Why India’s ethanol push is not benefitting farmers

Ethanol is a biofuel used by blending it with petrol. India previously made much of its ethanol from molasses, a by-product of sugar manufacturing. Government policy later expanded eligible raw materials to food crops, including sugarcane, maize, and rice.

Distilleries process these crops to produce ethanol. Sugarcane can supply ethanol directly or through molasses. Maize and rice are also converted into ethanol because they contain starch. The article notes that rice produces more ethanol during conversion because it has higher starch content than maize.

E20 is the resulting fuel blend: 20% ethanol and 80% petrol. The government promoted it to reduce imported fossil-fuel dependence. However, the crop switch has not delivered clear gains for all farmers. Rice use has weakened expected demand for maize, while maize prices have remained below its minimum support price in Chhindwara.

India’s E20 programme targets a petrol blend containing 20% ethanol and 80% petrol. This is part of a broader government push to increase biofuel blending. The policy is intended to reduce the country’s dependence on imported fossil fuels and conserve foreign exchange.

The government has presented large financial gains from the programme. Hardeep Puri, the minister for petroleum and gas, claimed that introducing E20 had saved the government Rs 1,60,000 crore. He further claimed that Rs 1,40,000 crore of this amount had been given back to farmers.

Those claims contrast with the experiences reported by farmers in Chhindwara and Shamli. The farmers interviewed had not seen significant benefits. Raghuwanshi said maize prices remained below the minimum support price, even after nearby distilleries began buying maize for ethanol.

The government promoted ethanol because India relies heavily on imported fossil fuels. Officials said blending biofuels with petrol and diesel would reduce that dependence and save valuable foreign exchange. The policy also aimed to build a larger domestic market for ethanol.

Earlier, ethanol was largely made from molasses, a by-product of sugar manufacturing. The government changed the rules to permit food crops such as sugarcane and corn. This broadened the supply of raw materials and helped oil marketing companies meet mandated blending targets.

Officials also presented the policy as a farmer-support measure. They said maize would gain an assured market and better prices. They said stronger ethanol production would improve sugar mills’ liquidity, helping mills clear sugarcane price arrears. The article reports that farmers interviewed had not experienced significant benefits.

Nearby distilleries buying maize did not automatically create higher prices for farmers. Shweta Saini said the area planted with maize had increased sharply, raising market supply. Greater supply kept prices low, even as ethanol production expanded.

Demand was also weaker than maize farmers expected. The Food Corporation of India had surplus rice stocks and increasingly allocated rice for ethanol. Because rice has higher starch content and produces more ethanol during conversion, distilleries had less reason to compete for maize. This reduced maize’s bargaining advantage.

Raghuwanshi said that over ten years he had not sold corn above the minimum support price. Between 2016 and 2026, he said sales generally ranged from Rs 1,200 to Rs 1,400 per quintal, sometimes falling to Rs 1,100. Saini said unstable policy choices made the value chain unpredictable.

The government’s rice decision changed the competition among crops used for ethanol. Farmers had expected new distilleries to create stronger demand for maize. Instead, surplus rice stocks held by the Food Corporation of India were increasingly allocated to ethanol production.

The key mechanism was conversion efficiency. Shweta Saini explained that rice has higher starch content than maize. This means rice conversion produces more ethanol. When distilleries could use surplus rice, they had less need to purchase maize, weakening the demand that farmers had expected.

That reduced demand helped keep maize prices low in Chhindwara, despite four local distilleries producing ethanol from crops procured there. Saini said the government’s shift made the value chain unpredictable. She argued that stable, predictable policies would have allowed benefits to reach farmers more sustainably over time.

Farmers often rely on local traders because the article shows vyaparis functioning as the link between farms and industrial buyers. These traders purchase produce from farmers and sell it onward to end users, including maize-processing factories. Farmers therefore depend on this route to move their crops into the wider market.

The article also says farmers have little power to negotiate with vyaparis. That weak bargaining position matters when prices are already depressed by abundant maize supply and uncertain ethanol demand. Traders become the immediate buyers, while farmers struggle to influence the price they receive.

However, the supplied article ends while beginning to explain this issue. It does not provide a complete account of market access, transport, contracts, or why farmers cannot sell directly to distilleries or wholesale markets. Those specific reasons therefore cannot be established from the provided text.

A minimum support price is the lowest price the government announces it will pay when it buys a crop directly from farmers. It is intended to provide a price floor and protect farmers from extremely low returns. In the article, maize’s announced minimum support price rose from Rs 1,375 per quintal in 2016 to Rs 2,410 last year.

That announcement does not ensure every farmer can sell at the stated price. Farmers may sell through vyaparis, or traders, rather than directly to the government. Traders buy crops from farms and resell them to end users such as processing factories. The article says farmers have little power to negotiate with them.

Raghuwanshi said he had not sold maize above the minimum support price in ten years. He reported prices between Rs 1,200 and Rs 1,400 per quintal, sometimes Rs 1,100. This shows an announced price is not necessarily the market price farmers receive.