Rising maize diversion for ethanol production may fuel food inflation.
Pune: Latest ethanol tender floated by oil marketing companies OMCs for E20 petrol has made maize primary ingredient. Tender has received offers of 59% maize, a 37% year-on-year jump in total quantity, sparking concerns that large-scale diversion could boost animal feed costs and fuel inflation in eggs and chicken.
This comes despite government cutting price of maize-based ethanol by Rs 3 per litre to Rs 66.07 from Rs 71.86. Maize prices have already doubled YoY to Rs 27-28 per kg retail vs Rs 12-14 in 2019, while kharif production projected to decline 15%, worsening supply constraints.
Maize is key ingredient: accounts for 60% of poultry feed, 55-60% of India's total maize consumption goes to poultry, main raw material of starch industry for processed food and paper.
In ESY 2025-26, maize ethanol offers had 45% share of allocated volume, actual supply till Sep 2026 about 41%. Grain-based ethanol accounted for 72% of total supplies, sugar-based 28%. For ESY 2026-27, OMCs floated tender for 11 billion litres, ethanol makers offered 19.35 billion litres, 1.8x requirement.
Why shift: On Oct 16 government directed OMCs to reduce sugar diversion to zero, citing concerns over domestic sugar availability after drought hit sugarcane. Sugarcane juice, sugar syrup and B-heavy molasses banned, only C-heavy molasses remains eligible, will yield only about 0.5 bn litres vs 2.6 bn expected. FCI surplus rice capped at 7.2 million tonnes, equivalent 324 crore litres ethanol at 450 litres per tonne, plus damaged grains max 1.25 bn litres.
Gap math: After rice 3.24 bn, damaged grains 1.25 bn, C-molasses 0.5 bn, still leaves shortfall around 6 bn litres. At 380 litres per tonne, that requires about 16 million tonnes maize vs 12.8 mt used in 2024-25. Total maize demand across feed, ethanol, starch could hit 55.7 mt in 2027 vs 49-50 mt in 2026. Industry estimates ethanol may need 16 mt next year, up 22% YoY.
Use surged from 0.8 mt in 2022-23 to estimated 12.8 mt in 2024-25, a third of India's total maize production now for fuel, making India net maize importer.
Impact: Feed is 65-70% of poultry cost. Egg production cost up from Rs 2.50-2.60 to Rs 4-4.50, retail egg from Rs 5 to Rs 8-10. Sujit Patil Sangli farmer says maize now Rs 32 off-season. NECC warns survival risk unless maize or ethanol imports bridge gap. Starch industry also hit, milk price hike linked.
Government counter: cut maize ethanol price, keep damaged grain ethanol at Rs 64, rice ethanol at Rs 60.32, C-heavy at Rs 57.97, hoping to disincentivise overbidding. GEMA says cut hurts maize distillers competitiveness.
GRAIN report warns 90% biofuels from food crops, India ranks 102 of 123 in Global Hunger Index, bioethanol could consume 7% of global cereals by 2035.
Analysis:
India hit E20 target in ESY 2025-26 early, success now creates food vs fuel dilemma classic policy overshoot. Banning sugar for ethanol solves sugar inflation but pushes problem to maize, where poultry and dairy already reeling from fodder inflation behind milk price hike Nov 12. With El Nino threatening lower rabi, 15% kharif drop could coincide with highest ever ethanol maize pull. Cutting ethanol price by Rs 3 is mild brake, not enough when maize price doubled. Without imports or revising blending target, egg, chicken, starch prices will keep climbing, hitting low-income protein access most.
Tags: #Maize #Ethanol #E20 #FoodInflation #Poultry #ESY2027 #OMC #FCI #GRAIN #FuelVsFood