Steady price of rice for making ethanol does little to aid India business: sources

New Delhi — India's move to keep rice prices unchanged is not enough to support ethanol production in the country, as prices still remain unviable for business, market sources told S&P Global Platts May 5.

This is expected to hinder India's long-term plans of achieving desired blending rates of fuel-grade ethanol with gasoline, the sources said.

In an effort to reduce the country's dependence on oil imports, India has set a 10% blending target of fuel-grade ethanol with gasoline, to be achieved by 2022, and 20% blending rates by 2025.

Majority of the feedstock for ethanol production in India comes from sugar. But as part of its plan to widen the feedstock options and meet the required blending targets, India has allowed to clear additional stocks of rice and corn from its state inventories.

For the current ethanol supply year that ends in November, the blending target has been set at 8.5% and the requirement of ethanol is seen at 3.3 billion liters. India, so far, has been able to achieve blending up to 7%, market sources said.

In 2020, India allowed to use excess food grain from its inventories, particularly rice and corn, to make ethanol instead of just diverting sugarcane for that.

"It seemed that the blending targets could not be achieved only from diverting sugarcane," an official with the agency said.

The Indian government said May 3, it is keeping the price at which it offers excess rice to ethanol makers, unchanged at Rupees 20,000/mt ($270.58/mt).

"The idea to keep the price steady was to ensure that adequate supply of rice is available," an official with the Food Corp. of India, or FCI, told Platts.

Another reason for retaining the previous price was to clear additional rice stock from its granaries, a second official said. At the beginning of April, the FCI had 29.1 million mt as against the buffer requirement of 13.6 million mt at the start of the quarter.

Price still untenable?

However, the agency so far has not been able to offload enough rice volumes for ethanol purpose as the price is still seen unfeasible, an official added.

"Even after the government allowed making of ethanol from corn and rice, it is difficult as we do not have much surplus corn, while the government's selling price for rice is higher than acceptable," he said.

The feasible amount to procure rice is still around Rupees 16-17 per kg and the government's price of Rupee 20 per kg is unviable, another ethanol maker said.

For the 2021-22 ethanol supply year that starts in December, ethanol requirement is seen at 4.0 billion liters under the 10% target.

The Indian government procures the ethanol, produced from grains and sugarcane, through oil manufacturing companies to achieve the blending target.

Currently, the government pays Rupees 56.87 per liter for ethanol produced from rice. It also procures ethanol manufactured from corn at Rupees 51.55 per liter.

However, the country may take a long time to achieve its ethanol blending targets set for 2025 as the output of the alternative fuel from grains is still on a lower side.

"The output from grains is still lower as the availability of cheap raw material is limited," an official with an ethanol manufacturing firm said.