Sugarcane Ethanol Economics

By Mike Bryan | December 12, 2011

Ethanol production from sugarcane is clearly a viable option in various parts of the world. The consideration to produce ethanol from sugarcane is always just under the surface in any country that grows cane. It makes perfect sense. It’s plentiful, it’s relatively low cost compared to grain and is grown in many regions of the world and often on marginal land.

The deciding factor is not viability or technology, the issue is the world price of sugar. Between 2006 and 2011, the price of sugar, while having numerous peaks and valleys, has risen from about 18 cents per pound to as high as 29 cents per pound. Given the fact that global demand for sugar is on the increase and current weather conditions are not favorable in Brazil, Russia and some other parts of the world, it does not appear that the price of sugar will be coming down any time soon.

A debate has raged for years in the United States regarding the lifting of restrictions on the amount of sugar-based ethanol that can be imported, particularly from Brazil. On the surface, the argument can be made that ethanol is a global commodity and should be freely traded without restrictions. It could also be said that the establishment of trade barriers disadvantages developing countries economically.

But what it really comes down to is supply and demand. This is the primary problem with sugar-based ethanol. Because of high sugar prices, Brazil is now importing ethanol from the United States. This has nothing to do with its capacity to produce ethanol, but is related primarily to the world price of sugar and, more recently, drought conditions.

At a current price of nearly 23 cents per pound for raw sugar, it is simply not economically viable for Brazil or any other country to produce ethanol. The Australian sugarcane industry has looked at ethanol for years and to date only one small ethanol plant uses sugarcane as its feedstock.

So why would the United States, where it has been deemed strategically important to reduce our dependence of imported oil, move from that dependence to dependence on Brazilian ethanol, rather than continue to develop our own production? Energy security is not just relegated to oil, it’s about energy in all forms. Encouraging greater sugarcane-to-ethanol production by opening the door to expanded imports has environmental impacts, not the least of which could pose significant land use issues in developing countries.

The restrictions currently in place for imported ethanol have served America well and should be maintained. It has encouraged domestic production, while keeping sufficient amounts of imported product to help maintain a stable market.

That’s the way I see it!

Author: Mike Bryan
Chairman, BBI International
mbryan@bbiinternational.com