India’s ethanol push making food costlier? | LME 165 | Pooja Prasanna

When the prices of your groceries increase, would you blame it on your petrol tank?

Seems like there is no connection, right?

But right now, the price of your chicken, your eggs, your sugar, and even your morning tea or coffee is increasingly connected to what goes into your petrol tank.

India is pushing hard to blend ethanol into petrol. The idea is simple: use crops to make fuel, reduce our dependence on imported crude oil, and give farmers and sugar mills another source of income.

But there’s a catch.

The same crops being diverted to make ethanol are also needed to feed people and animals.

So when there’s a shortage of sugarcane or maize, what gets priority: food or fuel?

And here’s the really strange part. We’re seeing the impact on grocery prices, but not seeing cheaper petrol at the pump.

Let me explain the double inflation whammy.

Before I explain the grocery prices, let me quickly remind you of the price of Independent journalism.

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If you've bought sugar recently, you might have noticed the hit to your wallet—retail prices have shot up to ₹65 or even ₹70 a kilo in some markets. And if you’re wondering why, a big piece of that puzzle comes down to ethanol.

It started with a bad harvest. India initially expected around 343 lakh tonnes of sugar production in 2025–26, but that estimate has fallen to around 306 lakh tonnes, after crop damage from disease, heavy rain and waterlogging.

Global supplies are also under pressure, with world sugar prices jumping more than 16% between June and August.

But you know what the strange part is? 

India actually has enough sugar sitting in reserve to cover us until the new crushing season kicks off in October.

And if you think farmers are making a killing off these higher prices, nope.

Farmer leader Yudhvir Singh told The Wire that most growers had sold their sugarcane months before retail prices began climbing.

Ethanol is key because India has made a huge bet on it. The logic is straightforward: ethanol can replace some imported petrol, while giving sugar mills and farmers another source of revenue.

India's ethanol blending rate rose from around 1.5% in 2014 to 20% in 2025–26, five years ahead of schedule

The complication is that ethanol has to come from somewhere, and that somewhere is increasingly agriculture.

An analysis by agricultural economist Ashok Gulati and researcher Tanmoy Adhikary explains the mismatch.

Between 2019 and 2026, India's ethanol demand for petrol blending increased from about 1.7 billion litres to an estimated 12 billion litres.That is 38%.

But production of the crops supplying that ethanol grew much more slowly: maize production grew about 11%, rice around 4.4%, and sugarcane about 5.1%.

In 2025-26, more than three million tonnes of sugarcane production was diverted towards ethanol, while around 0.8 million tonnes of sugar was exported. 

That decision made sense when production was expected to be comfortable or in excess.

But the production estimates kept falling.

Back in July, sugar manufacturers expected a comfortable 35 million tonnes. By November, they cut that to 34.4 million, and by August, the forecast plummeted to just 31 million tonnes.

Former agriculture secretary Siraj Hussain told Mint that if those earlier production estimates had been more accurate, India might have avoided some of the shortage and price pressure that followed. 

Then comes the next problem.

When sugar runs low, ethanol distilleries don't just shut down—they simply switch crops, and maize is the next best thing.

Industry groups estimate that distilleries could use up to 24 million tonnes of maize next year, up from roughly 16 million tonnes.

But maize cannot be spared for ethanol alone. Poultry farmers need almost that exact same amount, while food and starch makers take another 10 million tonnes. 

Total demand could therefore exceed 55 million tonnes, close to India's entire maize production last year.

But this year's harvest is already shrinking. 

The USDA projects corn output to drop by 10%,

Even the government data estimate a fall anywhere from 3% to 7%.

Toss in an erratic monsoon—with over half the country facing severe rain deficits—and you're looking at a massive surge in demand hitting a shrinking crop.

This hits your grocery bill because maize makes up more than half of all poultry feed.

Basically a fuel distillery and a chicken farmer have to fight over the exact same grain to produce two totally different things. 

Biofuel companies need maize to meet petrol-blending targets. 

But Divya Kumar Gulati of the Compound Livestock Feed Manufacturers Association argues that fuel plants can switch between crops, but poultry farmers have few alternatives for feed.

So chickens ought to get priority over cars.

And we're already seeing those price signals in real time. 

Wholesale maize has jumped to around ₹27 a kilo—up more than 30% since May.

While poultry feed has shot up from roughly ₹25 in April to over ₹30. 

That trickles straight down to the market: wholesale eggs in Delhi spiked to ₹6.70 an egg in July.

They backed off slightly in August, but prices are still sitting about 7% above where they were a year ago.

Now, I am not saying ethanol is the only reason for the food inflation. 

There are too many other variables at play

But when ethanol demand takes a larger share of a crop whose supply is already tight, it adds significant pressure.

And if maize becomes scarce, ethanol producers can turn to rice. The government is already selling rice from public stocks to distilleries at subsidized rates of around ₹2,320 a quintal.

That may ease pressure on maize, but rice is our primary staple, and retail prices are already up about 8% year-on-year. Producing it also consumes huge amounts of groundwater, power and fertilizer.

So using public grain reserves for fuel isn't just a simple workaround; 

It raises heavy questions about food security and environmental costs. 

Shifting from sugarcane to maize, and then from maize to rice, doesn't solve supply shortages—it just passes the pressure down the line.

And all of this is happening as food inflation is rising. Retail food inflation climbed to nearly 6% by August

Onions are almost 50% more expensive than a year ago and ginger up more than 70%.

For ordinary households, especially lower-income families, these numbers take a huge toll. 

At the end of the day, policymakers have to decide how much of our farmland can power our cars before it makes everyday food unaffordable.

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Produced by Megha Mukundan, script by Pooja Prasanna, Edit by Nikhil Sekhar ET, Camera by Ajay R