Ethanol from U.S. Sugar Feedstocks: A Sweet or Sour Deal?

There has been a resurgence of domestic interest in whether or not U.S. feedstocks customarily used to refine sugar—sugarcane and sugar beets—would make good candidates as ethanol feedstocks, as well. EPM takes a detailed look at the U.S. sugar market to see if it's economically feasible.
By Ron Kotrba | January 04, 2007
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For years, countries have demonstrated the economical production of ethanol from sugarcane, most notably Brazil. Some countries produce and process so much cane within their own borders, while heavily protecting their own markets, that these producers aren't as vulnerable to the global sugar trade as U.S. growers have been. The United States implements protective tariffs, too—the Sugar Program passed in the 2002 Farm Bill is unlike any other agricultural subsidy program on the books—to force competitiveness in the growing and processing of domestic sugar beets and cane.

In July 2006, the USDA published "The Economic Feasibility of Ethanol Production from Sugar in the United States." The report states the average cost to produce ethanol in dollars-per-gallon units (including feedstock and processing costs) from sugarcane in Brazil is 81 cents, excluding necessary capital costs. This is compared to U.S. ethanol production via dry milling of corn, which weighs in at $1.05, with an approximate 50/50 split between corn procurement and processing costs. To produce ethanol from sugar beets or sugarcane in the United States, in markets assumed to be relatively constant, the USDA reports one would pay the per-gallon price tags of $2.35 and $2.40, respectively.

Capital investments to build U.S. sugar-to-ethanol processing facilities are much higher than that of corn, too. "Estimates of capital expenditure costs to construct facilities to utilize sugarcane or sugar beets to produce ethanol would be expected to be higher than capital costs for corn-based ethanol plants, primarily due to higher feedstock preparation costs," the government report states. "A [20 MMgy] ethanol plant using sugarcane or sugar beets as feedstock would be expected to have capital expenditure costs in the range of $2.10 to $2.20 per gallon of annual capacity, compared with an estimate of $1.50 per gallon of annual capacity for a corn-based facility."

According to Kevin Hicks, research leader in crop conversion science and engineering with USDA's Agricultural Research Service, it's easier to make ethanol from sugar than from the starch in grains, even though the capital costs per gallon of construction, feedstock and processing costs are all higher than what's needed to make corn-ethanol. "The starch [in grains] has to be broken down to sugars before the yeast can ferment it," Hicks says. "With sugarcane and beet, the primary carbohydrate present is sucrose, which yeast can ferment directly, making the process simpler than with starch-based grains."

Even though it's simpler to make ethanol from sugar, the costs are high and apparently prohibitive. Therefore, with domestic sugar-producer lobbyists trying to keep policies status quo—the very same policies that keep acreage for sugar feedstocks relatively constant and place limits on sugar imports—why is U.S. sugar-based ethanol production under consideration at all?

Get with the Program
When the U.S. Congress passed and President George W. Bush signed the 2002 Farm Bill into law, they did so knowing part of the package included policies to protect American sugarcane and beet producers from low-cost imports being dumped on the world market. Steve Williams, president of two grower associations—the American Sugarbeet Growers Association and the Red River Valley Sugarbeet Growers Association—tells EPM that the sugar beet farmers who make up the two associations would be out of work if it weren't for these protective policies. The sugar policies limit imports, which helps keep the price at a rate that U.S. sugar feedstock growers can swallow. This keeps them in business, along with their cooperatively owned processing plants. These facilities represent the value-added arm of the growers—with U.S. government-certified quality assurance that comes along with domestic refining.

After times of crisis, however, this import regulation is subject to temporary lifts. This occurred after the disastrous 2005 hurricanes. "There were cases of refined sugar coming in with pieces of burlap in it, rodent feces—it was bad," Williams says. The real price of refined sugar today is approximately 16 cents a pound, Williams says, but there are many countries that overproduce, allowing untold tons of excess product to be dumped on world markets, reducing that legitimate 16 cents-a-pound price down to 9 to 11 cents per pound. Such a low price makes it hard for American growers to compete. Putting quality issues aside, the idea of opening up the borders to allow the unfettered importation of cheap product into U.S. markets could lead to lower prices for food products containing sugar, which aren't scarce these days. Following this logic, one might assume that producers currently growing beets and cane could fairly easily switch operations to begin farming crops like corn, supplies of which are tightening beyond previous expectations. This would be shortsighted though.

Major investments over many years have been spent on building the American sugar production complex. Farmers use specialized high-dollar implements for such applications like lifting sugar beets. "Getting out" isn't as easy as it sounds. If proponents of free trade get their wishes in the upcoming 2007 Farm Bill, however, a relinquishment of policies that favor domestic sugar-crop production and refining could result. Williams says he doesn't believe this will be the case, though.

According to Williams, the sugar program as it exists costs U.S. taxpayers nothing. Moreover, he says the United States pays 30 percent less for refined sugar than the average developed country. Opponents of the current policy want a standard program, as most other ag products have, which would mean direct payments and loan deficiency payments (LDPs). "They would get a government check," Williams says. Another problem with the opposition's argument is that currently $1.3 billion a year is spent on the farm program, which he says is already slated for cuts. Therefore, he says, if the sugar program is replaced with a more standard policy, the added costs would have to come from other programs in an already shrinking budget. "We don't feel that this would be right," Williams tells EPM.

If lobbyists for the large candy and confection companies win out, the profitability and demand for ethanol could persuade sugar growers to build ethanol facilities. "These sugar processing facilities are owned by the farmers," Williams says. "If they wanted to make ethanol from their beets, they would do it. But, like the USDA report says, sugar has more value as a food product than ethanol. So, while it's possible, it's not economically feasible." Williams says he believes sugar policies in 2007 will look a lot like what is in place now. "They want free trade, and we want fair trade," he says. "We hope the new trade agenda will be fair."

The one feedstock for U.S. sugar-based ethanol production that the USDA reports as having the most economic potential is molasses. The USDA stated that feedstock and processing costs (excluding capital costs) to produce ethanol from molasses in the United States is 91 cents a gallon, only 10 cents more per gallon than Brazil's costs using raw sugarcane. However, the USDA says, "Challenges may involve having a large enough supply of molasses at a given location to minimize transportation costs to justify construction and operation of an economically efficient ethanol production facility."

New Project, Hard Numbers
Dennis Buffington, professor of agricultural and biological engineering at Penn State University (PSU), is starting a new research project in early 2007, which will look at many aspects of using fodder beets grown in Pennsylvania as an ethanol feedstock. "The sugar beet is a close relative to the fodder beet," he says. "In Pennsylvania, we used to produce a lot of potatoes. Former potato land has good potential for fodder beets. The more agronomists I talk to—and I'm not an agronomist, I'm an agricultural engineer—the more I hear there's a difference between the sugar content in fodder beets and sugar beets. The sugar content is higher in fodder beets than in sugar beets, but not the sugar that tastes good to people. So, for ethanol, that shouldn't make a difference."

His project, called "Fodder Beets: A Feedstock for Pennsylvania Alternative Energy Ethanol Production," is funded for two years thus far and will start with seeds being planted in carefully monitored quarter-acre research plots. "This is exploratory research," Buffington says. "We may end up finding out that the beets grown here are prone to certain diseases or something … but if we get interesting results, we may be eligible for further funding."

Nevertheless, assuming that U.S. sugar producers get their way in the new Farm Bill, the status quo relative to planted sugar stock acreage and produce-delivery obligations to sugar refineries will likely endure. "Recent popular news accounts of the profitability of ethanol production have led many to try to ‘jump on the bandwagon,'" Hicks says. "Anyone who is keeping track of the industry knows that there is only so much corn to go around. People also know that Brazil makes ethanol much more cheaply than we do by using sugar from sugarcane. Basically, people are asking the question, ‘If they can do it in Brazil, why can't we do it here?'"

For one, the sugar program and farmer-owned refining cooperatives made up of these growers limit by their own volition the acreage on which sugar stocks are planted. Using numbers from the USDA report, which Agriculture Economist Hosein Shapouri was a principal author of, sugarcane and beets produce ethanol yields of 19.5 gallons per ton and 24.8 gallons per ton, respectively.

Nearly 62 million tons of both sugarcane and sugar beets were produced in the 2006 growing season, according to an October 2006 USDA update, with beets making up 33 million tons of that. If 100 percent of these sugar feedstocks went entirely to ethanol production—and given each stock's respective conversion—this would create close to 1.4 billion gallons of ethanol production. While that is a respectable amount, the United States is currently producing more than 5 billion gallons of ethanol, mostly from corn. Less than 15 percent of the entire U.S. corn crop goes to ethanol production though—no where near 100 percent. If only 20 percent of the U.S. sugar crop was used this would represent just over 276 million gallons—less than what three 100 MMgy dry mills could produce. Furthermore, the USDA outlook to 2015 doesn't show much change at all with respect to sugar feedstock production. This projection, however, is based on current sugar policies, which sugar growers expect to remain constant in coming years.

Ron Kotrba is an Ethanol Producer Magazine staff writer. Reach him at rkotrba@bbibiofuels.com or (701) 746-8385.