From shortage to surplus: India pours record rice crop into ethanol

Reuters

4 hours ago

MUMBAI, June 26 (Reuters) - India is allocating record rice volumes for ethanol production as it struggles with unprecedented inventories that are likely to swell further with the arrival of the new season crop, a reversal from earlier shortages that led to export curbs.
Turning more rice to ethanol is helping to reduce rice stocks in the world's biggest producer and exporter of the grain and keeping India's ambitious ethanol blending programme on track despite a drop in supplies of traditional feedstock sugar cane.
In March, India removed the last of roughly two years of restrictions on rice exports, which had been prompted by poor rains that curtailed production. This year's ample monsoon rains are poised to deliver an abundant harvest.
"Our top priority is making sure we have enough food," a senior government official told Reuters, declining to be named because he was not authorised to speak with media.
"But since we have way more rice than we actually need for that, we've decided to use some of it for ethanol production," the official said.
The state-run Food Corporation of India (FCI) has allocated a record 5.2 million metric tons of rice for ethanol, equivalent to nearly 9% of global rice shipments in the 2024/25 marketing year ending in June. In the previous year, less than 3,000 tons of FCI rice went into ethanol.
FCI buys nearly half of India's rice crop and currently has reserves, including unmilled paddy, of a record 59.5 million metric tons on June 1, far exceeding the government's target of 13.5 million tons for July 1.
The availability of rice for ethanol has taken pressure off corn prices, which jumped to record high last years, forcing record imports by India.
Grain-based distilleries use corn, rice and damaged food grains as feedstock, switching between them depending on price.
India, the No.3 oil importer and consumer of petroleum products, aims to increase the blending of ethanol into gasoline to 20% by 2025/26. Last month, it nearly hit that target, reaching 19.8% ethanol, thanks to plentiful rice.
The 20% goal had appeared to be beyond reach when sugarcane supplies, which accounted for 80% of ethanol feedstock until three years ago, tumbled because of drought in 2023, forcing the world's biggest consumer of the sweetener to sharply reduce diversion of sugar for ethanol.
Last year, India's gasoline included 14.6% ethanol.
Even more rice will be used for ethanol if the government either lowers rice prices or increases the ethanol buying price, said Arushi Jain, joint secretary at the Grain Ethanol Manufacturers Association.
The FCI is selling rice at 22,500 Indian rupees ($262.19) per ton, while oil marketing companies are procuring rice-based ethanol at 58.5 rupees per litre, which doesn't provide enough margin to ramp up rice-based ethanol production even further, said Akshay Modi, managing director at Modi Naturals Ltd, an ethanol manufacturer.
FCI stocks could rise further as India is likely to harvest a bumper crop from October, said B.V. Krishna Rao, president of the Rice Exporters Association.
India can increase exports only so much, said Rao, as it already accounts for more than 40% of global rice shipments.
Since removing export curbs, India has been aggressively exporting rice, with shipments likely to rise nearly 25% to a record 22.5 million tons in the 2025 calendar year, denting exports of rivals including Thailand and Vietnam.
India harvested a record 146.1 million tons of rice this crop year ending in June,
far surpassing local demand of 120.7 million tons, according the Food and Agriculture Organization.
Rising stockpiles will force India to allocate even more rice for ethanol production next marketing year, said Himanshu Agrawal, executive director at rice exporter Satyam Balajee.
"The government's going to have a hard time offloading all that rice they bought from farmers," said Agrawal.
($1 = 85.8140 Indian rupees)