Ethanol Policy's Ripple Effect: Energy Transition's Cost Hits Indonesian Kitchens

Read The Diplomat, Know The Asia-Pacific What began as an energy policy to reduce crude imports has travelled through the agricultural supply chain and ended up on the dinner table. India’s ambitious plan to mix ethanol with petrol was touted as the country’s answer to reducing crude-oil imports, saving precious foreign exchange and, above all, bringing down petrol prices. Union Minister for Road Transport and Highways Nitin Gadkari, one of the biggest advocates of ethanol blending, had even said that the use of ethanol would bring down the price of petrol from around 110 Indian rupees or $1.15 per liter at present to just 15 rupees. Gadkari is not the petroleum minister. His vociferous support for ethanol blending has raised many eyebrows. Opposition parties, including the Congress, have accused him of conflict of interest, alleging that the E20 fuel he is promoting benefits companies owned by his sons. Gadkari has dismissed these allegations as “politically motivated.” However, instead of conferring benefits on consumers, the introduction of E20, a blend of 20 percent ethanol with petrol, is taking a heavy toll on vehicles and the household budget of middle-class Indians. E20 has had no impact on petrol prices or crude oil imports. On the contrary, it has triggered concerns over mileage, compatibility and its effect on older vehicles. This has forced consumers to opt for ethanol-free, ultra-premium fuel, which is, of course, expensive. Apart from the economic effect, is its impact on the Narendra Modi government. It is the worst PR disaster the government has ever faced. Social media is flooded with reports of the high cost of ethanol production, besides the huge amount of water usage. According to reports, the average cost of producing or procuring ethanol is around 66 to 72 rupees per liter, which is higher than the refinery cost of around 52 to 55 rupees per liter of pure petrol when crude oil prices are near $70 a barrel. The public outcry became louder when sugar prices surged dramatically in recent weeks, reaching around 70 rupees a kilogram in some markets. The government has responded by permitting duty-free imports of one million tons of raw sugar — the first such move in nearly a decade. Although the government tried to assure the public that the diversion of sugarcane has declined from around 12 percent in 2022-23 to about 9 percent in 2025-26, the damage was done. The hue and cry over rising sugar prices had hardly subsided when egg prices rose by around 35-40 percent due to corn being used for ethanol production. Corn is not merely a crop that can be converted into fuel. It is also a crucial ingredient in poultry feed. Recent reports suggest that around 37 percent of India’s corn production is now going to ethanol distilleries. According to the poultry industry, corn accounts for roughly 65-70 percent of poultry production costs. For the first time, India, which was Asia’s top corn exporter, has become a net importer. Recent reports suggest that around 37 percent of India’s corn production is now going to ethanol distilleries. Nitin Gupta of Olam Agri India says the poultry and starch industries are “battling with distilleries to get their share of supplies, and this fight is keeping prices high.” And once corn becomes more expensive, the impact does not stop with corn alone. It enters the food chain. Egg prices have risen by around 35-40 percent over the past year, according to industry data. The same corn-based feed is used by broiler chickens raised for meat. So, when the cost of poultry feed rises, the cost of producing chicken rises too. What began as an energy policy has therefore travelled through the agricultural supply chain and ended up on the dinner table. That is the real danger. One diversion can affect the entire food chain. And corn may not be the end of the story. India has also allowed rice to be used as an ethanol feedstock, including rice from the Food Corporation of India’s stocks. The government has defended the policy by arguing that it uses surplus grain and gives farmers an additional market. The danger is not necessarily that every grain will suddenly disappear into an ethanol plant. The danger is that diverting one commodity can set off a chain reaction across several others. That is a dangerous connection. The world has seen this before. India is not the first country to discover that the road from the petrol pump to the dinner table can be surprisingly short. During the global food-price crisis of 2007-08, the rapid expansion of biofuels was identified by economists as one of several factors behind the dramatic rise in food prices. There were many causes: high oil prices, droughts, declining grain stocks, rising demand and export restrictions. But the conversion of food crops into fuel created another powerful source of demand. Agricultural economists C. Ford Runge and Benjamin Senauer warned in 2007 that the diversion of corn into ethanol was sending “shock waves through the food system.” During the 2007–08 global food price crisis, Simon Johnson, then director of the IMF’s Research Department, argued that food-price inflation during that period was “driven in large part by biofuels policy in industrial countries.” In Mexico, the expansion of U.S. corn-based ethanol contributed to higher international corn prices. Mexico’s dependence on corn as a staple food meant that the increase quickly translated into higher tortilla prices. In early 2007, the country witnessed demonstrations over the rising cost of tortillas. In April 2008, in Haiti, protesters angry over soaring food prices attempted to storm the presidential palace in Port-au-Prince. U.N. peacekeepers fired tear gas and rubber bullets to push them back. Haiti’s prime minister was subsequently forced from office. The lesson from history is simple: when a country starts diverting its food chain towards fuel, it is playing with fire. And once food prices ignite, putting out the fire can be far more expensive than the oil bill it was meant to save. Subscribe today and join thousands of diplomats, analysts, policy professionals and business readers who rely on The Diplomat for expert Asia-Pacific coverage. Get unlimited access to in-depth analysis you won't find anywhere else, from South China Sea tensions to ASEAN diplomacy to India-Pakistan relations. More than 5,000 articles a year. Already have an account? Log in. Asif Ullah Khan is a veteran journalist who has held senior editorial positions at The Times of India, Khaleej Times, The Hindustan Times, and The Brunei Times. He currently writes for The Diplomat, The Wire, The India Legal, The ASEAN Post, and other international publications. Get briefed on the story of the week, and developing stories to watch across the Asia-Pacific.