Rice Diversion by India to Ethanol production under WTO radar

Relevance: Money Control, CNBC TV18

India's allocation of state-held rice for ethanol production has drawn intense scrutiny at the World Trade Organization (WTO), with the United States formally demanding a detailed explanation of how these actions comply with international trade rules. While Washington alleges that India is using subsidized public stockholding to distort markets, the Indian government—via official Press Information Bureau (PIB) releases—maintains that the program strictly utilizes certified surplus grains without compromising domestic food security. 

The WTO Scrutiny & US Objections

The United States has raised structural concerns ahead of the WTO Committee on Agriculture meetings: 

Breach of the Bali Peace Clause: Under the WTO's Bali Decision on Public Stockholding, developing nations are permitted to support farmers through administered prices (like India's Minimum Support Price) only if the stocks are strictly used for domestic food security. The US argues that diverting millions of metric tons of these stocks to commercial purpose ( Ethenol distilleries ) violates these guardrails.

Bali Peace Clause: At the 2013 Bali Ministerial Conference, much of the focus was on a proposal to shield public stockholding programmes for food security in developing countries, so that they would not be challenged legally even if a country’s agreed limits  for trade-distorting domestic support were breached. Ministers agreed that their solution would be interim, until a permanent solution was found. But by the end of July 2014, members were deadlocked again, until a breakthrough was agreed in November.

The Bali decision on stockholding arises because some developing countries fear they could breach the limits they have agreed on trade-distorting domestic support — ie, support that influences prices and quantities. The stockholding programmes are considered to distort trade when they involve purchases from farmers at prices fixed by the governments, known as “supported” or “administered” prices. Normally the support is within the agreed limits but some countries fear this might not always be the case. (Purchases at market prices are not counted as supported.)

The concern is only on the purchasing side because there are no limits on supplying cheap or free food specifically to the poor or malnourished ( WTO ).

Agreed Limits ( WTO ): For most developing countries, the resulting amount ( trade-distorting domestic support ) has to be within 10% of the value of production (the “de minimis“ level). 

A developing Member benefiting from this Decision must ( WTO ):

1. have notified the Committee on Agriculture that it is exceeding or is at risk of exceeding either or both of its Aggregate Measurement of Support (AMS) limits (the Member’s Bound Total AMS or the de minimis level) as result of its programmes mentioned above;
2. have fulfilled and continue to fulfil its domestic support notification requirements under the AoA in accordance with document G/AG/2 of 30 June 1995, as specified in the Annex;
3. have provided, and continue to provide on an annual basis, additional information by completing the template contained in the Annex, for each public stockholding programme that it maintains for food security purposes; and
4. provide any additional relevant statistical information described in the Statistical Appendix to the Annex as soon as possible after it becomes available, as well as any information updating or correcting any information earlier submitted.

Still, the World Trade Organization has not reached a permanent solution on public stockholding for food security. An interim "Peace Clause" agreed upon at the 2013 Bali Ministerial Conference remains active indefinitely, protecting developing nations from legal challenges if their food stockpiling subsidies exceed standard limits, but a long-term consensus is still unreached. 

Subsidized Industrial Feedstock: According to parliamentary disclosures and US filings, the Food Corporation of India (FCI) has sold rice to ethanol manufacturers through Open Market Sale Scheme (OMSS) e-auctions at prices roughly 40% below its average procurement cost. Washington claims this creates an unfair domestic fiscal subsidy flowing directly into industrial biofuel production.
Ample Stockpiles: The US points out that India's central rice pool has consistently exceeded domestic consumption and mandatory buffer targets due to over-procurement policies, artificially inflating global market sensitivities. 

The Government Response & PIB Clarifications

In response to rising criticisms regarding food inflation and industrial diversion, India’s Ministry of Petroleum and Natural Gas released a detailed statement through the PIB:

Food Security First: The government emphasizes that the Ethanol Blended Petrol (EBP) programme operates on a highly flexible, multi-feedstock model. FCI rice is approved for industrial allocation only after all obligations under the National Food Security Act (NFSA), the Public Distribution System (PDS), and mandatory strategic buffer stocks are entirely fulfilled.
Utilization of Surplus: The government highlighted that during periods of tight supply (such as Ethanol Supply Year 2023-24), FCI rice contributed virtually nothing (0.02%) to ethanol output. Its recent jump to nearly 25% of the feedstock mix in 2025–26 occurred strictly because massive grain surpluses became available after ensuring domestic welfare baselines.
Switching Capabilities: The PIB note points out that the domestic biofuel architecture is designed for distilleries to switch seamlessly between approved commodities (like maize, damaged grain, and sugarcane molasses) based on real-time agrarian market conditions rather than relying permanently on cheap food grains. 

Reference: 

PIB