Feedstock economics and policy implications for India’s ethanol sector

By Pune Media On Feb 15, 2025 29

This analysis examines the Indian ethanol production landscape for 2024-25, considering government policies, feedstock economics, and crucial additional factors that shape the market’s dynamics. The government’s emphasis on ethanol blending necessitates a comprehensive understanding of these elements for all stakeholders.

Government Pricing Structure:

The government’s ethanol procurement prices per litre aim to diversify feedstock use and ensure a stable supply:

Sugarcane Juice: ₹65.61
B-Heavy Molasses: ₹60.73
C-Heavy Molasses: ₹57.97
Maize: ₹66.07
Broken Rice: ₹64.00
FCI Rice: ₹58.50

Comparative feedstock economics

Profitability depends on feedstock cost, ethanol yield, and byproduct revenue. The following table summarises key economic indicators :

Sugarcane juice

Ethanol Yield: 66 L/tonne
Revenue: ₹4,330
Feedstock Cost: ₹4,500
Byproduct Revenue: ₹500
Gross Profit: ₹330

B-heavy molasses

Ethanol Yield: 285 L/tonne
Revenue: ₹17,308
Feedstock Cost: ₹13,000
Byproduct Revenue: ₹1,000
Gross Profit: ₹5,308

C-heavy molasses

Ethanol Yield: 260 L/tonne
Revenue: ₹15,072
Feedstock Cost: ₹11,000
Byproduct Revenue: ₹60
Gross Profit: ₹4,132

Maize

Ethanol Yield: 400 L/tonne
Revenue: ₹26,428
Feedstock Cost: ₹24,000
Byproduct Revenue: ₹3,920
Gross Profit: ₹6,348

Broken rice

Ethanol Yield: 420 L/tonne
Revenue: ₹26,880
Feedstock Cost: ₹28,000
Byproduct Revenue: ₹3,240
Gross Profit: ₹2,120

FCI rice

Ethanol Yield: 450 L/tonne
Revenue: ₹26,325
Feedstock Cost: ₹22,500
Byproduct Revenue: ₹3,240
Gross Profit: ₹7,065

The Crucial Role of Byproduct Economics:

Byproduct revenue, primarily from DDGS, is a key driver of profitability in grain-based ethanol production.

Maize DDGS: A high DDGS yield (280 kg/tonne) and a market value of ₹14/kg result in significant byproduct revenue (₹3,920/tonne), offsetting the higher maize feedstock cost.
Rice DDGS (FCI & Broken): While the DDGS yield is lower (180 kg/tonne), a premium market price of ₹18/kg generates substantial revenue (₹3,240/tonne), making rice-based ethanol highly competitive.

The substantial contribution of byproduct revenue is a game-changer for grain-based ethanol, ensuring profitability even with relatively higher feedstock expenses. The government’s focus on FCI rice and maize aligns with their cost-effectiveness and scalability.

Key insights & additional considerations:

Sugarcane juice: Unprofitable due to high feedstock costs, suggesting declining competitiveness with rising sugarcane prices (FRP).
Molasses (B-Heavy & C-Heavy): Profitable but limited availability poses scalability challenges for meeting long-term blending targets.
Grain-based ethanol (Maize & Rice): Emerges as the most promising avenue.
Maize: High ethanol yield and DDGS revenue drive profitability.
FCI Rice: Lowest cost and premium DDGS pricing make it the most profitable. Broken rice also offers a positive margin.
Byproduct economics (DDGS): Crucial for grain-based ethanol profitability. High DDGS yields from maize and premium pricing for rice DDGS significantly enhance revenue.
Policy risks: The ethanol sector is susceptible to policy changes. Alterations in pricing, blending mandates, or feedstock priorities could drastically impact profitability and investment. For example, changes in the government’s stance on FCI rice usage or ethanol procurement prices could have significant consequences.
Feedstock availability and price volatility: Agricultural commodity prices are inherently volatile. Unpredictable spikes in maize or rice prices could compress ethanol producer margins. Molasses availability is also subject to sugarcane production fluctuations.
Technological advancements: R&D in ethanol production technologies could lead to improved yields, lower costs, and the use of new feedstocks. While not yet commercially viable in India, advancements in cellulosic ethanol could eventually diversify the feedstock base.
Environmental considerations: A comprehensive assessment of the environmental impact of different feedstocks is crucial, including water usage, greenhouse gas emissions, and land use changes. The long-term sustainability of relying heavily on grain-based ethanol, particularly concerning food security, requires careful consideration.
Demand projections: Accurate demand forecasting, considering vehicle sales, fuel efficiency, and consumer preferences, is vital for investment planning. The growth trajectory of the ethanol industry is directly tied to the pace of ethanol blending in petrol.
Infrastructure and logistics: Efficient transportation and storage infrastructure are essential for a functional ethanol supply chain. Logistical bottlenecks can increase costs and limit market access, negatively impacting both producers and consumers.

Conclusion

India’s ethanol sector is evolving rapidly. Grain-based feedstocks, particularly maize and FCI rice, are positioned to play a crucial role in achieving blending targets. However, navigating policy risks, feedstock price volatility, and logistical challenges will be essential. A holistic approach, incorporating technological advancements, environmental considerations, and accurate demand projections, will be crucial for the sustainable growth and success of the Indian ethanol industry.

(The author is Managing Director of Samarth SSK Ltd and Co-Chairperson of the Sugar Bioenergy Forum (SBF) under the Indian Federation of Green Energy.)

Published on February 15, 2025

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