The Food Corporation of India sold 52.22 lakh metric tonnes of rice for ethanol in 2025-26 to reduce surplus stock. Amid this surge, authorities identified two cases of grain diversion in Uttar Pradesh and Madhya Pradesh, leading to tighter scrutiny of ethanol supply chains.
The Food Corporation of India has ramped up the sale of rice for ethanol production, reporting a record volume of 52.22 lakh metric tonnes in the 2025-26 fiscal year. This marks a significant increase from previous years, reflecting the government's strategy to manage overflowing state warehouses. As of July 31, in the current financial year of 2026-27, the corporation had already sold 23.42 lakh metric tonnes of rice to support the ethanol blending program.
While this initiative aims to balance food security with energy targets, it has brought to light supply chain risks. Government agencies recently detected two instances where rice intended for ethanol production was allegedly diverted by mills in Uttar Pradesh and Madhya Pradesh. In response, the Food Corporation of India has stopped all further rice allocations to the specific distilleries involved in these incidents. This development highlights the increased regulatory focus on ensuring that subsidized grain is used strictly for its designated purpose rather than finding its way into the open market.
High Storage Costs Driving Sales
The primary driver behind these large-scale sales is the ballooning cost of maintaining excess buffer stocks. Government data presented in the Rajya Sabha indicates that the financial burden to carry rice stocks has surged, reaching ₹10,171.71 crore in 2024-25, compared to ₹3,143.89 crore in 2020-21. With the country holding 403.11 lakh metric tonnes of rice as of July 1—far above the required buffer norm of 135.40 lakh tonnes—the government has been aggressively using the ethanol route to liquidate surplus inventory.
Sector and Policy Implications
For the broader economy and the ethanol sector, the focus remains on the balance between food supply and energy production. The government continues to set fixed prices for rice allocated for ethanol production under the Open Market Sale Scheme. However, the recent diversion cases suggest that regulators may adopt a stricter approach to monitoring how these grains are processed at the distillery level.
Investors and market participants should monitor future government announcements regarding the ethanol blending program, as any shift in policy toward food feedstock could affect raw material availability for distillers. The key area to watch will be whether the government increases oversight on distillery operations to prevent further misuse of subsidized grain, and how this impacts the overall supply chain efficiency of the ethanol industry.