Large European ethanol maker hit by cheap Brazilian imports

German bioethanol producer Verbio says a combination of cheap imports from Brazil and high grain prices means commercial production of bioethanol in Germany is hardly possible. In a sense, this is good news, because it clearly demonstrates the need for and benefits of a 'Biopact' - a win-win strategy that allows developing countries to make use of their comparative advantages at producing efficient, sustainable and affordable biofuels, and European citizens to import them instead of making their own highly unsustainable and inefficient biofuels from grains, which drives up food prices.

Under such a Biopact, poor countries with large land and labor resources and urgently in need of economic and agricultural opportunities can help lift millions of the rural poor out of misery (previous post). Objectively speaking, they have all the resources needed to produce a very large amount of biofuels, in an explicitly sustainable manner (more here and here). With good policies and trade reform, such a mutually beneficial exchange relationship is possible. Important think tanks and international organisations - the FAO, the IEA (and here), the Global Bioenergy Partnership (and here), the UNIDO, the WorldWatch Institute and many others - have called for such a win-win situation. What is more, it would make an end to the unnecessary 'food versus fuel' debate, which is precisely driven by the fact that EU/US producers use grains like corn and wheat to make ethanol, while blocking far more efficient and less costly biofuels from the South.

Verbio posted [*German] a €600,000 net loss in January-September 2007 against a €25.7 million net profit in the same year-ago period. Nine month 2007 sales fell to €307.1 million from €325.7 million. The company said it had only produced on average about 50 percent of its total 300,000 tonnes annual German bioethanol production capacity in the first nine months of 2007. Bioethanol was produced at a loss because it could not compete with imports from Brazil and because its grain feedstock had reached record prices - the result of Europe's very own biofuel sector which utilizes grains instead of efficient tropical energy crops.

Brazilian ethanol thus pushes inefficient biofuels out of the European market, despite a high import tariff and despite massive subsidies for European producers:

Brazilian bioethanol is currently available in Germany at around 55 cents a litre but we need at least 80 cents a litre to cover our production costs using grain. - Verbio statement

Brazil's ethanol is highly competitive - currently about a third to fifty percent less costly than oil - and made from sugarcane, grown in the South of the country (more here). The International Energy Agency analysed the way in which the fuel is produced and deemed it to be largely sustainable (previous post). Sugarcane ethanol also has a much stronger energy and greenhouse gas balance than ethanol made from corn or wheat. Whereas corn ethanol reduces carbon emissions by only a fraction compared to gasoline (some say it can even add more), sugarcane ethanol reduces emissions by up to 80 percent. Likewise, whereas the energy balance for corn ethanol is barely positive (1 to 1 / 1.2), that of Brazilian ethanol is very strong (between 1 to 8 and 1 to 10).

What is more, according to the FAO's latest Food Outlook sugar prices have actually declined during 2006 and 2007, despite a record output of ethanol (more here). All other major agricultural commodities have seen their prices increase, partly because US/EU producers use them to make inefficient biofuels. In short, ethanol from wheat and corn pushes up food prices, ethanol from sugarcane does not:
energy :: sustainability :: biomass :: bioenergy :: biofuels :: ethanol :: grain :: wheat :: corn :: efficiency :: Brazil :: Germany ::

In September, Verbio had said it was cutting bioethanol production at its 200,000 tonne plant in Schwedt in east Germany because of high grain prices and low bioethanol demand. The spokesperson declined to say how much the Schwedt plant was now working under capacity but it was less than 50 percent. But she said Schwedt will continue some production.

The company also has a second bioethanol plant in Zoerbig in east Germany producing about 100,000 tonnes annually which is not affected by the decision to run down output at Schwedt. Verbio has also been hit by rising prices for German grain which it uses as feedstock for both plants.

Verbio has successfully tested use of untreated alcohol, sugar syrup and sugar molasses as alternatives feedstocks to the grain currently used. The problem is that the major oil companies do not really want to use bioethanol and that the compulsory blending quotas are so low, the spokesperson added. This meant it was not worthwhile changing to new feedstocks.

German biofuel industry associations are pressing the government to raise minimum 2008 blending levels to 2.6 percent from 2 percent. If demand is increased the German ethanol industry could produce the fuel using alternative raw materials.


References:
Verbio: Biodieselgeschäft profitabel, EBIT-Marge 5,9% – Ethanol weiterhin deutlich unter den Erwartungen – Ausblick bestätigt - November 14, 2007.

Guardian: German bioethanol firm hit by cheap Brazil imports - November 14, 2007.

Biopact: Worldwatch Institute: biofuels may bring major benefits to world's rural poor - August 06, 2007

Biopact: Brazilian ethanol is sustainable and has a very positive energy balance - IEA report - October 08, 2006

Biopact: Nature sets the record straight on Brazilian ethanol - December 09, 2006

Biopact: FAO forecasts continued high cereal prices: bad weather, low stocks, soaring demand, biofuels, high oil prices cited as causes - November 07, 2007

Biopact: NREL: Brazilian ethanol does not harm the Amazon - July 12, 2007

Biopact: Worldwatch Institute chief: biofuels could end global malnourishment - August 23, 2007

Biopact: FAO chief calls for a 'Biopact' between the North and the South - August 15, 2007

Biopact: Report: biofuels key to achieving Millennium Development Goals in Africa - August 02, 2007

Biopact: IEA chief: Europe and United States should import ethanol from developing world - October 16, 2006

Biopact: IEA chief economist: EU, US should scrap tariffs and subsidies, import biofuels from the South - March 06, 2007

Biopact: Stiglitz explains reasons behind the demise of the Doha development round - August 15, 2006