Ethanol and the political power of crops

The sugar sector used to be the primary beneficiary but now that sugar’s share of ethanol supply has been capped, the mandate largely favours maize and rice growers

In The Omnivore’s Dilemma, Michael Pollan makes the case that while we think of agriculture as the process by which humans domesticated plants, in some sense, it is crops like maize that have domesticated people by encouraging us to grow more of them. The current varieties of maize were bred for yields, harvestability, sugar content and productivity. By the 20th century, maize was being used for everything from animal feed to high-fructose corn syrup, and had effectively embedded itself in the industrial food system more than almost any plant before it. While this is a bit of a writer’s trope, it is generally true that plant traits and profitability then drive lobbying efforts and government policy in their favour, which then ensures that these traits are further selected for.

Diverting food grains toward fuel raises questions about whether scarce agricultural resources should be used to produce energy rather than food (HT Archive)

Take the example of tea. The British did not discover a taste for tea worldwide out of nowhere. Tea originated in China. But the industrial plantation system built in Assam and Ceylon that transformed tea into a global commodity was largely a British creation to satisfy a tea-drinking market they had already created. Tobacco is another example. American tobacco companies, in the face of domestic smoking declines through the 1980s, used US trade pressure to force Japan, Taiwan, South Korea and Thailand to open their cigarette markets to multinationals. As a result, cigarette sales and smoking increased in parts of East and Southeast Asia, expanding the global tobacco market. Another example is of palm oil in Indonesia and Malaysia, where biodiesel mandates gave an already valuable edible oil crop an additional market, and contributed to further expansion of plantations, including deforestation in parts of Borneo.

The crop that has domesticated India is, arguably, sugarcane. The government has set a Fair and Remunerative Price of ₹355 a quintal for the 2025–26 season, which is more double the ₹173 estimated cost of production. Several states pay even more on top of that floor price. Meanwhile, farmers get flat-rate or subsidised electricity to run the pumps that irrigate a highly water-intensive crop. For decades the government supported sugar consumption through subsidised distribution schemes. As a result, over 60 years, a sugar industry and lobby has grown, which is now among the strongest in the country.

Both the American corn sector and India’s sugar industry have found ways to expand their market by lobbying for government subsidies to support the conversion of crops into fuel. In the US, more than a third of American corn production is processed into ethanol to satisfy clean energy mandates. In India, the ethanol programme, which began in 2003, mandated that fuels should have a 5% ethanol content in selected states. This mandate has expanded over time. The National Biofuel Policy of 2018 established a goal of 20% ethanol blending by 2030, a deadline that was brought forward by five years. To make this happen, the government directly subsidises ethanol by setting favourable procurement prices, underwrites risk on loans for new distilleries, and has reduced the GST on ethanol from 18% to 5%.

But the origins of this policy are worth examining. In the 1990s, India’s sugar industry was producing more sugar than domestic markets could absorb. Diverting sugarcane into ethanol provided a new market for a crop whose expansion had already been encouraged by decades of price and subsidy support. India’s ethanol policy is moving toward the American model just as that model faces increasing criticism. A 2022 study in the Proceedings of the National Academy of Sciences estimated that when additional land brought into cultivation because of government policy was considered, US corn ethanol had much higher greenhouse gas emissions than the fuel it replaced.

The water implications are especially important for a water-stressed country like India, and because sugarcane is among the most water-intensive crops grown in the country. For example, sugarcane occupies only about 4% of cultivated land in Maharashtra but consumes more than half of the state’s irrigation water. A 2020 study in the journal Environmental Research Letters estimated that if India met its 20% ethanol blending target through the molasses pathway, it would require an additional 1.32 billion tonnes of sugarcane by 2030. At current yields and water-use rates, that would translate to roughly 348 billion cubic meters of additional water and 19 million additional hectares of land, bringing land and water requirements to roughly four times their 2010–2018 levels.

Moving from sugarcane to grain-based ethanol does not solve these problems. Maize, too, requires land and water. Diverting food grains toward fuel also raises questions about whether scarce agricultural resources should be used to produce energy rather than food.

But let us first start with the problem that is being solved rather than concluding that ethanol is the solution. If the concern is the climate crisis, electric vehicles can cut fuel demand directly, and subsidies for sugar could go toward EV adoption instead. Second-generation ethanol, made from crop residue rather than food-grade grain or sugarcane juice, is also an option. India’s newer biofuel scheme encourages this approach since it does not directly compete with food crops or require additional irrigation for feedstock production.

But it is slower and costlier to build, which is probably why the industry has not pushed for it. If the concern is energy security, reducing oil dependence through electrification is likely to deliver larger and more durable gains than replacing one imported input with another resource-intensive pathway. If the concern is for farmer incomes, then a direct payment would be cheaper than the elaborate subsidy system for ethanol. All of this leaves only one plausible reason for the ethanol mandate, which is to keep politically favoured crops profitable.

Previously, the primary beneficiary was the sugar sector but now that sugar’s share of ethanol supply has been capped, the mandate largely favours maize and rice growers, although there are more efficient ways of paying them. These are important questions for a country with limited fiscal space and a situation of worsening rainfall reliability and a dropping water table, along with heat stress. When these risks coincide in the future, the consequences will be severe. The question for policymakers is whether that risk is worth the short-term advantage.

Ramanan Laxminarayan is president, One Health Trust. The views expressed are personal