Ethanol Policy Shift: Maize Demand Poised to Surge as Government Restricts Grain Usage
The Indian government has implemented significant regulatory shifts for the 2026-27 ethanol supply year, placing strict caps on the use of surplus Food Corporation of India (FCI) rice and damaged foodgrains for fuel production. As the administration simultaneously halts the diversion of sugar-based feedstocks like cane juice and B-heavy molasses, the ethanol program is increasingly reliant on maize, setting the stage for intense competition between the energy sector and food-reliant industries.
Under the new tender guidelines released on November 3, the government has capped the procurement of ethanol derived from surplus FCI rice at 3.24 billion litres for the first three quarters of the supply year. Additionally, a ceiling of 1.6 billion litres has been imposed on ethanol produced from damaged foodgrains. Collectively, these two sources are limited to 4.84 billion litres—representing less than half of the 11-billion-litre tender floated by oil marketing companies (OMCs).
Balancing Energy and Food Security
These measures reflect a cautious approach by the Centre toward domestic food security. Agriculture experts suggest that by limiting the use of damaged grains, which are frequently utilized in both animal feed and human consumption, the government is signaling a heightened concern regarding the availability of staples.
Furthermore, individual producers face additional operational constraints. The revised tender dictates that ethanol derived from surplus FCI rice cannot exceed 30% of a firm’s total quarterly bid. Should collective industry offers surpass the 1.08 billion-litre limit set per quarter, OMCs will enact proportional reductions in procurement.
The Rise of Maize as a Primary Feedstock
With sugar-based routes effectively closed—save for the use of C-heavy molasses, which faces competition from the alcohol industry—maize has emerged as the critical variable. Industry projections indicate that ethanol production will require approximately 16 million tonnes of maize in 2026-27, a significant 22% jump from the 13 million tonnes consumed in the current cycle.
This surge in demand comes at a precarious time. Maize is a fundamental component for the poultry, dairy, and starch sectors. As these industries vie for a limited supply, market prices have already surged, with rates in key mandis reaching ₹30–31 per kg, well above the Minimum Support Price (MSP) of ₹24.1 per kg.
A Tightening Supply Chain
The pressure is compounded by potential production deficits. Forecasts suggest a possible 15% decline in maize availability due to adverse weather patterns, including the lingering effects of El Nino and poor soil moisture levels. Total demand for maize—incorporating ethanol blending, animal feed, and industrial starch production—is expected to climb to 55.7 million tonnes in 2027, up from the current 49–50 million tonnes.
Compounding the supply concerns, industry analysts warn that the initial 11-billion-litre tender may fall short of the volume needed to maintain the government’s 20% blending mandate. If OMCs are forced to issue an additional tender for one billion litres, as many market watchers anticipate, the resulting scarcity could further escalate input costs for the livestock and food processing industries, intensifying the broader debate over prioritizing national energy security without compromising agricultural stability.
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