The government has rolled out the standard operating procedure (SoP) of its scheme through which cooperatives such as NAFED and NCCF will enter into pacts with distillers for assured supply of maize at ₹2,291 per quintal for producing ethanol.

The scheme’s objective, under which the first agreement between a distiller of Chhindwara (Madhya Pradesh) and NAFED is likely to be signed on Monday, is to ensure the guaranteed minimum support price (MSP) to maize farmers, while distilleries get assured uninterrupted supply of the feedstock, de-risking price volatility for both.

The timing of the roll out of the SOP is seen by experts to help the government in its negotiations with protesting farmers on the Punjab-Haryana border. The development also assumes importance as the government is trying to convince the farmers, who have threatened to block the national capital, similar to last year, to force the government to make MSP mandatory. Offering a guaranteed MSP to farmers will aid in convincing them to drop their demand.

The move is part of the government’s efforts to increase blending of ethanol with petrol, which hit 12 per cent in Ethanol Supply Year (ESY) 2022-23 and aims to reach 15 per cent in ESY 2023-24. It is learnt that the blending rate in current ethanol year that began from November 2023 was around 12 per cent as on January 31.

Through the ethanol blending programme (EBP), the aim is to promote biofuels, enhance farmer’s income and reduce the import bill on crude oil, which stands at more than $157 billion in FY23.

Under the SoP, NAFED and NCCF will enter into a supply contract with distillers for supply of maize with price, quantity, location of supply and other commercial terms and conditions pre-defined for the ESY.

Assured supply

The agreement will cover the remaining period of current ESY with quarterly supply milestones and pricing as well as location of supply, quality commitments and delivery norms.

The price of maize to be paid by distiller for ESY 2023-24 has been fixed at ₹2,291 per quintal, which includes all procurement costs and agency margins. The current MSP on maize is ₹2,090 per quintal, which will be revised later but will be effective from October, 2024.

The distiller will pay the transportation cost of maize from the mandi to the distiller’s warehouse. If the sale is through the ONDC platform, then the buyer will bear the buyer margins of ONDC.

Under the plan, co-operatives will register farmers to join the programme and will ask the distilleries for their requirements. On the basis of the demand, farmers will be motivated to grow maize to get the required quantity with the assurance to buy from them at MSP. Distilleries will also have to commit to pay the rates to cooperatives in advance, a source said.

When asked why the farmers would join the scheme, the source explained “It’s a win-win. Farmers will be adequately compensated for growing corn with assured price, further incentivising them to continue growing the crop, similar to the sugarcane model. Distillers would agree, as the price of ethanol is fixed by the government based on cost of feedstock and is in favour of the distillers so that they too are encouraged to continue.”

Last month, Cooperation Minister Amit Shah launched a portal where tur farmers can register themselves to get assured prices for their produce.

Shah had said that soon, the portal would allow maize farmers to register and link them with ethanol producing companies who would transfer the money into the bank accounts of farmers.

Ethanol target

To achieve the target of 20 per cent ethanol blending with petrol under the EBP programme by 2025, the focus is on maize, a hardy crop that can withstand drought.

With production of sugarcane expected to be impacted, the government is focusing more on increasing the use of maize as a feedstock for producing ethanol. To achieve this, the production of the commodity needs to be increased.

To ensure this, the Agriculture Ministry is working with Ludhiana-based Indian Institute of Maize Research (IIMR) to come out with a scheme to increase productivity and production from the current 36 million tonnes.

Public sector oil marketing companies (OMCs) have announced an incentive of ₹5.79 per litre (excluding GST) for ethanol sourced from maize. Post this, the price has risen to ₹71.86 a litre for the ESY 2023-24.