Can grains, maize ethanol fill sugarcane juice void in blending programme?

The ethanol blending programme is now all set to get delayed by a few years, with the sugar situation not looking very encouraging for the next few years

The Centre’s decision on December 7 to stop the production of ethanol from sugarcane juice and syrup in the 2023-24 supply year, which started in November, has put the sector and the blending programme in a quandary, with several commentators questioning whether the target of 20 per cent ethanol blend with petrol by 2025 can be met.

To achieve 20 per cent by 2025, around 15 per cent ethanol needs to be doped with petrol in the 2023-24 supply year, but most experts say after sugarcane juice and syrup are taken away from the matrix (sugarcane juice has emerged as a big source of ethanol for the past few years), blending will not even touch 10 per cent in 2023-24.

The ethanol-blending programme is now set to be delayed by a few years, with the sugar situation not looking encouraging for the next few years.

However, the Centre, after a strong protest from sugar companies, eased some of the ban conditions and allowed the diversion of 1.7 million tonnes of sugar for making ethanol in the 2023-24 supply year as against the earlier 4 million tonnes that was planned (this will help produce 1.62-1.72 billion litres of ethanol).

Some experts say this is a small concession, given that ethanol equivalent to around 2.2 million tonnes of sugar was in the process of being produced by mills.

The ban is expected to affect the profitability of sugar companies for the next six-eight months.

Research firm India Ratings, in a recent research note, said the ebitda (earnings before interest, tax, depreciation, and amortisation) of sugar companies was likely to be 5-15 per cent lower than the earlier forecasts for FY24 and FY25, with strong sugar prices cushioning the fall emanating from lower distillery ebitda.

“While India’s ethanol production is likely to fall around 20 per cent year-on-year in the 2023-24 supply year due to the ban, the impact on companies would vary, depending on the proportion of cane juice-based ethanol in the overall mix,” the report said.

It added the impact of the fall on the sale of ethanol would be spread across 2HFY24-1HFY25, with 4QFY24 and 1QFY25 likely to be the most affected quarters, given the fact that cane juice-based ethanol is mostly sold in the crushing season.

“Companies with a lower proportion of cane juice in the ethanol mix will be better placed in the near term,” it added.

While the fate of the programme looks uncertain, talks are being held to revive it by improving the share of ethanol produced from rice supplied by Food Corporation of India (FCI), and maize.

According to industry experts, of the 8.25 billion litres of the ethanol supply tender opened by oil-marketing companies, bids equivalent to 5.62 billion litres were received in the first offer (around 69 per cent of the tendered quantity).

Of the 5.62 billion litres, around 2.69 billion litres of ethanol was to be supplied by the sugarcane industry while the balance of 2.92 billion litres was to come from grains.

For sugarcane-based molasses, around 1.35 billion litres would have come from sugarcane juice and 1.30 billion litres from B-heavy molasses. A very small quantity, of 0.04 billion litres, will come from C-heavy molasses.

Now, with ethanol from sugarcane juice out of the question, the burden of ensuring that the blending programme runs smoothly will fall either on grains or B- or C-heavy molasses.

Ethanol is produced largely from sugarcane-based molasses or grain-based sources as feedstock in India.

In sugarcane, it is either through sugarcane juice or syrup, and then B-heavy molasses and C-heavy molasses.

There is a different procurement price for ethanol produced from each source.

For grains to fill some of the void left by sugarcane juice, experts said 3.4-4 million tonnes of either rice or maize is required.

Of this, estimates say the proportion of rice and maize will have to be around 1.9 million tonnes of maize and 1.6 million tonnes of rice.

FCI, as of December 1, 2023, has rice stocks of around 43.56 million tonnes (this includes unmilled paddy lying with the millers).

Allocating 3.4-4 million tonnes of rice for ethanol from these vast stocks is possible.

This is more so when the required stocks of rice in the country are five times the buffer required on January 1 each year.

The second option is maize, in whose case several industry bodies are requesting the government to raise the price at which OMCs procure the ethanol produced from it.

The Grains Ethanol Manufacturers Association (GEMA), in a representation made to the Prime Minister a few weeks ago, had urged him to direct the OMCs to raise the procurement price of ethanol produced from damaged foodgrains and maize to Rs 69.54 per litre and Rs 76.80 per litre, respectively, for the 2023-24 ethanol supply year to ensure the viability of consistent supplies.

In the 2022-23 ethanol supply year, the procurement price of ethanol produced from damaged foodgrains fixed by the OMCs is Rs 64 per litre, and that from maize is Rs 66.07 per litre.

The GEMA also wants both Nafed and the National Cooperative Consumers’ Federation to raise the supply of subsidised maize (to distilleries) to 1-1.5 million tonnes. This was likely 100,000 tonnes for each.

It wants the price at which maize is being supplied to distilleries to be just the minimum support price of Rs 20.90 per kg and not more.

How much of these would be fulfilled only time will tell.