India likely to miss ethanol blending target

By Pradeep Kumar Panda

Bhubaneswar, December 12: From the recent spate of policy actions centred on agricultural crops, two things (among many others) come out clear: (i) domestic food security is central to the government of India, even above other priorities including energy security; and that (ii) two years of consecutive shocks from climate (high temperatures and sub-optimal rains) have turned tables of a food surplus nation into one which is scratching to achieve self-sufficiency. In this brief article, we analyse recent government decision on ethanol and how El Niño and high temperatures may have derailed country’s E20 action plans, hopefully for a short period only.

In a letter to Indian sugar mills and distilleries, the Department of Food and Public Distribution (DFPD), which is the nodal agency for sugar policies in India, invoked provisions of the Essential Commodities Act, 1955 (ECA) to direct two changes: (i) ban use of sugarcane juice and syrup for ethanol production; and (ii) restrict ethanol produced from B-heavy molasses to already contracted quantities. These apply to ethanol supply year (ESY) 2023-24 (i.e., November 2023 to October 2024). Among other things, we deduce two things from this: (i) apart from grains, ethanol is mainly to come from the C-heavy molasses route in ESY 2023-24, and (ii) with smaller cane-based feedstock, ethanol blending performance this year is likely to fall below the levels of E12 in ESY 2022-23.

In case of B-heavy, the government has permitted the quantities already contracted by oil companies to continue to be supplied. In 2021-22, 2.36 billion litres of B-heavy based ethanol was supplied to oil companies. In 2022-23, this fell to 2.27 billion litres. In 2023-24, in light of a smaller sugarcane crop, quantities contracted by oil companies have fallen to 1.3 billion litres. The government has pegged the annual supplies from B-heavy to this quantity now.

To reduce country’s imported crude oil dependence, in 2018 the government released its national policy on biofuels. Later in 2021, NITI Aayog followed it up with a roadmap for achieving targets under the policy. Through the ensuing journeys of the two documents, as it stands today, the country aims to achieve 20% blending in its fuel oil by year 2025-26. This target is referred to as E20, which implies that by 2025, a litre of fuel oil we would buy for our vehicles is likely to have 200 ml of ethanol and 800 ml of petroleum in it.

As per NITI Aayog, to achieve E20, country is likely to need about 10.16 billion litres of ethanol annually. It projected that close to 50% of this ethanol is to be produced from sugarcane derivatives and the remaining half is to come from grains like rice released by the Food Corporation of India (FCI), broken rice from the open market, and maize.  In ESY 2022-23, the country achieved E12 (12% blending) which was the target for the year.

India produced about 4.94 billion litres of ethanol of which about 75% came from sugarcane-based sources, 15% from rice released by FCI, 4% from maize and the remaining 5% came from damaged food grains, including broken rice from open market. Within cane-based sources, 63% came from B-heavy molasses and 35% from juice. Sugarcane based ethanol production was projected to remain the mainstay of the ethanol production in the country. It was also envisaged that grain-based ethanol production would rise.

Rate of ethanol blending in India

Indian sugarcane crop in 2023-24 has suffered on account of volatile monsoon rains. Parts of Maharashtra and Karnataka have suffered significant losses in cane yields and acreages. As per the government, sugarcane production in 2023-24 is estimated at 435 million metric tonnes (MMTs) which is about 56 MMTs lower than last year’s 491 MMTs. This implies that compared to last year, country’s sucrose production is likely to fall by 6 MMTs (at 11% recovery rate).

In the current year, opening stocks of sugar on October 1, 2023 were about 5.7 MMTs and with production shortfall of 6 MMTs, the supply is likely to fall short of demand (about 29 MMTs) by about 2 MMTs in the current year, 2023-24. Not surprisingly, the government banned sugar exports early in the year. By manoeuvring the ethanol production away from sugarcane-derivatives, the government has been able to reduce sucrose diversion to ethanol by about 2 MMTs (calculated as back-of-envelope calculations). This may imply that the country could see through the next year with similar levels of inter-year stocks.

For ESY 2023-24, the country had aimed to achieve ethanol blending target of E15. It appears inevitable that the performance will fall short of this target. With lower availability of molasses-based feedstock, and poorer availability of crops like rice and maize, maintaining current year’s E12 also appears to be a challenge in ESY 2023-24.

However, the ethanol blending program is important in the larger scheme of things. While the country works to develop its crop’s resilience to droughts and pests, the need for improvement in crop yields, especially for maize, is absolutely urgent. The commercial production of second generation ethanol at viable rates is yet to be tested. If it is successful it can reduce stubble burning incidents.

Every litre of ethanol needs 2,860 litres of water. And yet, India wants to produce a lot more of it. While India is making a push for ethanol-blended petrol, by incentivising sugarcane-derived ethanol, concerns remain about the water-guzzling nature of the sugarcane and fair remuneration for farmers.

On November 2, the Centre, as part of its Ethanol Blending Programme, approved a higher price for ethanol that is derived from different sugarcane-based raw materials. This was done for the ethanol supply year from December 1 to October 31, 2023, which coincides with the current sugar season. The Centre, in a press release, stated that the higher price of sugarcane-derived ethanol for oil marketing companies is a bid to benefit distilleries and will “help in early payment to cane farmers”. The central government’s Cabinet committee on economic affairs approved this higher price.

India is keen to reduce its dependence on imported crude oil, and ethanol-blended petrol is part of its strategy. In addition, ethanol, a biofuel, is a cleaner alternative to fossil fuels. Also, as it is derived from sugar and starch-rich agricultural byproducts, it helps provide an additional use of these products and boosts incomes for farmers.

The National Biofuel Policy of 2018 gives impetus to increase ethanol production from sugar molasses, sugarcane juice, sugar-containing materials (sugar beet, sweet sorghum) and starch-containing materials (corn, cassava, damaged food grains such as wheat, broken rice, rotten potatoes) that are unfit for human consumption. Currently, India has reached a 10% blending target, with 450 crore (4.5 billion) litres of ethanol already being produced. It aspires to reach a 20% by 2025, for which it will need to produce 1,000 crore litres of ethanol.

In addition, India’s consumer affairs, food and public distribution ministry has prioritised the availability of 275 lakh metric tonnes of sugar for domestic consumption, over 50 lakh metric tonnes of sugar for diversion to ethanol production, and over 60 lakh metric tonnes for exports.

Earlier in September, in an interview with the Indian publication, the Economic Times, Atul Chaturvedi, chairman of Shree Renuka Sugars, said that India is now a “sugar surplus” country, and “cyclicality is a thing of the past”. Shree Renuka Sugars is one of the largest sugar producers and refiners in the country. This means that the sugarcane crop has a growth cycle of 12-14 months, followed by five-six months of crushing in factories. However, with a focus on ethanol production, factories will be able to run the entire year.

India is one of the largest producers of sugarcane in the world, with Maharashtra, Uttar Pradesh and Karnataka being the major sugar-producing states. There are over 700 sugar mills in the country, with a capacity to crush 340 lakh metric tonnes of sugar and an annual turnover of Rs 80,000 crore. The sugar industry provides livelihood for nearly five crore (50 million) people.

This year, Maharashtra, which has over 200 sugar mills, lent 14.8 lakh hectares of its land to sugarcane farming, Shekar Gaikwad, the state’s sugar commissioner, told Mongabay-India, adding that Maharashtra, by itself is the third largest producer of sugarcane in the world, after India and Brazil. “As a stand-alone state, it is way ahead of Thailand, Australia, and all the countries of the European Union.” Gaikwad also said that last year, India exported 110 lakh metric tonnes of sugar, of which, 70 lakh metric tonnes came from Maharashtra. This year, Maharashtra is slated to produce 138 lakh tonnes of sugar, of which 12 lakh tonnes will be diverted towards ethanol production, he said.

Sugarcane is also a water guzzler. According to a March 2020 report by Niti Aayog, one kg of sugar needs 1,500 kg -2,000 kg of water. A large part of Maharashtra, however, falls under a drought-prone, rain shadow area.

The cash crop’s growth cycle lasts for 12-15 months, from the time the saplings are sown till the time the crop is harvested. Farmers in Maharashtra told Mongabay-India that, on average, one acre of land produces 60 tonnes-80 tonnes of sugarcane and needs nine lakh litres of water twice a month. This monthly irrigation cycle depends on the region, the topography, the soil, and the availability of water and electricity. So, if the entire growth cycle of sugarcane is 12-15 months, then one acre of land would need nearly 216 lakh litres of water per annual growth cycle. In effect, a tonne of sugarcane could soak up 300000 (3 lakh) litres of water in a growth cycle.

The harvested cane is taken to the factory, where it is crushed and separated into sugarcane juice, molasses, filter cake, and bagasse. Sugarcane juice is used to make sugar, bagasse is used in electricity generation and filter cake is used as a fertiliser. Molasses, a by-product of sugarcane, is usually used in ethanol production. Two types of molasses are used for ethanol production: molasses-C and molasses-B. Molasses-C is a final by-product from sugar processing with no economically extractable sugar remaining, and molasses-B is an intermediate by-product with some extractable sugar remaining.

NITI Aayog’s report explains that a litre of ethanol produced from sugarcane consumes at least 2,860 litres of water in the process. A July 2020 research paper titled “Water-food-energy challenges in India: political economy of the sugar industry” published in Environmental Research Letters, states that India’s aspiration of 20% ethanol blending by 2025, if dependent on molasses, will require 1320 million tonnes of sugarcane, 19 million hectares of additional land and 348 billion cubic metres of additional water. With the increased production of sugarcane, there would be 161 million tonnes of extra sugar production. The paper, by researchers at Stanford University in the United States, recommends using only sugarcane juice for ethanol production (versus directly from molasses), which would not require additional water and land resources.

Despite the water-guzzling nature of the crop, farmers prefer to grow sugarcane. One of the main reasons for it is that it is the only crop that offers a guaranteed Fair and Remunerative Price. Fair and Remunerative Price is a price set by the state government that sugar mills are mandated to pay the farmers for the cane obtained from them. The Sugar Control Order of 1966 regulates the payment of Fair and Remunerative Price across the nation. It also requires the mills to pay the farmers within 14 days of the cane’s delivery. Earlier in February, the Maharashtra government allowed sugar mills to pay farmers in two instalments – the first instalment within 14 days of delivery, and the second based on the final recovery of the product. However, the farmers are not happy with this latest decision.

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