How India's ethanol boom is transforming the country's corn trade flow

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Edward Low:

Hello, and welcome to the latest edition of Platts Commodities Focus podcast, brought to you by S&P Global Commodity Insights. And in this episode, we will be discussing the topic of how India's ethanol policy may impact global corn trade flows. At the moment, market participants believe that India is at a crossroads of transitioning from being Asia's primary corn exporter to a net importer instead, due to the increasing demand for corn as a feedstock for the growing ethanol industry in India.

I'm Edward Low, grains and oilseeds price reporter. And to discuss this topic, I'm joined today by three experts on the agriculture and biofuels markets. Namarita Kathait, associate editor for Asian agriculture, Samyak Pandey, editor for global biofuels news, and Rishab Joshi, senior editor for biofuels. Welcome to the podcast, Namarita, Samyak, and Rishabh.

Since February 2024, India has consistently imported more than it exported in the corn market, as shown by Ministry of Commerce customs data. Is this trend of corn imports going to continue? Why is India's ethanol markets the crucial factor in this trend? And what challenges stand in the way of this transition? So let us talk about the supply and demand situation first. Namarita, how is India's supply and demand situation for corn like at this time?

 

Namarita Kathait:

Oh, hi, Edward. India is looking at a record crop for the coming year. According to USDA's latest data, India's corn production for the next year is estimated around 38 millimetric ton, which is slightly higher than last year's Indian government's estimates. Starch, cattle feed, ethanol are the main markets for corn commodity. 60% of corn is used by poultry and cattle feed industry, so there is a lot of high demand from these industries for corn.

Apart from these industries, after achieving 15% ethanol blend with petrol in 2024, India is now targeting to achieve 20% blend in 2025. This has pushed India's domestic consumption of corn. Where India used to be a corn exporter, and actually to note here, contributed to 2% of the world's share in 2022, according to USDA's data, due to high demand of corn for starch, cattle feed market, and now from ethanol distilleries. India has become a net importer. India's exports fell year on year, with market sources citing no validity on exports. USDA exports estimates for the coming year were lowered by 40% of the year. And 2023 export estimates were lowered by 84%, as compared to the previous year. India's corn imports in 2023 surged sharp, due to the rise in local demand. And India imported 850,000 metric ton of corn in 2023, which is much higher than the exports at 500,000 metric ton.

 

Edward Low:

Samyak, you have been following India's growth in ethanol production very closely. So what is India's current ethanol policy, and how will it impact corn demand?

 

Samyak Pandey:

So India has quite an ambitious ethanol blending target, it's 20% by 2025. And the government is quite confident of meeting that. In fact, in couple of recent events, the government has said that it's in works to create a road map for further increasing ethanol adoption post 2025. So that's the target and the blending program is quite ambitious. And in terms of impacting of corn demand, in recent couple of years, the corn usage for ethanol production has surged. For example, if you take, in this year, almost 3.5 million metric ton of corn have been used to produce somewhere around 1.5 billion liters of ethanol. And the usage of this 3.5 million metric ton is more than double what was used last year.

And the push for the increased usage of corn for ethanol also comes from policy incentives, such as India has certain restrictions of export of sugar, sugar cane related product. And the domestic shortage has also fueled the usage of maize, as well as the government incentive for setting an X distillery price for corn-based ethanol is much more higher than what we'll get from molasses, or sugar cane, juice, syrup, or rice, or damaged food grain. So that is also pushing quite a bit into corn usage for ethanol.

 

Edward Low:

Thanks, Samyak. Rishab, as the biofuels editor who has spoken to many market participants in the global biofuels market, how do you think India is expecting to meet its ethanol demand? And if there's any ethanol imports, will they impact India's push for corn production?

 

Rishab Joshi:

Well, Edward, I think Samyak has explained India's ethanol policy very well. Just adding on to it, in regards of imports, I think India doesn't allow ethanol imports for fuel blending. And, yet, a lot of ethanol lands on India's shores. Now, these imports are clearly the reflection of demand from other industries. And since government pushes for blending, so most of the domestic production, therefore, gets directed towards that cause, leaving these industries to meet their demand through imports, which is mostly from the US, being the largest producer of the ethanol. And, in fact, a recent report from the US Energy Information Administration revealed that India's share of US ethanol export has witnessed the sharpest growth among all of its major importers.

Now, why these industries majorly looking for the US ethanol is because the fact that US ethanol prices have remained very competitive globally. Other than the summer driving season when domestic demand spikes, the rest of the year, ethanol prices have been tamed by really good corn crop in the US. And, in fact, this year, the exports have been record high, and not just for the US, but also for the Indian imports, which have seen significant uptick this year.

And, now, coming to the point of push for corn production in India, I think the US imports may not impact much, as they are for industry and not for the fuel blending. And in addition to that, government support for corn in ethanol production is being chiefly driven over the fact of water-intensive nature of the sugar and rice when compared to the corn. Therefore, government push is focused on meeting ethanol demand through more sustainable means. So I think this is how India is going to look ahead for its demand for ethanol, either for blending or for the industry purposes.

 

Edward Low:

It's good to know that India's ethanol production and, consequently, corn demand is here to stay. But then, I'm wondering, how is India going to meet this corn demand through imports? Because I'm hearing that there is some issues with sourcing for corn from international markets. So where is this corn going to come from, Namarita?

 

Namarita Kathait:

Edward, India only allows the import of non-GMO, which is your non-genetically modified, fair, average quality standard corn. And these are imported from two major origins, which is Myanmar and Ukraine, from the Black Sea region. And in a very little quantity, it is also bought from UAE. Russia used to be a choice, but I was talking to some importers, and they said that phytosanitary import requirements for corn is not met by Russia. For Ukraine, Indian exporters have to purchase corn at 15% import duty under a tariff rate quota of 500,000 metric ton for one financial year. Like we discussed, India levies a 60% import duty on corn. However, Indian importers can import corn from Myanmar on 0% tariff.

It is likely that Myanmar will play an important role for corn's demand in India because of Myanmar's status of the least developed country, as opposed to Ukraine. Hence, Myanmar is likely to be the key choice of India's corn imports. And it's a neighboring country as well, which means that, from Myanmar, it's only six to seven days shipment. So importers would do a monthly contract, and Myanmar will sell for October to November and November to December, as opposed to Ukraine that takes 38 days to reach Indian port, that I heard from trade sources. An interesting thing to add here is that non-GMO corn that India imports is quite expensive, as compared to GMO corn from the US, or even Ukraine. Market sources indicated that if ethanol demand persisted, it is likely GMO corn import would be pushed by trade lobbyists. And it is likely that government might make some policy changes.

 

Edward Low:

Thank you, Namarita. Yeah, it certainly sounds like a challenge for India to overcome. So, finally, I have a question to Samyak that I've been pondering for a while. And how has India done in terms of sticking to these biofuel mandates in the past?

 

Samyak Pandey:

So, Edward, up until now, the project has been very ambitious, and the blending is on track, and it's ready to meet the target. But the way forward is, this might be a bit of supply and demand tightness because, in terms of feedstock, which primarily has been sugar cane or sugar derived molasses up until now. In last couple of years, due to weather changes and other climate vagaries, India has witnessed certain tightness in the feedstock. For example, the whole project initially started in 2001, but the progress was slow. And in terms of sticking to the mandate, if you see, in 2022, the target, of the 20% blending target, was advanced. Initially, it was set for 2030. But, in 2022, it was pushed ahead to 2025. So the target has been advanced, the blending has been on target. For example, couple of months back, the country has successfully achieved 15% ethanol blending. So according to the government, the country's well on target.

But, on the other hand, if market sources are to be believed, the road ahead can witness some terms of feedstock tightness that we are discussing as of now, the shift from sugar cane or sugar derived feedstock to corn. And even a couple of government owned public sector companies are targeting second generation ethanol feedstock, such as bagasse, which is another crop residue of sugar cane. It's in heavy demand and has a very good yield or output for ethanol production. And then a couple of projects in eastern side of the country has also been focused on use of bamboo as ethanol feedstock. So the project is quite ambitious. It has been going very well in the past, but the road ahead seems a bit difficult for the government. But we are exploring a lot of opportunities. In fact, few months back, government has also said that it is exploring a new initiative to blend 5% ethanol in diesel. I know it sounds very interesting and technically challenging at the same time, but, yeah, pretty ambitious, however.

 

Edward Low:

Thanks, Samyak. Yeah, it sounds like there's a lot of ambitious plans, however, there have been success in following through with previous objectives. So we have explored this topic of how India's ethanol policy is driving increasing corn demand, both locally and for imports. And so we have come to the end of this podcast. Thank you very much, Namarita, Samyak, and Rishab, for joining us today in this conversation. And, of course, thank you for listening. This Commodities Focus podcast was produced by Shikha Singh and Dipthi Bhat.