Economic Survey Warns of Risks from Biofuel Incentives on Cropping Patterns and Food Security

The Economic Survey has highlighted potential issues with biofuel mandates and feedstock-specific price incentives. It warns that without regular adjustments, these policies could disrupt cropping patterns and affect food prices over time. Drawing from global experiences, the Survey suggests that sustained incentives might unintentionally favour certain crops, impacting agricultural diversity and food security.

India's ethanol blending programme, a crucial part of its energy security strategy, has shown significant benefits. It has reduced crude oil imports, cut foreign exchange outflows, lowered emissions, and increased farmer payments. By August 2025, the programme saved over Rs 1.44 lakh crore in foreign exchange and replaced about 245 lakh tonnes of crude oil.

Ethanol Blending Programme

India mandates a 20 per cent ethanol blend in petrol. The government sets ethanol prices annually based on feedstock, ensuring oil marketing companies purchase it. As the programme advances, the Survey advocates for a comprehensive policy that considers both energy and food security. This approach aims to prevent market distortions favouring specific ethanol feedstocks.

The Survey calls for measures to boost yields in pulses and oilseeds to restore their profitability. It emphasises avoiding market distortions that give undue advantages to certain ethanol feedstocks. A planned expansion of ethanol crops should align with regional resources to maintain economic rationale while safeguarding food security.

Impact on Crop Production

As blending targets move towards 20 per cent E20, the programme now includes food grains like maize alongside sugar-based feedstocks. This diversification has enabled rapid scaling but may affect crop diversity and food security due to administered ethanol pricing and technological advances in maize cultivation.

Maize production has surged due to productivity gains and favourable market signals. National maize yields increased from about 2.56 tonnes per hectare in FY16 to around 3.78 tonnes per hectare by FY25. In contrast, yields for oilseeds, pulses, and millets have stagnated or declined.

Price Incentives and Crop Shifts

The government annually sets differentiated ethanol prices by feedstock with assured purchases by oil marketing companies. From FY22 to FY25, maize-based ethanol prices rose at an annual growth rate of 11.7 per cent, outpacing rice or molasses-derived ethanol. This created strong price signals favouring maize cultivation.

This policy partly aimed to reduce water-intensive paddy cultivation but hasn't decreased paddy acreage as expected. Instead, maize production and cultivated area grew at annual rates of 8.77 per cent and 6.68 per cent between FY22 and FY25.

Regional Crop Competition

During the same period, pulses saw declines in both output and acreage, while oilseeds and cereals excluding maize posted modest growths of 1.7 per cent and 2.9 per cent respectively in area under cultivation. In states like Maharashtra and Karnataka, maize increasingly competes with pulses, oilseeds, millets, cotton, and soybean for resources.

The OECD-FAO projects global cereal yield growth mainly due to technological improvements, making maize more appealing even without policy support. Ethanol pricing has reinforced this trend by providing strong market signals for maize cultivation.

With inputs from PTI