Global demand for U.S. ethanol has grown substantially over the last decade, but ongoing trade tensions, policy enforcement and changing markets could set up potential roadblocks for the industry to keep growing in the years ahead.

U.S. ethanol exports across the globe grew from 158 million gallons in 2008 to a record 1.7 billion gallons last year, according to a 2018 Renewable Fuels Association report.

Brazil, Canada and India remain the top markets for U.S. ethanol, but the industry is always looking for potential new markets and became interested in China in 2017 after the country announced a nationwide mandate to get to a 10% blend of ethanol by 2020.

China is nowhere close to achieving that goal. USDA’s Foreign Agricultural Service estimates the country will only meet a 2.5% blend rate this year and a 3 to 3.5% blend rate by next year.

Speaking at the recent Global Ethanol Summit, U.S. Grains Council Chief Economist Mike Dwyer said the demand for ethanol in China is large, and very few countries can supply the amount of ethanol China needs.

“The only way China can reach their goal of blending 10% nationwide is they will have to have to embrace a very big role for imports,” Dwyer said.

Mike Dwyer

Mike Dwyer, U.S. Grains Council

Retaliatory tariffs continue to make it difficult to sell ethanol to China, however. 

“The U.S. could quickly provide more ethanol to China but we’re facing 70% duties,” Dwyer said. “Forty percent of that 70 are penalty duties associated with the trade war. But even their MFN (most favored nation) rate is high.”

An MFN rate is the lowest tariff one country can assess on another country.

“We basically haven’t seen any sales to them this year, whereas last year, we would have been talking about China being a fairly significant market in 2018,” said Chad Hart, an Iowa State University extension economist.

Hart acknowledges the China trade dispute has been challenging for the U.S. ethanol industry over the last year, but he said an even bigger challenge ahead will be the U.S.’ biggest buyer, Brazil due to the dynamics between corn, sugar, and ethanol.

“We’ve seen Brazil back off on their purchases from the U.S. over the course of this year versus last year, but that has to do with what is happening internally as opposed to external forces,” he noted.

From January through July of 2018, the U.S. exported 8.6 million barrels of ethanol to Brazil compared to 5.6 million barrels during the same period this year.

Hart said Brazilian sugarcane producers grow their crop much like corn producers in Iowa do. They let the market dictate where the product is going to go. Brazilian sugarcane can be sold to make sugar or ethanol.

“Last year, you could argue (their market) was leaning more towards sugar, where this year, it was leaning more towards ethanol,” Hart pointed out.

RFA Economist Scott Richman said Brazil's tariff rate quota has limited U.S. ethanol exports over the last year.

“In terms of trade between the U.S. and Brazil right now, they have a 750-million-liter tariff rate quota over there which is a 20% tariff, a pretty steep tariff,” Richman said.

RFA is watching a new ethanol policy in Brazil set to take effect in January known as RenovaBio. The group wants to make sure the carbon intensity scoring of biofuel pathways under the RenovaBio program is “transparent and science based.”

Richman said the policy could provide substantial export opportunities for the U.S.

“We’ll have to make sure some of the rules of the road are positive and reflect the realities of corn-based ethanol as we go forward,” Richman said.

Other potential markets include Mexico. Its 3 largest cities want to move from a blending rate of 6% ethanol to 10%, but Mexico still needs to build out biofuel infrastructure, Richman said.

Scott Richman

Scott Richman, RFA

The European Union could be another potential market, but USGC’s Dwyer said the EU continues to be concerned that biofuel crops are displacing food production. 

“A number of EU countries want to go to 10%,” Dwyer said. But he noted the EU has a blend rate cap of 7%. He said the country set the 7% blend rate because they don’t want their demand for ethanol to increase prices for feedstocks.

“I think that is a mistake. The whole idea is to lower greenhouse gas emissions in the transportation fuel,” Dwyer stated.

He also said despite EU anti-dumping duties being lifted on U.S. ethanol, the MFN tariff rate is still high.

Dwyer is optimistic about the long-term global ethanol market but said the key to ethanol policy working in other countries is enforcing the blending mandates.

He said the U.S. has a product the world wants and said the industry needs to be in a position to supply scale.

“Countries like China and India are huge buyers, when they do go to buy ... it will not be inconsequential, it will move the entire U.S. market and we need to be ready,” Dwyer told Agri-Pulse.

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