Question & Answers
Q: Is a million-tonne sugar export permission from India imminent?
A: Intense lobbying for export permission by ISMA and millers at the recent ISMA-ISO led many to believe that the Govt might relent. Notably, this demand has been put forth by the industry now for about six months. The math of sugar availability, consumption requirements, and diversion to ethanol for the high-priority EPB programme does not leave any scope for exports unless sucrose production in 24/25 is equal to or higher than 34.2 MMT in 23/24. The current consensus sucrose production estimate is 33 MMT. Although MEIR estimates 24/25 sucrose production is at 34.7 MMT, it doesn’t expect sugar exports to be permitted before Feb/Mar when India will be in the 5th month of crushing season and a firm assessment of production is available.
Is an increase in the mandated Minimum Selling Price (MSP) of sugar expected to be increased soon?
A: This is another long-standing demand of the industry as the mandated sugarcane price has been increased by 24% since the last revision in MSP was granted in Feb 2019 when it was fixed @ INR 31000/MT ($369/MT). ISMA’s current demand is an increase to INR 39000/MT ($464/MT, scaled down from INR 41660/MT ($496/MT) earlier.
Will the sugar sector have to do the heavy lifting for the ambitious EPB? How about the contribution from grains?
A: The mix for Ethanol Supply Year (ESY) 23/24 has been 11% from sugarcane juice (SCJ), 23% from B Heavy molasses ( BHM), 10% from C heavy molasses ( CHM), 0.023% from Rice, and 38% from corn and 18% from Damaged Food Grains (DFG). The supply from grain ethanol (56%) has exceeded that from sugarcane segment (44%). 9.8 Bn litres are required in ESY 24/25. The oil companies have issued a 9.16 billion-liter tender for ethanol, implying 4.5 to 5 billion liters from sugar. 5 MMT of sucrose will yield 3.5 billion liters, with an additional billion from C-heavy molasses (CHM) and 4.5 to 5 billion liters from grains, including 1 billion liters from rice. Corn ethanol production is expected to increase from 2.2 billion liters this year to 3.5-4 billion liters. We expect the tender to be fully subscribed. Rice is expected to remain a small contributor as retail inflation for rice prices is high, which has been further compounded by the recent relaxation on rice exports. This rules out use of rice for ethanol, other than 100% broken rice. Although govt granaries are overflowing to a point the storage of rice to be procured from the bumper crop being harvested poses a challenge next year. It is unlikely that subsidised rice would be issued by Govt for ethanol. This will present a moral hazard and is politically unacceptable.
Could the feedstock mix for ethanol production change?
A: No. Mills will continue to maximize the use of sugarcane juice (SCJ) for ethanol as it offers a 20% price advantage over sugar in Uttar Pradesh and 25% in Maharashtra. For B-heavy molasses (BHM), the price advantage is 10% in UP and 15% in Maharashtra. Sugar prices in UP are already higher than any possible MSP revision, and they are 4-5% lower in Maharashtra compared to a feasible higher MSP. An increase in ethanol prices is expected before the end of October, boosting incentives, while an increase in sugar MSP remains uncertain. Therefore, mills will continue to maximize the use of SCJ and BHM for ethanol, with no change in the feedstock mix expected. The next contributor will be corn as explained in the preceding answer.
What is MEIR's view on white rice export?
A: India has thousands of rice varieties classified into three types: Basmati, non-basmati white, and non-basmati parboiled.
During 2022, exports of 100% broken rice was restricted, followed by similar restrictions on export of non basmati white rice, exports being allowed under permits. Additionally, a 20% export duty was imposed on parboiled and non-basmati whites/100% brokens, and a minimum export price (MEP) was set for Basmati rice to prevent the misbranding of non-basmati white rice as Basmati. This is because the price difference between the two ranges from $400 to $700 per tonne.
Given the bumper crop expected to be harvested next month and the overflowing warehouses of the Food Corporation of India (FCI), the export duty on non-basmati white rice was waived on 27th September 2024, exports freed from restrictions and the Minimum Export Price (MEP) was set at $490. The export duty on parboiled rice has been halved to 10%, though restrictions on 100% brokens still remain. The export of 100% brokens is restricted to preserve rice for ethanol production, even though exporting it would generate $500 to $600 FOB, compared to the $300 CNF value of ethanol from one tonne of rice. This shows the government's commitment to ethanol, even if it means foregoing higher export revenue for sugar in favor of ethanol.
Has there been any movement in the domestic market following the opening of rice exports?
A: Rice exports have opened up, and prices have surged by 7% in the domestic market.
How does rice ethanol production fit into this scenario, given that rice exports have been allowed?
A: Distilleries are free to purchase rice from the market for distillation. During the 2023-24 ethanol year (November 2023-October 2024), they used rice from market channels because the government did not issue subsidized rice from FCI stocks. A limited window existed for purchasing 2.3 MMT of subsidized rice from FCI (from 15th August to 31st October), but it was a catch-22 situation as there were no ethanol orders in hand. Therefore, this window is essentially a null point.
In 2024-25, we expect ethanol supply from subsidized rice to be zero. As for rice from market channels, the recent permission to export rice has caused domestic rice prices to rise, making it unviable for distillers to use rice unless prices recede or the government increases the price of rice ethanol. We anticipate that the emphasis will shift towards corn for ethanol production, especially with a 25% increase in corn output expected in 2024-25.
What drives the government's 20% ethanol blending target?
A: The 20% blending target is ambitious, but existing vehicles are not entirely compatible with E20. The government has a report from a premier institute that tested an existing vehicle on E20 and found no issues. However, the vehicle was only driven for 5,000 km, a distance covered by most people in 1-3 months. While the government and the industry push this narrative, it remains untested for long-term use.
Additionally, the current national blending average is 13.5%, but this is not uniform across India. States like Maharashtra, Karnataka, and Uttar Pradesh exceed 20%, while others have much lower blending rates. As such, next year's E20 target will likely see even more uneven implementation across states.
How will the government ensure the 20% blend across India?
A: The government does not enforce uniform blending. Some territories, particularly in the northeast and island states, have no blending. States without ethanol production have varying blend levels as ethanol must be trucked in. Ethanol-producing states have higher blending rates than the national average, leading to regional imbalances. This is why the government is keen to promote flex-fuel vehicles. Since state-owned oil companies follow government directives, they will be expected to comply, even if the cost is passed on to consumers at the pump.
Is the 20% blend target too ambitious?
A: MEIR agrees. The incentive prices paid for corn ethanol could lead to corn encroaching on pulses acreage, worsening India's structural shortage of pulses, which are an essential protein source for vegetarians. Moreover, there is a risk to the soy crop, as the mycotoxin-laden DDGS (distillers' dried grains with solubles) could affect meal marketing, and corn could also invade soybean acreage. This presents a significant challenge to the agricultural balance in India.
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