too little sugar

A worrying calculation

Worryingly, the expert committee has estimated that India needs to produce 666 crore litres of ethanol from food grains by 2025-26 for which about 165 lakh tonnes of food grains are proposed to be utilised.

The expert committee has further estimated that damaged food grain availability is around 40 lakh tonnes currently. The source of this quantum of damaged food grains has not been given. In 2020-21, the FCI reported non-issuable food grains of only 1,850 tonnes while it issued 688.6 lakh tonnes of food grains. It comes to 0.003 per cent of food grains issued by the FCI. It is possible that some food grains stored by state agencies suffer damage due to poor storage, but it is highly unlikely that the quantum will be anywhere close to 40 lakh tonnes. The estimate of damaged food grains considered by the committee needs a sound explanation.

It has also noted that in 2020-21, approximately 20 lakh tonnes of maize is surplus. committee mentions that there would be sufficient rice in the central pool stock. The committee wrongly assumes that the entire quantity of rice, not used for issue under public distribution system, will be available for manufacture of ethanol. It projects that production of ethanol from grains will increase by about three times, from 258 crore litres in 2019-20 to 740 crore litres in 2025-26.

Similarly, the committee has completely ignored the requirement of maize by the poultry industry. Its potential for export when global prices are high (as they are now) has also not been considered. Moreover, there has been a shortage of maize in the 2018-19 and 2019-20 and India had to import maize.

Also read: FCI has highest rice, wheat stock since 2005. Modi govt continuing legacy of bad economics

A food crisis

The Global Hunger Index 2020 ranked India at 94 out of 107 countries. India’s ranking was lower than that of its neighbours like Bangladesh (75), Nepal (73), Myanmar (78) and Sri Lanka (64).

In a chronically undernourished country, use of food grains for ethanol is not only a bad policy, but it is also unethical. While there is a strong case to blend petrol with ethanol, use of food grains, especially sound, issuable under PDS grains, is a mockery of India’s poor. In the State of Working India Report 2021, the Azim Premji University finds that poverty in rural areas increased by 15 per cent and in urban areas by 20 per cent since the pandemic. This was even before the second wave of Covid caused further damage. The poor will take years to reach pre-pandemic levels of income. Any excessive food grains procured by the government should ideally be used to cover those who have fallen into poverty but do not have ration cards.

In any case, agro-ecology demands that the production of rice in high productivity regions in northwest India should go down over the next ten years. It may not leave any surplus for ethanol.

The Union government will be well-advised not to provide any incentive to grain-based distilleries. There is no case for issuing subsidised food grains from central pool stocks for manufacture of ethanol.

Hussain is Visiting Senior Fellow ICRIER. He retired as Union Agriculture Secretary. Mohapatra was Union Fertiliser and Rural Development Secretary. Views are personal.

(Edited by Neera Majumdar)

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