BLEND IT TO FIX IT
Business Today|May 30, 2021
Ethanol blending promises to open up a sizeable market for the domestic sugar industry to utilise excess production, without hurting farmer interest
SUMANT BANERJI

THE ETHANOL SOLUTION

The sugar industry keeps facing the problem of oversupply every few years due to subsidies and assured purchase price

Mills struggle to pay farmers because they have to buy a minimum quantity of sugarcane in their catchment areas even if there is no demand

The target of 10 percent ethanol blending by 2022 is expected to absorb excess supplies and help both farmers and mills. It will also reduce imports of petrol

Midway through his address at the annual congregation of the domestic sugar industry in December 2020, Piyush Goyal, Union Minister for Commerce and Railways, said something that cast a pall of gloom on the occasion. Goyal said the industry should forget about reduction of the fair and remunerative price (FRP), the reference price set by the government every year which sugar mills are obliged to pay farmers.

The industry has been demanding for years that FRP should be linked to sugar prices that move according to demand and supply. This was advocated by the Rangarajan Committee way back in 2012. Reducing FRP, however, could mean a fall in income for farmers, something no government can afford.

“Let’s be practical about it. We cannot reduce the FRP,” Goyal said at the annual general meeting of industry body Indian Sugar Mills Association (ISMA). “It’s an institutional mechanism that has been going on for several years.” Instead, he urged the industry to look at alternatives such as ethanol, which can be blended with gasoline, to divert excess sugar production in the country. The prescription is not new. Nor is Goyal the first person to say it. His Cabinet colleague Nitin Gadkari, the Minister for Road Transport, Highways and MSME, who hails from the sugar-producing belt of Maharashtra, has been a strong proponent of blending ethanol with motor fuels. There is not a single public forum where he doesn’t mention it. “Ethanol production from molasses and sugarcane juice can be easily ramped up in Uttar Pradesh and Maharashtra where we have excess sugar capacity,” says Gadkari. “My dream is to take the ethanol economy from the current ₹20,000 crore to ₹2,00,000 crore.”

Ethanol: The new Fad In Town

The government is walking the talk with steps on the ground as well. Procurement of ethanol by oil companies for blending has grown from just 38 crore litres in FY14 to an estimated 173 crore litres in FY20. The blending rate has increased from 1.53 per cent to over 5 per cent. Ethanol production capacity in the country has shot up to over 400 crore litres.

The government’s plans are far more ambitious. Within a month of Goyal’s address at ISMA, it advanced the timeline for achieving 20 per cent blending from 2030 to 2025 in the hope that 10 per cent blending would be achieved by 2022. If achieved, it could solve a number of problems. India depends on imports for over 85 per cent of its crude oil requirement and any substitution will bring down the import bill, saving precious foreign currency. Blending ethanol with gasoline would also partially curb tail-pipe emissions, which would in turn contribute to the country’s war on air pollution. More importantly, 20 per cent blending would require substantial ethanol production, which will open up a sizeable opportunity for the sugar industry to divert its excess production. Ethanol can be produced either from sugarcane juice and molasses or damaged food crops.

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