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More may be needed to sell rice to ethanol makers

 

Cogencis, Thursday, Dec 26

By Sampad Nandy

NEW DELHI – The government's plan to divert excess rice from the central pool towards ethanol production may run into a rough weather as higher price at the government's auction could just prompt distillers to move to spot markets.

The government expects a robust procurement of rice in the current kharif marketing year started October to add to the huge stockpile in the central pool.

As Of Oct 1, The Government Had 24.9 Mln Tn Rice In Its Pool Against The Buffer Requirement Of 10.3 Mln Tn

As of Oct 1, the government had 24.9 mln tn rice in its pool against the buffer requirement of 10.3 mln tn. This kharif marketing season, the government aims at procuring 41.6 mln tn.

The government has been looking at various options to push out the excess stock and is considering a proposal to divert them for ethanol production.

Diverting food grain towards the making of biofuel would also help the government achieve its target of 10% ethanol blending with petrol by 2022.

Currently, ethanol is derived from sugarcane and foodgrain. However, the biofuel derived from grain forms just a fraction of the total ethanol produced in the country.

The Biofuel Policy 2018 has fixed a target of achieving 10% ethanol blending with petrol by 2022, 20% by 2030. The policy allows use of commodities other than sugarcane, including foodgrain, to manufacture ethanol. Ethanol blending with petrol is pegged to touch 7% in 2019-20 (Dec-Nov) at 2.6 bln ltr, according to the government estimate.

However, with the availability of rice at lower price in the spot markets, distillers may not be in a hurry to pick up the grain at the government's auction.

Currently, the offer price of rice at the open market sale scheme is 2,785 rupees per 100 kg, and the food ministry has recommended lowering it to 2,250 rupees to attract distillers. On the contrary, rice is currently sold in the range of 1,800-1,900 rupees per 100 kg at spot markets.

A final policy in this regard may be put before the Cabinet for its approval soon.

The recommended price of 2,250 rupees per 100 kg is sharply lower than the economic cost of 3,600 rupees for this year. Even with such a sharp cut, the government's plan may end up as a non-starter as math does not stack up for ethanol makers.

Ethanol makers believe that anything above 1,900 rupees for 100 kg rice will not be remunerative as the selling price of grain-derived ethanol is lower than that of sugarcane.

The government has set the purchase price of grain-derived ethanol at 47.63 rupees a ltr against the price of sugar-derived ethanol at 59.48 rupees a ltr.

A tonne of rice can produce 410 ltr of ethanol or ethanol worth 19,270 rupees. Distillers would face a loss of 3,230 rupees in the process even if the cost to buy 1 tn rice is reduced to 22,500 rupees from 27,850 rupees under the open market sale scheme.

Distillers would face a loss even if returns from the byproduct--dried distilled grains soluble, commonly known by its acronym DDGS--are taken into account.

Dried distillers grains soluble contains protein, fiber, oil and essential amino acids, and is used as animal feed.

The average DDGS outgo from 1 tn rice is 10-12% which is sold at 15-16 rupees a kg. At this rate, selling the byproduct will fetch 1,500-1,900 rupees.

If the government is willing to push out enough rice stocks from the central pool, it needs to cut the offer price by another 350 rupees to 1,900 rupees.

In case the government decides not to reduce the base price of rice further, it can allow oil manufacturing companies to purchase the grain-derived biodiesel on a par with cane-derived ethanol.

The total capacity of grain-based distilleries in the country is around 2 bln ltr of which capacity of 38% remains unused due to lack of supply of poor quality food grain in the spot market.

In this ethanol year (Dec-Nov), distilleries have submitted bids to supply 1.63 bln ltr ethanol to oil manufacturing companies against their requirement of 5.11 bln ltr. Of the bids for 1.63 bln ltr submitted by ethanol makers, only 37.8 mln ltr has come from damaged food grain.

If the government reduces the base price of rice at its auctions, it can push out a substantial amount of rice and increase the ethanol production in the country.  End

Edited by Akul Nishant Akhoury

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