Ethanol in India is made from sugarcane, maize, damaged food grains, and rice. When these crops are diverted from the food chain to fuel production, it affects supply, and supply affects prices. This article examines the food-vs-fuel trade-off that underpins the E20 mandate — what the data shows, what the government says, and what consumers pay.
Where India’s ethanol comes from
India’s ethanol supply programme sources ethanol from multiple agricultural feedstocks. The mix has shifted significantly as blending targets increased:
| Feedstock | Share of ethanol supply (approx.) | Food chain impact |
|---|---|---|
| C-heavy molasses | ~30% | Low — byproduct after sugar extraction |
| B-heavy molasses | ~25% | Moderate — diverts some sugar output |
| Sugarcane juice (direct) | ~15% | High — sugarcane goes to ethanol instead of sugar |
| Maize (corn) | ~20% and growing | High — diverts grain from animal feed and food processing |
| Damaged/surplus food grains (rice) | ~10% | Moderate to high — depends on actual surplus vs diversion |
The key shift: as E20 demands more ethanol than molasses alone can supply, an increasing share comes from direct grain and sugarcane juice. These are not waste products; they are food.
The sugar connection
India is the world’s second-largest sugar producer (after Brazil). The sugar industry has historically faced a boom-bust cycle: surplus years crash prices and bankrupt mills; deficit years spike consumer prices. The ethanol programme was partly designed to give sugar mills a guaranteed alternative revenue stream.
This works for the mills. The trade-off for consumers:
- Sugar diversion: When mills convert sugarcane juice directly to ethanol instead of sugar, domestic sugar production falls. In ESY 2023–24, India’s sugar production dropped to approximately 32 million tonnes from 36 million tonnes the previous year. The government temporarily restricted sugar exports and banned direct sugarcane-to-ethanol conversion before partially reversing the ban.
- Sugar prices: Retail sugar prices in India rose from ₹38–40/kg in 2022 to ₹42–48/kg in 2024–25. Multiple factors contributed, but ethanol diversion is one of them.
- Export restrictions: India went from being a sugar exporter to restricting exports, partly because domestic supply tightened as ethanol demand grew. This reduces forex earnings from sugar exports while the government claims forex savings from reduced crude imports.
The maize problem
Maize-based ethanol has grown rapidly, particularly in states without a strong sugarcane base. The government has encouraged maize ethanol by offering the highest procurement price (₹71.86/litre). The downstream effects:
- Poultry feed costs: Maize is the primary ingredient in poultry feed (60–70 percent of feed composition). Diversion of maize to ethanol has contributed to poultry feed price increases, which in turn raise chicken and egg prices. The poultry industry has flagged this concern publicly.
- Starch industry: Maize is also used in starch, corn syrup, and food processing. Competition from ethanol distilleries for maize supply affects these industries.
- Regional price spikes: In states like Bihar, Madhya Pradesh, and Karnataka where new maize-based distilleries have come up, local maize prices have seen sharper increases than the national average.
Rice-to-ethanol: the FCI connection
India’s Food Corporation of India (FCI) holds surplus rice stocks from the public distribution system. The government has allowed conversion of surplus and damaged rice to ethanol. On the surface, this uses grain that would otherwise go to waste.
The complications:
- The definition of “surplus” is elastic. In years of normal or low production, diverting rice to ethanol reduces the buffer stock available for welfare distribution and price stabilisation.
- FCI rice is procured at minimum support price (MSP) with taxpayer money. Converting it to ethanol means the subsidy intended for food security is effectively redirected to fuel production.
- In 2023, the government suspended rice-to-ethanol conversion after poor kharif season rainfall raised concerns about food stocks, then partially resumed it. The on-off policy reflects the underlying tension.
What the government says
The official position is that ethanol production uses surplus and waste products that do not compete with food supply. The NITI Aayog’s roadmap for ethanol blending emphasises:
- C-heavy molasses is a byproduct, not a food diversion.
- Damaged food grains would go to waste anyway.
- Maize is being grown on additional acreage, not diverted from food production.
- Second-generation (cellulosic) ethanol from crop residue will reduce dependence on food crops.
These claims are partially true for C-heavy molasses and genuinely damaged grain. They are less convincing for B-heavy molasses (which diverts sugar), direct sugarcane juice, and maize grown on land that could produce other food crops. Second-generation ethanol remains negligible in actual production volumes as of 2026.
The global lesson
The food-vs-fuel debate is not new. The United States’ corn ethanol programme has been criticised for decades for inflating corn prices, affecting meat and processed food costs, and encouraging monoculture farming. A 2008 World Bank study estimated that biofuel mandates contributed to a 70–75 percent increase in global food commodity prices during the 2006–08 food crisis, though this figure has been debated.
India’s situation carries additional risk: a larger proportion of the population spends a higher share of income on food. Even small food price increases affect millions of families at the margin of food security.
Measuring the impact
It is difficult to isolate E20’s contribution to food prices because multiple factors (monsoon, global commodity prices, input costs, government procurement policies) all move prices simultaneously. What is factually clear:
- Ethanol demand for blending has increased demand for sugarcane, maize, and rice.
- Increased demand for any commodity, with supply held constant, raises its price.
- The direction of the effect is unambiguous, even if the magnitude is debatable.
The E20 mandate does not exist in a vacuum. Every litre of ethanol produced from sugarcane juice, maize, or rice is a litre not produced from food or feed. The forex savings at the petrol pump come with a cost at the grocery store, the poultry farm, and the sugar counter. Whether that trade-off is worthwhile is a policy judgment. That the trade-off exists is a fact.