India-US Trade Talks: Ethanol and Soyabean Sector Concerns

GS3 – Agriculture

Context:

As India and the U.S. move towards finalising a bilateral trade agreement, significant apprehensions have emerged within India’s sugar and oilseed sectors. The U.S. seeks expanded market access for its corn, ethanol, and soyabean, raising fears of negative impacts on domestic agro-industries.

Concerns over Ethanol Imports

• Rising Ethanol Blending: India’s ethanol blending has increased from 1.5% (2013–14) to 14.6% (2023–24).
• Impact on Sugar Mills: Domestic sugar mills, which currently dominate ethanol supply, fear being marginalised if ethanol or maize imports from the U.S. are allowed. This could derail their diversification strategies.

Maize vs. Sugarcane as Feedstock

• Feedstock Trends: In 2024–25, 68% of ethanol supplied to Oil Marketing Companies (OMCs) is grain-based, primarily maize, replacing traditional sugarcane-based molasses or juice.
• Food vs. Fuel Debate: The sugar industry contends that sugarcane-based ethanol does not create a food vs. fuel conflict, unlike maize, which is essential for livestock and poultry feed in India.

Soyabean Industry Challenges

• High Transport Costs: Processing units located in interior regions (e.g., Madhya Pradesh, Maharashtra) face logistical challenges, making imports uneconomical.
• Farmer Livelihoods at Risk: With 7 million soyabean farmers and existing prices already below the Minimum Support Price (MSP), more liberalised imports could deter cultivation.
• Industry Sustainability: India processes ~12 million tonnes of soyabean annually but lacks a substantial domestic feed market to absorb additional GM (Genetically Modified) meal imports, unlike China.
• Tariff Pressures: Import duties on crude soyabean, palm, and sunflower oils have been reduced from 27.5% to 16.5%, compressing profit margins and threatening industry viability.

U.S. Push for Agro Exports

• Export Diversification: The U.S. is actively seeking alternatives to the Chinese market, with India offering a large consumer base.
• Policy Advocacy: NITI Aayog has proposed importing GM maize for ethanol, highlighting its cost-effectiveness and minimal impact on food supply.