Opening Channels For Export

Trade missions set out to identify opportunities and constraints in ethanol export markets.
By Susanne Retka Schill | January 17, 2015

The U.S. Grains Council is teaming up with Growth Energy, the Renewable Fuels Association and the USDA Foreign Agriculture Service on a new four-way partnership in ethanol export market development.

There’s a big difference between trade and market development, says Tom Sleight, CEO of the U.S. Grains Council. “Marketing is seizing on current activity. There are some curious markets that have developed in the current ethanol scheme that are quite good, but somewhat built on curiosities in market access. For instance, the Philippines brings in ethanol and sends some of that blended fuel up to China, which actually has a current ban on the importation of ethanol as ethanol. The United Arab Emirates is a big, strong importer of ethanol right now, mainly because of octane reasons. Norway is a fairly good market right now, because of some of the curiosities of biofuel policies in the European Union. All these current markets are very important. We want to maintain them. But we want to get after those core constraints that exist in markets that prohibit them from growing.”  Those may be trade barriers, internal policies or other market constraints, he explains.

By year-end, three trade teams organized by the U.S. Grains Council visited six countries to assess those opportunities and constraints: Japan, Korea, Panama, Peru, Singapore and Philippines.
Eric Mosbey, general manager of Lincolnland Agri-Energy LLC, was on the team that visited Japan and Korea. “The purpose was to learn as much as possible about market opportunities in these countries. I think we learned there are potential opportunities, but we do have a lot of work to do, just as we do here in the U.S., on education and selling the benefits of our product. There are potential doors to open, but they’re not going to open on their own.”  

Alex Marquis, logistics manager at Marquis Energy LLC, was part of the team that visited Peru and Panama. Opening channels of communication is an important first step, he says, “developing relationships and connections with the key players, be it government officials or private entities, in Peru, Panama and these other areas where the U.S. Grains Council is sending representatives on these trade missions. Being able to share information and outline where things are and where things need to go.”

The initiative has been in the making for two or three years, Sleight says. “It’s been an ongoing conversation with our constituents, corn states, agribusiness members and the ethanol industry, including Growth Energy and the Renewable Fuels Association.”  The big corn harvests of the past two years, growing year-end stocks and increased competition globally for corn exports entered the conversation, he says. “A lot of discussion within the corn sector started to gravitate towards, ‘should we be looking a lot more aggressively at export market development for ethanol?’”

Long a promoter of distillers grains exports around the world, the USGC needed two more things to happen. First, the Farm Bill had to make it through Congress to reauthorize and fund the Market Access Program, a public-private partnership for export market development through the USDA Foreign Agriculture Service. The final piece was the formal authorization that FAS resources and MAP funding could be used for biofuels, announced by Secretary of Agriculture Tom Vilsack at the Commodity Classic last winter.

A steering committee was formed to cement the four-way partnership among USGC, FAS, Growth Energy and RFA and an advisory committee of USGC members was formed with Ray Defenbaugh, CEO of Big River Resources LLC, appointed chair.  “We have been working on this for a considerable amount of time as an effort between the ethanol producer organizations, independent producers as well as the grains council,” Defenbaugh says. “We could see it coming.” Unusual weather events, primarily the drought, shortened the corn crop, he recalls, taking the pressure off for a couple years. “But we knew that wouldn’t last and when we got back to normal, we would have a surplus of grains. A good use of that is for value-added products such as ethanol.”

 The grains council was ready to move. “We started in April,” says Ashley Kongs, manager of ethanol export programs at USGC, “putting together a list of countries and creating profiles as to where they currently stand with biofuels policies, if they’re exporting, if they have a mandate, what the environment for renewable energy is there, how focused they are on looking for alternative sources of energy. We created this map of the ethanol markets that we wanted to look at and, from there, we decided to highlight some of the countries that most interested us in the initial stage of exploring the markets.”

The three trade missions were planned for the end of the year, plus USGC was able to add an ethanol component to a USDA market development mission to China conducted in May. The trade teams have been quite small, just five or six people. The list includes Kongs, a USGC regional or country director, an ethanol producer or two, and a staff member from an ethanol organization partner. The groups have met with academics, government officials and potential buyers in each of the countries. 

First Look
The trip to Japan and Korea was first. Korea uses industrial ethanol, but no fuel ethanol, says Kongs. “We talked to policy marketers and researchers in Korea about why that is.” Japan has an E3 blend limit, not a mandate, she continues, but has done little ethanol blending. “They’ve done a limited-scale ethanol trial in Okinawa. They have about 100 filling stations where E3 gasoline is on sale. But it’s only in that one area and it hasn’t spread to the rest of the country.”

Food security is a big issue for densely populated countries like Japan and Korea, says Mosbey. “The spike in prices all the way back in 2008 really turned those countries off,” he says. “We’ve had a lot of improvements and efficiency gains in the industry in the last five to seven years, but they’re still using old, outdated information.”

Ethanol can help these two densely populated countries with other issues, Mosbey suggests. “The one thing those countries do need is a cleaner fuel, and carbon emissions are definitely on their minds. Ethanol has to stay in the conversation for them because of that.”   

Peru and Panama have very different dynamics regarding biofuels. Panama adopted an E5 mandate in 2013 that has since been suspended, leaving a sour taste with the public when it emerged that some government officials might have personal interests in Panama’s sole ethanol plant. Panama’s past experience with ethanol also left some unfavorable impressions. There was a price disconnect that put the price of ethanol too high, Marquis reports. The key to introducing ethanol more successfully will be education of the general public and government officials on the benefits of ethanol and what it can do, he says, benefits such as clean emissions, high octane, the potential price benefits and the boost it gives to transportation fuels.

Where Panama is using no ethanol right now, Peru has a 7.8 percent blend rate. “They’re using ethanol, they’re importing it,” Marquis says. “It’s encouraging that there’s a base to build off. Coming from Marquis Energy where we produce and ship ethanol domestically and globally, we want to see that 7.8 percent grow.” The trade mission’s task was to learn more about Peru’s industry and trade. Peru’s domestic ethanol production has grown in recent years, though it still doesn’t meet the country’s needs. On top of that shortfall, Peru’s sugarcane-based ethanol’s low-carbon rating attracts European buyers, making room for imported ethanol from the U.S.

While countries like Japan and Korea could benefit from the lower carbon scores of U.S. ethanol, the benefits of ethanol imports wouldn’t be as significant for Peru in that area, given the low-carbon scores of its own production, Marquis says, though ethanol might be attractive for another reason. “The benefits might be seen for the refiners and also for the consumers more on the octane rating,” he says. “We learned the refiners are blending their gasoline to a 95 octane rating before blending in the ethanol.”

The last trade mission in December sought to learn more about what appears to be a very promising Southeast Asian market with visits to Singapore and the Philippines. Singapore, for instance, is a refining hub and trade center for the region and could potentially become a destination for more U.S. ethanol. The Philippines has an enforced E10 mandate that its four ethanol producers fall short of meeting. Last year, the country imported 51 million gallons of U.S. ethanol, making it the second largest market after Canada. The country’s domestic industry lacks the scale and efficiencies necessary to be competitive in the global ethanol market, and availability of feedstock remains one of its largest constraints. The USGC reports the Philippine Department of Energy has ambitious plans to continue to ramp up the ethanol blend rate which has moved from E5 to E10 over the past two years and is set to reach E20 by 2020.

Steps Ahead
Sleight explains the market assessment initiative for ethanol follows the formula the council has successfully used since it began in 1960 to develop a coordinated, strategic market development strategy. “We go and start talking to our contacts, the current people who may be importing, talking about policy barriers and constraints to market access, be that price or policy or whatever,” he says. He is pleased with the initiative’s progress in the first year. “It’s happening quickly, it’s going well, and it’s going better than I thought it would be. It’s going faster than I thought it would,” Sleight says. The next steps for the steering committee representing the four partners—USGC, FAS, Growth Energy and RFA—will be to evaluate what’s been learned, decide whether a few more countries need initial assessment missions and where to focus 2015 efforts, as well as plan for 2016. “When the U.S. Grains Council builds market develop programs, our directors overseas are always taught to think strategically,” Sleight says, “to think in sequential steps, identify constraints and plan activities to address those constraints and implement those. It’s a marriage between our ability to create export market development strategies combined with RFA and Growth’s technical and marketing expertise. It makes a really strong partnership.” The USGC used about $125,000 worth of programming for fiscal year 2014, which ended Sept. 30, and has earmarked about $500,000 for export market development activities in 2015. The budget and goals for 2016 will be determined in the next few months as well.  
Recalling his several trips with the USGC in promoting distillers grains exports around the world, Defenbaugh adds, “I would encourage any producer to participate in these trade missions that they’re going to have. That’s where the expertise comes from and that’s what the grains council is relying upon. Having the expertise to represent us well is important.”

“It’s been really great to take producers and ethanol industry folks on these missions,” Kongs concurs. “It’s been really helpful to be able to involve them in discussions when we go and meet with policymakers in Korea or trading houses or groups in Japan and Peru and Panama. It’s been really helpful to have that hands-on experience in the room.”

Author: Susanne Retka Schill
Senior Editor, Ethanol Producer Magazine



USGC Ethanol A-Team

Ray Defenbaugh, Big River Resources LLC, chairman
Chad Willis, Minnesota Corn Research & Promotion Council
Joel Williams, Archer Daniels Midland Co.
Keith Truckor, Illinois Corn Marketing Board
Phil Thornton, Illinois Corn Marketing Board
David Spickler, Blue Flint Ethanol LLC
Rick Schwarck, Absolute Energy LLC
Darrel McAlexander, Iowa Corn Promotion Board
Alex Marquis, Marquis Grain Inc.
Duane Kristensen, Chief Ethanol Fuel Inc.
Greg Krissek, Kansas Corn Commission
Kent Kleinschmidt, Illinois Corn Marketing Board
Paul Jeschke, Illinois Corn Marketing Board
Jim Galvin, Lakeview Energy LLC
Kathy Frahm, Farm Credit Services of America
Jay Fischer, Missouri Corn Merchandising Council
Dale Drachenberg, Didion Inc.
Greg Dare, Illinois Corn Processing LLC
Kimberly Clark, Nebraska Corn Board
Steve Bleyl, Green Plains Inc.
Eric Baukol, Heron Lake BioEnergy LLC
Erick Erickson, USGC
Jim Stuever, Missouri Corn Merchandising Council
Dick Gallagher, Iowa Corn Promotion Board