Food Corporation of India Sells Rice to Ethanol Plants Below Acquisition Cost

New Delhi, India Jul 31, 2026 ALN: The Food Corporation of India (FCI), a crucial entity in the Indian agricultural landscape, has recently found itself in the spotlight for its controversial decision to sell rice to ethanol distilleries at prices significantly lower than its average acquisition cost. This decision has raised eyebrows among policymakers, economists, and stakeholders in both the agricultural and ethanol sectors. The prices at which the rice was sold ranged from Rs 2,250 to Rs 2,320 per quintal during the period from June 2025 to June 2026. This pricing is approximately 40% lower than the average acquisition costs, which were reported at Rs 3,720 per quintal for the financial year 2024-’25 and Rs 3,889 per quintal for 2025-’26.

The FCI's role in India is pivotal as it is responsible for ensuring food security in the country. This involves the procurement, storage, and distribution of food grains, primarily wheat and rice. The prices set by the FCI for these grains can have far-reaching implications for the agricultural sector, impacting farmers' incomes, market prices, and the overall economic landscape. The current pricing strategy for rice sold to ethanol plants raises critical questions regarding the financial sustainability of the FCI itself, as operating at a loss could undermine its ability to fulfill its mandate of food security.

Looking ahead, the FCI has announced a slight increase in the price for rice sold to ethanol distilleries, which will be set at Rs 2,390 per quintal between November 2026 and June 2027. This adjustment in pricing could be seen as an attempt to balance the needs of the ethanol industry with the operational realities of the FCI. The ethanol sector in India has been gaining momentum in recent years, largely due to government initiatives aimed at promoting renewable energy sources as part of a broader strategy to reduce carbon emissions and enhance energy security.

During the past fiscal year, the FCI dispatched an impressive 6.3 million tonnes of rice to ethanol producers, valued at approximately Rs 14,596 crore. This significant volume underscores the growing importance of ethanol production in India's energy landscape, with rice serving as a critical feedstock in this process. Notably, Haryana emerged as the largest recipient of these rice allocations, receiving 844,141 tonnes, while Uttar Pradesh followed closely with 838,645 tonnes. Other states, including Punjab, Himachal Pradesh, West Bengal, and Madhya Pradesh, also received substantial quantities, reflecting a widespread reliance on rice for ethanol production across various regions.

Despite the large-scale distribution of rice for ethanol production, the government has clarified that no subsidies were provided to ethanol manufacturers for procuring rice. This absence of financial support raises important questions about the sustainability and profitability of the ethanol sector, particularly for smaller producers who may struggle to compete in a market characterized by rising operational costs. Without subsidies, these manufacturers may find it challenging to maintain competitive pricing, which could ultimately impact their viability and the overall growth of the ethanol industry.

Moreover, the ministry reported that during the one-year period, there were two instances of rice intended for ethanol production being diverted. These irregularities prompted swift action from relevant authorities, highlighting the importance of regulatory oversight in ensuring that resources are utilized for their intended purposes. Following the detection of these issues, state food departments intervened, and the FCI ceased further allocations of rice to the implicated distilleries. Such measures underscore the need for stringent monitoring mechanisms to maintain the integrity of the supply chain and prevent misuse of resources.

India's ethanol production has witnessed a remarkable increase, driven largely by the Union government's Ethanol Blended Petrol (EBP) program. This initiative mandates the blending of petrol with a specific percentage of ethanol, with the ambitious target of achieving a 20% ethanol mix in petrol by 2025. Notably, India achieved this target in July 2025, five years ahead of schedule, marking a significant milestone in the country's energy transition strategy. The rapid expansion of the ethanol program is part of a broader effort to reduce reliance on fossil fuels, lower greenhouse gas emissions, and provide additional income opportunities for sugarcane farmers, who are key stakeholders in the ethanol production process.

The push for ethanol production is also viewed as a strategic move to enhance energy security in a country that imports a significant portion of its fuel. By promoting domestically produced biofuels, the government aims to mitigate the economic impact of global oil price fluctuations and create a more self-sufficient energy landscape. This transition aligns with global trends toward renewable energy sources and reflects India's commitment to addressing climate change through sustainable practices.

However, the transition to a higher ethanol blend in petrol has not been without controversy. Consumers have expressed concerns regarding the potential negative effects of the new fuel mix on vehicle performance. An opinion poll conducted by LocalCircles, published on July 5, indicated that 53% of surveyed petrol vehicle owners believed that the government's handling of the rollout of the E20 fuel was either "disastrous" or "ineffective." These sentiments suggest that significant public apprehension exists regarding the implications of the EBP program on vehicle reliability, maintenance costs, and overall driving experience. Such concerns could impact consumer acceptance of ethanol-blended fuels and, consequently, the success of the EBP initiative.

In conclusion, the sale of rice by the FCI to ethanol distilleries at prices below acquisition costs reflects a complex interplay of agricultural policy, energy strategy, and market dynamics. While the government's initiatives to promote ethanol production are aimed at enhancing sustainability and energy security, they also raise critical questions about the economic viability of such programs and their impacts on consumers and the agricultural sector. The absence of subsidies for ethanol manufacturers and the challenges faced by small-scale producers further complicate the landscape. As India continues to navigate its energy transition, the outcomes of these policies will be closely monitored by stakeholders across the spectrum, from farmers to consumers to policymakers. The FCI's pricing strategy and the government's commitment to supporting the ethanol industry will be pivotal in determining the future of both the agricultural and energy sectors in India.