Rising prices of maize-based ethanol 11.7% per year failed to shift paddy farmers
The Economic Survey flags unintended effects of India’s ethanol policy: higher maize-ethanol prices failed to reduce paddy acreage and instead coincided with falling pulses output. While ethanol blending boosts energy security and maize productivity, skewed price signals risk harming crop diversification and food security.
The Economic Survey has pointed out the inefficacy of the government’s ethanol blending programme by pointing out that despite an 11.7 per cent CAGR increase in maize-ethanol prices through FY25, it failed to curb paddy acreage; instead, it appears to have inadvertently caused a decline in pulses production.
The government annually fixes administered per-litre ethanol prices differentiated by feedstock, with assured offtake by Oil Marketing Companies (OMCs). However, there is no compulsion on maize-based ethanol producers to pay a fixed price to the farmers, but the sugar-based units have to buy sugarcane at a government-set rate. Still, the Survey says that this policy is intended to provide farmers with a ‘steady’ source of income.
Price signals
“Between FY22 and FY25, the administered price of maize-based ethanol increased at a CAGR of 11.7 per cent, growing materially faster than ethanol derived from rice or molasses. This has created a strong and persistent price signal in favour of maize. It was hoped that this would help shift acreage from paddy to maize, with the former witnessing excess stocks and the latter being less water-intensive…The expected reduction in paddy acreage has not materialised,” the Survey said.
During the same period, pulses have experienced a decline in output and acreage, it added.
In 2024-25 crop year (July-June), paddy area in rose 7.5 per cent to 514.2 lakh hectares (lh) making India the global leader in rice production. Though maize area too increased 6.9 per cent to 120.2 lh in 2024-25. But, pulses area had stagnated at 276.2 lh last year.
The Survey has said that maize yield increased from 2.56 tonnes per hectare in FY16 to 3.78 tonnes per hectare by FY25 and credited the rise to the ethanol blending programme. “These productivity gains make maize a naturally attractive crop for farmers relative to many other cereals and pulses, even in the absence of policy intervention,” it said.
However, it has also pointed out that yields for crops such as soybeans, sunflower seeds, rapeseed, peanuts, and millet, among others, have either stagnated or declined over the same period.
Energy security
At the same time, the Survey has said that India’s ethanol-blended petrol (EBP) has become an important pillar of the nation’s energy security strategy in recent years. “The EBP programme has delivered tangible gains in crude oil substitution, reduced foreign exchange outflows, reduced emissions, and increased payments to farmers,” it said.
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Source : The Hindu Business line
