Grain ethanol manufacturers seek up to 16% hike in procurement prices

Grain-based ethanol manufacturers have approached Prime Minister Narendra Modi and the Ministry of Petroleum and Natural Gas, urging them to promptly direct oil-marketing companies (OMCs) to raise the procurement price of ethanol produced from damaged foodgrain (DFG) and maize to Rs 69.54 per litre and Rs 76.8 per litre for Ethanol Supply Year (ESY) 2023–24, which began in November. This move aims to ensure the viability of consistent supplies.
 

In ESY 2022–23, the procurement price of ethanol produced from DFG, as fixed by OMCs, was Rs 64 per litre, and for maize, it was Rs 66.07 per litre. The demand to increase the procurement price also arises as ethanol from grain-based sources must primarily come from DFG and maize following the discontinuation of surplus rice supplies from the Food Corporation of India (FCI) at a fixed rate.
 

In India, the bulk of ethanol is currently produced from two sources: sugarcane and grains.
 

The demand comes at a time when the Centre has not yet announced the procurement price of ethanol produced from sugarcane, even though the season began in November.
 

In a letter to Prime Minister Narendra Modi and Petroleum Minister Hardeep Puri, the newly formed Grain Ethanol Manufacturers Association has called for the procurement prices to be raised based on the current open market landed cost of the feedstock (damaged foodgrain and maize). The letter also emphasises the need for a fair and remunerative price for grain ethanol to ensure viability and consistent supplies during ESY 2023–24.
 

The letter notes that in ESY 2023–24, OMCs have offered 2.9 billion litres of grain ethanol, with 54 per cent coming from DFG (essentially broken rice), 15 per cent from subsidies supplied by FCI, and 31 per cent from maize.
 

“This indicates the huge participation of the grain ethanol industry in the Centre’s ethanol blending programme. Grain-based ethanol plants are compelled to supply, even though the procurement price announced by OMCs is not conducive, given the prevailing high price of DFG and maize in the market,” the letter to the PM said.
 

For ESY 2023–24, OMCs have floated a tender for the supply of 8.25 billion litres of ethanol to achieve the targeted 15 per cent blending, with 2.9 billion litres coming from grain-based sources and the rest from sugarcane-based molasses.
 

Grain-based manufacturers state that they have already invested Rs 15,000 crore, which will be raised to Rs 30,000 crore by 2025, with production capacity increasing from 3.7 billion litres to 6.5 billion litres.
 

The grain-based ethanol players also highlight that sugarcane-based ethanol can be procured at a fixed price for the entire year, as rates are fixed by the government. However, when it comes to grain-based ethanol, prices vary daily and sometimes even hourly, depending on demand and supply.
 

“Hence, grain ethanol prices need a revision based on the current as well as forecasts for the entire year, which is not presently considered by the Ministry of Petroleum and also the OMCs,” the letter said.
 

In ESY 2022–23, OMCs twice raised the procurement price of ethanol made from DFG and maize.
 

In the last round, the price of ethanol produced from DFG and maize was raised by Rs 3.71 per litre, bringing the total procurement price increase in the 2022–23 supply year to Rs 8.46 per litre for DFG and Rs 9.72 per litre for maize for the remaining portion of the 2022–23 supply year that ended in October.
 

This final price included the interim relief announced on August 7, 2023.
 

The additional incentive was announced after the supply of surplus FCI rice for ethanol blending was stopped, threatening to jeopardise the entire programme.
 

After the last increase on August 22, the procurement price for ethanol produced from DFG for OMCs for the 2022–23 season was Rs 64 per litre, compared to Rs 55.54 fixed at the start of the season, while that from maize was Rs 66.07 per litre, up from Rs 56.34 at the start of the season.