Diverting food security rice stocks to ethanol production flies in the face of economics

It is selling a whopping 5.2 million tonnes of rice from its food security buffer stock this year to ethanol manufacturers at ₹22.50 per kg. The first tranche of 2.4 million tonnes has already gone to manufacturers, and it has now decided to release a further 2.8 million tonnes.

The government has advanced three justifications for the move. First, it argues that rice stocks held by the Food Corporation of India are well above the buffer stock requirement – currently, over 38 million tonnes against the norm of 13.5 million tonnes as of May 2025. 

Two, it claims that using rice for ethanol helps bleed excess stock, thereby opening up storage room and also preventing loss due to spoilage. 

The third and clinching argument is that blending ethanol with petrol cuts dependence on costly, imported fossil fuel. Petroleum and natural gas minister Hardeep Singh Puri said last month that India has already hit the target of blending 20% ethanol with petrol, nearly six years ahead of the 2030 target, and is now examining blending 5% ethanol with diesel. He also said this has led to a saving of ₹1.5 trillion in import bills.

Surplus stock argument

These arguments sound plausible, even logical at first glance, but do not stand up to a deeper look. Take the ‘surplus stock’ argument. True, stocks are above the mandated level, but that is more due to procurement and distribution inefficiencies. India’s creaky public distribution system, which supplies subsidised rice and wheat to the poor, is riddled with gaps and distortions. 

Besides, buffer stocks are just that–a buffer against unforeseen exigencies. Even Japan recently was forced to release 300,000 tonnes of rice due to public anger against shortages. With the vagaries of climate change, increasingly larger sections of the population are vulnerable to climate-related disasters.

It is not as if there are not enough takers. It is just that those who need it are unable to access it due to a lack of resources, a lack of documentation or simply a lack of coverage of the subsidised grain distribution system. 

India ranked 105 out of 127 countries in the World Hunger Index for 2024. Should a country with such a severe hunger and malnourishment problem be diverting rice to alcohol production?

The government has also said that only “damaged or broken” rice will be given for ethanol conversion. First of all, broken rice is not inedible, nor does it lack a market. In fact, in March this year, the government allowed 100 per cent export of broken rice stocks. India exported close to 4 million tonnes of broken rice to Africa and South East Asia last year. 

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If the government is unable to reach the grain to the poor and the hungry, it can at least export rice. Exports will fetch foreign exchange and raise farmer incomes. 

Even assuming that only grain unfit for human consumption is used, which there’s no way of checking, it’s not as if there is no market for that either. Damaged grain is an important – and cheap – input into poultry and animal feed. 

India has the world’s largest cattle population of over 300 million cows and buffaloes. In addition, it is the world’s third-largest egg producer and the fifth-largest chicken meat producer, with a population of over 850 million birds.

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There are also alternative sources for ethanol, that do not rely on food grain. A 2021 techno-economic study by the International Council on Clean Transportation found that with some viability gap funding, the cost of second-generation ethanol–produced from rice and wheat straw and sugarcane bagasse–matches India’s fixed ethanol price of ₹65.61 per litre. 

India produces a whopping 126 million tonnes of rice straw and over 113 million tonnes of wheat straw annually. Over the longer term, using India’s massive coastline to produce algae for ethanol production provides a biomass source which does not conflict with food requirements.

India needs to get serious about its hunger and nutrition challenge rather than disputing the methodologies of global studies such as the hunger index. It also needs to effectively pursue alternatives to ethanol generation for more efficient use of taxpayer money.

Diverting already subsidised grain to ethanol manufacturers at further subsidised prices flies in the face of both economic rationale and social justice.

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