India’s ethanol blending programme could face a fresh challenge in the 2026-27 supply year as the government tightens the availability of foodgrain-based feedstocks for ethanol production. After halting procurement of sugarcane-based ethanol, state-run oil marketing companies (OMCs) have now capped supplies of ethanol produced from surplus rice sourced from the Food Corporation of India (FCI) and damaged foodgrains.
The move is expected to increase the ethanol industry's dependence on maize, raising concerns for the poultry, livestock feed and starch industries, which are already grappling with high maize prices.
Under the revised tender conditions issued by OMCs on November 3, a maximum of 324 crore litres of ethanol produced from surplus FCI rice will be allocated during the first three quarters of the Ethanol Supply Year (ESY) 2026-27.
The latest corrigendum states that "72 LMT of Surplus Rice procured from FCI (324 Cr. Litres of Ethanol) is allocated for the EBP Programme till 30.06.2027." The allocation will be capped at 108 crore litres in each of the first three quarters.
30% Cap on Individual Distilleries
OMCs have also imposed a 30% ceiling on the share of FCI rice-based ethanol that an individual producer can offer. This means that ethanol produced from surplus FCI rice cannot account for more than 30% of a distillery's total ethanol offer in any quarter.
If offers exceed the prescribed limits, OMCs will proportionately reduce the eligible quantities offered by all bidders to ensure that the quarterly ceiling is not breached.
Damaged Foodgrain-Based Ethanol Capped at 160 Crore Litres
OMCs have also imposed a maximum annual ceiling of 160 crore litres on ethanol produced from damaged foodgrains, equivalent to 14.5% of the total tender quantity. The quarterly allocation from this source will be restricted to 40 crore litres in each quarter of the ethanol supply year (November-October).
Together, surplus FCI rice and damaged foodgrains can account for a maximum of 484 crore litres of ethanol. This represents around 44% of the total 1,100 crore litres of ethanol tendered by OMCs for 2026-27.
The remaining demand will have to be met through maize and other alternative feedstocks, increasing the importance of grain-based ethanol in India's blending programme.
Sugarcane-Based Ethanol Procurement Already Halted
The latest restrictions follow the government's decision last month to stop procuring ethanol produced from most sugarcane-based feedstocks amid concerns over domestic sugar availability and rising prices. The decision has effectively halted the diversion of sugar for ethanol production in the 2026-27 supply year.
This marks a significant shift in the EBP programme, which initially relied heavily on sugarcane-based feedstocks, providing an additional revenue stream for sugar mills and supporting sugarcane farmers.
In the ethanol procurement tender issued on October 16 for ESY 2026-27, OMCs did not invite offers for ethanol produced from sugarcane juice, sugar syrup, sugar or B-heavy molasses. However, ethanol production from C-heavy molasses, a by-product left after sugar extraction, continues to be permitted.
Pressure on Poultry and Feed Industries
With sugarcane-based ethanol procurement suspended and rice-based ethanol supplies capped, maize is likely to become an increasingly important feedstock for distilleries.
This could intensify competition between ethanol manufacturers and the poultry, livestock feed and starch industries, all of which depend heavily on maize as a key raw material.
Maize prices in major mandis across the country have reached around Rs. 29-30 per kg, compared with the Minimum Support Price (MSP) of Rs. 2,400 per quintal, or Rs. 24 per kg, for the 2026-27 season. The potential increase in demand from ethanol producers could further tighten supplies and push up prices, adding to input costs for poultry and animal feed manufacturers.
Supply concerns have also been heightened by the impact of below-normal monsoon rainfall on maize crops in several states this year. This could make it more difficult to balance the competing requirements of food security, livestock feed and ethanol production.
Adding to the pressure on distilleries, the government has recently reduced the procurement price of maize-based ethanol to Rs. 68.86 per litre from Rs. 71.86 per litre. The reduction could affect the profitability of grain-based ethanol producers even as their dependence on maize increases.
E20 Target Faces Challenges
India achieved its target of blending 20% ethanol with petrol (E20) ahead of schedule. However, the suspension of procurement of sugarcane-based ethanol and the new restrictions on rice-based ethanol indicate a significant shift in the feedstock strategy underpinning the programme. The government now faces the dual challenge of ensuring food security while maintaining the momentum of its ethanol blending programme.