What's the impact from ethanol announcement?

While reaction was generally positive to the president supporting ethanol and reducing America’s dependency on foreign oil supplies, there has been some caution emerging about some of the goals George W. Bush outlined in his State of the Union speech Tuesday night.

Bob Krauter, of Capital Press, reported that Matt Schmitt, a managing partner in Calgren Renewable Fuels, a company that is building a California ethanol plant, welcomed the news but the proposed mandate may be too ambitious for ethanol producers.

Bush’s goals require 35 billion gallons of renewable and alternative fuels in 2017 — nearly five times the current target.

“I think ethanol has a saturation point of 15 billion gallons,” Schmitt said. “The rest would come from biodiesel, which means 15- to 20-billion gallons of biodiesel, which I think will be a tough call to have as much biodiesel as ethanol.”

According to DesMoines Register in Iowa, another Californian who expressed concern is Tad Patzek, an engineer at the University of California at Berkeley. The newspaper called him a “ leading critic of the ethanol industry” and reporting him saying “ the nation will never produce the amount of fuel Bush wants because of technology issues, land availability and other obstacles.”

The article added that Patzek stressed, “our politicians need to start talking about cutting energy use by a factor of two,” he said.

In several of the states that have seen great growth in their ethanol industries, they welcomed the comments by Bush. Their ethanol leaders also admitted it was ambitious, but appeared confident that production will be expanded and needs will be met.

One of the questions will be what will fuel the country: will corn continue to be the main product used in ethanol? The goal outlined for ethanol by Bush would mean using seven times the amount of ethanol distilled from corn last year, and the agricultural industry has already been buzzing about what ethanol is doing to corn prices.

Corn prices have doubled in the last 13 months, reaching a 10-year high, and farmers who depend on corn for feed for livestock have been worried as their profit margins have shrunk and supplies become harder to find.

It’s not just America that is affected by higher corn prices. Last week, according to Associated Press, Mexico’s president Felipe Calderon “signed an accord with businesses Thursday to curb soaring tortilla prices and protect Mexico's poor from speculative sellers and a surge in the cost of corn driven by the U.S. ethanol industry.”

The story went on to say “The corn tortilla is the basic staple of the Mexican diet and is especially crucial for the poor. The accord limits tortilla prices to 8.50 pesos ($0.78) per kilogram and threatens to use existing laws to achieve prison sentences of up to 10 years for company officials found hoarding corn. Some stores have been selling tortillas for as much as 10 pesos ($0.91) per kilogram.”

While corn prices rose here in the U.S., it was tortilla prices that soared in Mexico.

“Tortilla prices rose by 14 percent in 2006, more than three times the inflation rate, and they have continued to surge in the first weeks of 2007. The rise is partly due to U.S. ethanol plants gobbling corn supplies and pushing prices as high as $3.40 a bushel, the highest in more than a decade.”

The U.S. ethanol industry cannot accept all the blame for what is happening with Mexico’s tortilla prices and how it affects the poor families there, since corrupt Mexicans appear to be taking advantage of those who can least afford large increases in the price of their staple food.

But the U.S. should be aware that the world continues to watch closely what direction the president wants the ethanol industry to grow here, what impact will it have on agriculture directly and indirectly, and if the country can even meet the ambitious goals he has set.


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