From Scarcity to Surplus, India Turns Rice Overflow into Ethanol

India is diverting record quantities of rice for ethanol production as it grapples with an unprecedented stockpile, which is expected to grow even larger with the arrival of the new season's harvest, a sharp turnaround from recent years marked by shortages and export restrictions.

India is increasingly diverting rice towards ethanol production, helping to bring down ballooning stockpiles in the world’s largest rice producer and exporter. This move is also ensuring that the country’s ambitious ethanol blending targets remain on track, despite a decline in sugarcane output, the traditional source for biofuel.

In a major policy shift, India in March lifted the last of nearly two years of rice export restrictions, initially imposed after weak monsoon rains led to reduced yields. However, with this year’s monsoon delivering abundant rainfall, the country is now heading for a bumper harvest, further adding to already high rice inventories.

“Our primary concern is ensuring adequate food supplies,” a senior government official told Reuters, speaking on condition of anonymity as he was not authorised to comment publicly.

“However, since our rice stocks far exceed what is needed for food security, we've decided to allocate a portion for ethanol production,” the official added.

The Food Corporation of India (FCI) has earmarked a record 5.2 million metric tons of rice for ethanol production, nearly 9% of total global rice exports projected for the 2024/25 marketing year ending in June. In stark contrast, less than 3,000 tons of FCI rice were used for ethanol last year.

FCI, which procures nearly half of India’s rice output, held a record 59.5 million metric tons in reserves as of June 1, including unmilled paddy, far surpassing the government’s July 1 buffer target of 13.5 million tons. The increased use of rice for ethanol has also eased demand pressure on corn, whose prices surged to record highs last year, prompting India to turn to unprecedented levels of imports.

Grain-based distilleries in India rely on a mix of corn, rice, and damaged food grains for ethanol production, switching between them based on market prices. As the world’s third-largest importer and consumer of petroleum products, India is pushing to blend 20% ethanol into gasoline by the 2025/26 fiscal year.

Thanks to abundant rice supplies, the country came close to that target last month, reaching a blending rate of 19.8%. Just a year ago, the goal seemed out of reach as drought-hit sugarcane harvests, previously responsible for 80% of ethanol production, forced a sharp cut in sugar diversion for fuel. In comparison, ethanol made up just 14.6% of India’s gasoline mix last year.

A Surplus Challenge

Even greater volumes of rice could be diverted to ethanol production if the government lowers the price of rice or raises the procurement price for ethanol, said Arushi Jain, Joint Secretary of the Grain Ethanol Manufacturers Association.

Currently, the Food Corporation of India (FCI) is selling rice at ₹22,500 per ton, while oil marketing companies are purchasing rice-based ethanol at ₹58.5 per litre, a price that doesn’t offer sufficient margins to significantly scale up production, according to Akshay Modi, Managing Director of Modi Naturals Ltd, an ethanol producer.

FCI’s stockpiles may grow even further, warned B.V. Krishna Rao, President of the Rice Exporters Association, as India is poised to reap a bumper harvest beginning in October. However, he noted that the country’s capacity to expand exports is limited, given that India already contributes over 40% of global rice shipments.

Since lifting export restrictions, India has ramped up rice exports, with shipments projected to surge nearly 25% to a record 22.5 million tons in the 2025 calendar year, undercutting major competitors like Thailand and Vietnam.

This crop year, which ends in June, India harvested a record 146.1 million tons of rice, significantly exceeding domestic demand estimated at 120.7 million tons, according to the Food and Agriculture Organisation.

With stockpiles continuing to swell, India will likely be compelled to allocate even more rice for ethanol production in the next marketing year, said Himanshu Agrawal, Executive Director at rice exporter Satyam Balajee. “The government is going to face real difficulty offloading the massive quantities of rice it procured from farmers,” Agrawal added.

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