1. Commodity News

Centre May Continue Rice Subsidy for Ethanol to Reduce Stock

Government is likely to continue to offer rice from the Central Pool stock for ethanol at subsidized rates for the next five years, potentially reducing stock by 10 mt over and above normal offtake.

Shivam Dwivedi
Picture of Rice
Picture of Rice

As of January 1, FCI had a rice supply of 53.89 mt, which was more than seven times the stocking norm of 7.61 mt. Paddy procurement exceeds the official annual distribution requirement of 28 million tonnes (mt) under the National Food Security Act (NFSA).

Government is likely to continue to offer rice from the Central Pool stock for ethanol at subsidized rates for the next five years, potentially reducing stock by 10 mt over and above normal offtake.

Because the Centre has approved grain-based ethanol plants with a capacity of about 860 crore litres, bringing the total capacity of grain-based units to about 1,100 crore litres when existing plants are factored in, 22-23 mt of rice will be required if all of these plants use rice as a feedstock.

However, because all of these approved ideas may not materialize and some plants may use maize as a feedstock, roughly 10-11 million tonnes of rice may be used by these plants, enough to generate 440-480 million litres, according to a government official.

Surging Stocks

In 2020-21, the government might reduce the stock of rice by an extra 19.6 mt through distribution under the Pradhan Mantri Garib Kalyan Anna Yojana, in addition to the 35.6 mt offtake under NFSA and other regular schemes. Nonetheless, as of April 1, 2021 (the end of FY21), FCI had close to 50 mt of rice stock (including unmilled paddy in terms of rice), which was 368 percent greater than the permitted buffer norm and strategic reserve of 13.58 mt.

As of January 1, 2022, FCI had a rice stock of 53.89 mt (including unmilled paddy in terms of rice), which was more than seven times the stocking norm of 7.61 mt. Furthermore, with as much as 36 mt of offtake reported under all schemes from April to December 2021, there is a high supply of rice.

Grain Prices

"With the government, there is no shortage of stock." The real issue is subsidies, as, at the current (provisional for 2022-23) economic cost of 36.70/kg and the offer price for ethanol plants of 20/kg, the government is responsible for 16.70/kg of rice. It has to be viewed in terms of cost savings on crude imports. According to a former executive director of FCI, the economic expenses of grains fluctuate depending on the budgetary support made available to FCI, as well as the subsidy, citing the prior practice of getting part-funding from NSSF as a loan and incurring the interest load. He believes that the food subsidy amount can be reduced if a mechanism is developed that allows ethanol plants to purchase paddy directly at the minimum support price (MSP). ports as well as contributing to pollution reduction," the official said.

The economic cost of rice, for example, reduced from 39.39/kg in 2020-21 to 35.97/kg anticipated for 2021-22 as the Centre cleared the past arrear of FCI by allocating 4,62,789 crore for 2020-21 against 2,16,833 crore real subsidy for that year. The food subsidy claims of FCI have increased to 2,17,460 crore (for 2021-22) from 1,09,600 crore in 2016-17 due to rising purchase levels and annual increases in MSP.

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