India’s Ethanol Production Threatens Its Aim for Self-Sufficiency in Edible Oils

India’s push to produce more ethanol is driving farmers away from growing oilseeds, undermining efforts by the government of the world’s largest buyer of cooking oils to reduce costly imports.

Thanks to record corn and rice harvests, New Delhi is using more grain to make ethanol, meeting its target of blending 20% of the biofuel additive into gasoline. But the result is distillers dried grains with solubles (DDGS), a protein-rich byproduct that floods the animal feed market.

The glut of DDGS is weakening demand for meal, pushing down oilseed prices and prompting farmers in the South Asian nation to grow more corn and rice instead of soybeans and groundnuts, despite New Delhi’s push to grow more oilseeds to reduce imports.

India’s DDGS production has grown about 13-fold in the last two years, industry officials say, to reach 5.5 million tonnes by 2025.

“DDGS is a real headache,” said Aashish Acharya, vice president of Patanjali Foods Ltd PAFO.NS , a leading soybean processor. “Feed manufacturers are replacing meal with DDGS as it is cheaper.”

The shift is evident in government crop data. As of August 8, the area of oilseeds, including soybeans and groundnuts, was down 4% from a year earlier, while maize area had grown 10.5% to a record high.

Madhukar Londhe, a farmer in Nashik in the western state of Maharashtra, said he has reduced his soybean area from six acres to one acre, planting the remaining area in maize, the stalks of which also feed his five dairy cows.

Nearly two dozen farmers in the area interviewed by Reuters said they had made a similar switch.

“Soybean prices were too low, so I couldn’t even cover my expenses in the last two years. Corn did better last year, so I decided to grow more of it,” Londe said.

IMPORT GROWTH

The decline in oilseed plantings is a concern for a country that spent more than $17 billion on edible oil imports last year and is making a concerted effort to reduce that reliance.

Rising demand for fried foods and sweets from a growing and wealthier population has led to a steady increase in edible oil consumption of 3-4 percent a year, according to BV Mehta, executive director of the SEA Manufacturers Association. Edible oil imports are set to rise to 16 million tonnes in 2023-24 from 4.4 million tonnes two decades ago, making India the world’s largest buyer of vegetable oils such as palm oil from Indonesia and Malaysia, and soybean and sunflower oil from Argentina, Brazil, Russia and Ukraine.

New Delhi aims to increase domestic edible oil production to 25.45 million tonnes by 2030-31 from the current 12.7 million tonnes, meeting 72% of projected demand. The effort is being hampered by a surge in DDGS supplies, Mehta said.

A senior dealer at a New Delhi-based international trading house, who declined to be named because he was not authorised to speak to the media, said he expected imports to cross 20 million tonnes within six or seven years, partly because of disruptions in DDGS supplies.

With global supplies of edible oils shrinking, India’s additional imports will further push up prices, according to a top Kuala Lumpur-based palm oil company.

BURNOUT, OIL SHORTAGE

India, the world’s third-largest importer and consumer of crude oil, recently achieved its target of increasing the share of ethanol in gasoline to 20%. Two years ago, before India began using corn and rice en masse to cope with a shortage of sugarcane, the main feedstock for ethanol, its ethanol share was just 12%.

Even before the rise of ethanol led to a glut of DDGS, India was struggling with a surplus of meal. Per capita demand for animal feed is well below the global average because a large proportion of its 1.4 billion people are vegetarians for religious and cultural reasons, and most meat-eaters eat it only occasionally.

This has forced India to export its surplus meal to countries such as South Korea, Vietnam, Thailand and Bangladesh.

However, meal exports have become increasingly difficult each year due to rising prices to support oilseed producers. This year, some countries importing Indian meal have committed to buying more meal from the US, meaning they will buy less meal from India, said a Mumbai-based dealer belonging to an international trading company.

Ajay Jhunjhunwala, an oil maker in Lucknow in northern India, estimates that of the DDGS stillage produced this year, only about half will be consumed domestically.

Exports are growing, but still relatively small. India’s DDGS exports rose sharply to 354,110 tonnes last year from just 16,556 tonnes in 2022. Distilleries are keen to export the surplus to markets such as Bangladesh and Vietnam, long-standing customers of US DDGS.

Millers and distillers are seeking incentives to export both meal and DDGS.

India’s Agriculture Minister Shivraj Singh Chouhan said in July that the government would support oilseed farmers by buying their crop at a fixed government price. The Indian government did not respond to a request for comment on the rise in DDGS shipments.

“DDGS has exaggerated the meal surplus issue,” said oil miller Jhunjhunwala. “Unless this issue is addressed, it will be difficult to increase domestic oilseed production and edible oil supply,” he said.

Tags: India