Informist, Friday, Nov. 8, 2024

By Pallavi Singhal and J. Navya Sruthi

MUMBAI – India's ambitious push to boost ethanol production for blending with petrol has sparked concerns about the country's ability to meet its surging maize demand. Experts are divided on the impact, with some warning that imports of maize may soar to 4 million tonnes in the ethanol supply year 2024-25 (Nov-Oct), while others predict minimal import needs due to a potential decline in demand for ethanol from maize. The government's own forecast is upbeat. It sees a substantial increase in domestic maize production to 40 million tonnes.

A government decree in December to cap sugarcane diversion for ethanol triggered a chain reaction and led to a surge in demand for maize from the ethanol sector, causing maize prices to shoot up to an all-time high of INR 2,650 per 100 kg in benchmark markets.

Furthermore, in January, the government raised the procurement price of ethanol made from corn to INR 71.86 per litre, from INR 66.16 per litre, encouraging a move away from sugarcane-based ethanol due to dwindling sugarcane surpluses as output of the crop was seen to be lower. During the sugar year 2023-24 (Oct-Sept), sugarcane production fell by 37.3 million tonnes to 453.2 million tonnes amid patchy rainfall conditions.

Last year's erratic monsoon had already affected maize output during the kharif season, with crop damage reported in key growing states. As maize prices rose, the government allowed duty-free imports of 498,900 tonnes of maize under the tariff-rate quota in June, a move aimed at mitigating food inflation by reducing import duties on maize. Under the tariff-rate quota, importers pay nil or lower duty.

This significantly altered the country's maize landscape, and it went from being a net exporter to a net importer of corn for the first time in decades. According to trade estimates, imports during Dec-Sept were over 900,000 tonnes.

FUEL FRENZY
This season, more ethanol will come from grain-based distilleries as they have bagged higher allocation than sugarcane-based units in 2024-25 (Nov-Oct). The distilleries have received orders for the supply of over 4.3 billion litres of ethanol in the current supply year, for which they will need about 11.3 million tonnes of maize. India produces about 380 litres of ethanol per tonne of maize. The country, according to trade sources, used about 7 million tonnes of maize to produce about 2.6 billion litres of ethanol last year.

The development comes as India pushes its ethanol blending programme further, with the government asking the NITI Aayog to prepare a roadmap for increasing ethanol blending to 25%, which may further increase Indian demand for maize.

THE MUDDLE
According to final crop estimates, India's maize production reached 37.7 million tonnes in the crop year 2023-24 (Jul-Jun). Additionally, trade estimates suggest the country imported an extra 1 million tonnes to supplement domestic supply, bringing the total maize availability to 38.7 million tonnes.

According to agricultural commodities expert G.K. Sood, the poultry industry used about 18 million tonnes of the total produce last year, while 13 million tonnes was used by the human/starch industry combined. The remaining 7 million tonnes (including the imported quantity) was used by the ethanol industry.

"With these numbers, even if production rises by 3 million tonnes, the increased allocation for ethanol production will require an additional 4 million tonnes of maize," said Sumit Gupta, chief executive officer of Asia business at McDonald Pelz Global Commodities LLC. "Thus, even if we discount the rising consumption of maize in poultry, which is growing by 9% on year, and starch/human consumption, which is growing by 5% on year, we will need to import 2 million tonnes."

Sood, however, sees imports going as high as 4 million tonnes. "Incremental supply of maize domestically is seen at 3 million tonnes. However, higher allocation for maize-based ethanol is 4 million tonnes. Furthermore, if we count poultry consumption rising by 2 million tonnes and human/starch by 1 million tonnes, imports reach an easy 4 million tonnes," he said.

OPPOSING VIEWS
However, not everyone agrees that imports will be necessary. Some industry experts argue that India can meet its maize requirement domestically. "With this year's maize production expected to reach 40 million tonnes, we have sufficient supply to meet the 25% requirement for ethanol production, eliminating the need for imports," said a senior management official at an ethanol plant, speaking on condition of anonymity.

The maize imports so far were to meet the demand of the starch sector as the government has not permitted ethanol plants to import maize, the official said. As most ethanol plants are situated in Uttar Pradesh, Bihar, and Punjab, importing maize would lead to transportation costs from ports to the plants, the official said. Otherwise, the distilleries can buy the grain at just INR 2,300 per 100 kg. In the case of the ethanol plants in southern India, the official said, new crop arrivals have already started in Karnataka and Madhya Pradesh.

The official said producing ethanol from maize is not profitable for distilleries as it costs more than to produce ethanol from cane-based feedstock. "The government has to increase the price of ethanol from maize to INR 74-75 per litre (from INR 71.86 per litre) to see a shift from sugar to maize," the official said. Last year, the government's cap on diversion of sugarcane and restriction on the use of broken rice had left ethanol distilleries with no choice but to use maize.

"Demand for maize for ethanol will fall because of greater availability of sugarcane," G. Chandrashekhar, a commodities expert, said. Last year, along with the additional demand for maize from the ethanol sector, there was existing demand from the domestic poultry and starch sectors. "Tight supply of corn or maize is actually impacting the cost of production for the poultry industry," Chandrashekhar said. "At higher prices, there is a demand growth slowdown as far as poultry is concerned."

However, "...for the next six months, the situation will ease as maize availability for the poultry industry is at more affordable prices", Chandrashekhar said. He was "positive" on growth in demand for maize from the poultry sector, and added that demand from the ethanol sector may fall due to the availability of more cane-based feedstock.

The quantity of maize imports will depend on the demand for maize from the poultry sector, Chandrashekhar said. However, the need for imports will be much less, he said. "Don’t compare Apr-Sept maize imports with the upcoming months as the picture is very different," he said.

GLOBAL AVAILABILITY
India's maize import capacity is limited to 2-3 million tonnes, according to industry experts, due to stringent regulations. The country only permits the import of maize that has not been genetically modified, and duty-free imports are restricted to Least Developed Countries. Historically, Myanmar has been India's primary source of corn imports, but its limited production capacity of 1.5-2 million tonnes constrains the supply.

Currently, maize attracts a basic import duty of 50% and other charges, taking the total to 60%. Moreover, sourcing non-modified corn from a limited number of countries poses a significant challenge, sparking fears of price spikes and availability issues.

According to Sood, with Ukraine being the biggest exporter of non-genetically-modified corn in the world, with an output of about 32.5 million tonnes in 2023-24 (Oct-Sept), global prices are bound to shoot up if India steps in to buy huge amounts. "India was an exporter of non-GM corn but has now turned into an importer," he said. "If India comes out to import 5 million tonnes, prices will shoot up."

The poultry sector is caught in a bind because of this situation, and has been urging the government to remove import duties on maize or lift the ban on genetically modified corn to alleviate feed costs. If neither happens, there could be huge destruction of demand for corn from the poultry sector, which may be forced to look for alternatives, said Sood. To mitigate these issues, the government may need to reconsider its corn import policy or slow down its ethanol blending programme. End

Edited by Rajeev Pai

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