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Informist, Thursday, Aug 29, 2024

 

By Taniva Singha Roy

 

MUMBAI – Maize is gaining an edge over sugarcane in the race to be the most popular raw material to produce ethanol and farmers in major cane-growing states are reserving part of their lands to produce maize due to higher profitability, experts said. The result is that the area under sugarcane has stagnated while that under maize has risen substantially.

 

Maize acreage across the country was up 7% at 8.7 mln ha as of Tuesday and sugarcane acreage was at 5.8 mln ha against 5.7 mln ha a year ago. In Maharashtra, one of the country's major sugarcane-growing states, maize acreage rose 22% to 1.1 mln ha in the current kharif season while that of sugarcane fell 28.4% to 193,572 ha as of Monday, according to the state agricultural department. In Karnataka, the area under maize rose 7% on year, while the area under sugarcane fell slightly by 0.3% as of Tuesday.

 

Sugarcane is a year-long crop, while maize takes six months to mature, and so the land is occupied for a shorter duration. Moreover, sugar is a heavily government-controlled commodity and farmers often do not get payment on time from mills, said Rahul Chauhan, director at IGrain India, an agri commodity research centre in Delhi.

 

On the other hand, for maize, farmers are getting a fixed minimum support price of 2,225 rupees per 100 kg, and the price for ethanol derived from maize is 71.86 rupees a litre for the ethanol supply year 2023-24 (Nov-Oct). The price for ethanol derived from sugarcane by-products is 65 rupees a litre. “The profit margin is much higher for maize production, which is making it more preferred by farmers,” Chauhan said.

 

Additionally, the market price of maize in Karnataka has risen to 2,850 rupees per 100 kg in August, from 2,500 rupees per 100 kg in July, and in Maharashtra it is 2,295 rupees per 100 kg, up from 2,248 rupees per 100 kg, while in Uttar Pradesh it is 2,238 rupees per 100 kg, up from 2,169 rupees, due to high demand for the crop from the poultry sector coupled with the demand for ethanol, said traders.

 

Sugar prices, on the other hand, have been on a slide since the past one month and have fallen by about 150 rupees per 100 kg to a range of 3,705-3,932 rupees per 100 kg across the country, said traders. Moreover, though the government has increased the fair and remunerative price for sugarcane by 25 rupees to 340 rupees per 100 kg for the sugar season 2024-25 (Oct-Sep), the minimum selling price for sugar has been stuck at 31 rupees per kg. This makes it difficult for mills to pay farmers and cane dues tend to accumulate, Chauhan said.

 

Some state governments like Uttar Pradesh are giving equipment for maize production to farmers at subsidised rates, to promote ethanol production from maize. This has also contributed to farmers shifting to maize cultivation, sources said.

 

It is apparent that grains will drive ethanol production growth over the medium term. After a relatively slow take-off, grain-based ethanol production capacities grew 30% on year in 2022-23 (Nov-Oct) to 5.1 bln ltr and could rise further to 6.5-7.5 bln ltr by 2025-26 or 2026-27, potentially contributing to 60% of the total ethanol demand for fuel, India Ratings and Research said in a release.

 

Citing data from the Indian Sugar Mills Association, Informist had earlier reported that for the first time, more ethanol is set to come from grain-based distilleries than from molasses. "Right now, ethanol from sugar and grain is on a par. But, going forward, grains will catch up in the third (May-Jul) and fourth quarter (Aug-Oct)," said Deepak Ballani, director general, India Sugar and Bio-Energy Manufacturers Association, said in June. Subsequent media reports indicate that ethanol from grains has exceeded that from sugarcane.

 

As of May 26, grain-based distilleries supplied 1.65 bln ltr to oil companies, only slightly higher than the 1.61 bln ltr from sugar-based distilleries. However, the allocation for the entire ethanol supply year is higher for grain at 4.16 bln ltr, against 2.31 bln ltr from sugar by-products, according to Indian Sugar Mills Association data accessed by Informist.

 

SUGAR PRICING AND DIVERSION

Amid concern over lower sugar production, in December, the government limited sugar diversion for ethanol output at 2 mln tn to ensure sufficient sugar availability in the country. During 2022-23 (Oct-Sep), mills diverted 3.8 mln tn of sugar for ethanol production.

 

The government is likely to announce its policy on ethanol production from molasses for 2024-25 (Nov-Oct) soon. It will announce the upper limit on sugar diversion for making ethanol and clarify if the restrictions imposed on molasses feedstock will be removed or extended.

 

The sugar industry has been demanding a hike in ethanol prices and an increase in the minimum selling price of sugar, citing the hike in fair prices of sugarcane. Fair and remunerative prices are paid by sugar mills to farmers on sugarcane purchases.

 

In February, the Cabinet Committee on Economic Affairs approved a hike of 25 rupees in the fair and remunerative price of sugarcane to 340 rupees per 100 kg for 2024-25 (Oct-Sep). Last year, it was raised by 10 rupees to 315 rupees per 100 kg.

 

However, given the feedstock integration and high correlation between input and product price movements, the profitability of cane-based ethanol is likely to remain more stable than that of grain-based ethanol, which remains susceptible to volatility in input prices, India Ratings and Research Director Khushbu Lakhotia said. With sugar production expected to be higher this year, whether the government removes restrictions on diversion of sugarcane for ethanol production, and whether that will reverse the shift in acreage are moot.  End

 

Edited by Rajeev Pai

 

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