The industry insists the tariff must stay. Concerns began to arise in January of this year when U.S. Secretary of Energy Samuel Bodman addressed the U.S. Chamber of Commerce and hinted that changes may lie ahead. He said he believed the U.S. ethanol industry is close to being able to stand on its own. Bryan Sherbacow, chief executive officer of Ethanex Energy Inc., a Kansas-based ethanol producer, was perplexed by Bodman’s statement. He says if the U.S. ethanol industry is no longer in its infancy; it is certainly no more than toddling. “This industry has not had its legs underneath itself until now—if it has them now,” he says.
Sherbacow is not alone, and the producer’s primary concerns is focused on the world’s largest ethanol producer—Brazil. The sentiment throughout the ethanol industry is that lifting the tariff would be grossly unfair to U.S. producers and farmers. While the Brazilians argue that ethanol should be treated the same as all other fuels when it comes to imports and exports.
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Integrated Environmental Technologies LLC President and Chief Executive Officer Jeff Surma, says his company has been attentive to all renewable fuel issues, and he believes the industry has some strong allies. “The biggest lobby against eliminating the import tariff, of course, is the farm lobby,” he says. “They have a very strong voice.”
Andy Foster, corporate spokesman for American Ethanol LLC in Illinois, says the disadvantage would be akin to a mouse fighting a gorilla. A small group of farmers from the Midwest should hardly be expected to compete with the Brazilian government, Foster says. “The Brazilian government paid for most of the infrastructure built up down there, it wasn’t private industry,” he says. “In order for the industry to really gain its legs and be able to compete on a worldwide basis, we can’t have a friendly competitor come in from the south and bomb out the price of ethanol on us.” Foster explains just how different the situations are between the United States and Brazil. “They certainly have a greater advantage in that the private companies weren’t saddled with trying to figure out how to do logistics and [install] E85 gas pumps and all the rest of it—the government paid for all that,” he says.
Sherbacow is concerned that the years of hard work and extensive efforts put forth to building up the ethanol industry could be undermined if the tariff were to be lifted, and now more than ever it plays a crucial role in allowing the industry to mature. “We have just made a significant investment as a country into this platform and it’s immature right now—[the United States] needs more time before it can properly compete,” he says. Foster agrees saying that he believes this is not the time to suddenly change course. “The government has made a commitment to the industry which is well appreciated,” he says.
U.S Producers Versus the Brazilian Government
The proverbial David versus Goliath scenario that would play out if small co-ops and Midwest farmers were forced to become global contenders against an economically and financially supported competitor, in essence, a foreign government, is not the only problem U.S. producers see in their future if the tariff is removed. “[We would be] paying Brazilians to produce ethanol, because we’ll have removed the tariff for bringing it into the country, yet we’re crediting them or they’re going to benefit from the blenders’ credit,” Sherbacow says.
The possibility that the tariff could be lowered or even removed compounds issues that producers already face such as the high cost of corn. All eyes are on farmers in the Corn Belt as they decide what’s more profitable to plant—corn or soybeans. Corn prices could rise even higher if acres are reduced substantially. “In light of $5 corn and everything that’s gone upside down in terms of the commodities markets, I think the government needs to re-authorize that (tariff),” Foster says.
Ethanol producers are also often forced to defend themselves when discussions arise about food versus fuel. Although the ethanol industry is using a greater share of the corn crop as production has increased, there are other factors to consider, including record-high fuel prices, a greater demand for food in developing countries and crop disasters in some parts of the world. Unfortunately, ethanol often shoulders much of the blame for high food prices. “There’s actually more corn available this year than last year, even when you subtract the new demand from ethanol,” says Don Endres, chief executive officer of VeraSun Energy Corp. “Clearly, market dynamics in addition to ethanol are at work driving corn and other commodity prices.”
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