Ethanol fever pushing prices
Maize producers and companies stand to benefit
THERE ARE ALREADY at least 110 ethanol plants in the United States processing a total of 60m t/year of maize. That’s about eight times South Africa’s average annual maize production. And in Germany it was stipulated last year that refineries have until 2009 to mix at least 4,4% of bio-diesel with their conventional diesel and 2% of bio-ethanol with their petrol.
This almost feverish switch to alternative fuels is also taking place in other countries and is one of the main reasons for the worldwide increase in the price of maize.
In SA, a draft plan for a bio-fuels strategy was recently approved, which could provide momentum to the industry’s development in SA. “The proposed obligatory mixing of bio-fuel is the most important stipulation in the draft strategy,” says Fanie Brink, MD of private company Biofuel Industry Development. “It benefits all grain and oilseed producers – as well as novice farmers – and also enables SA to reduce its dependence on imported crude oil.”
Brink reckons that the obligatory mixing of 8% ethanol and 2% bio-diesel in the approximately 11bn litres of petrol and 8bn litres of diesel will use up 2m t of grain and 1m t of oilseeds. (Government’s provisional estimate is that this could save SA around R10bn/year importing crude oil.)
Absa agricultural analyst Julia Kupka says that SA’s development of this industry will increase demand for agricultural commodities and help to ensure a steadier agricultural industry. That could particularly benefit SA’s rural economy.
First National Bank agricultural division head Ernst Janovsky says that SA farmers have an approximately 60% price exposure to the international market and can do little about the huge price fluctuations. “Being involved in the production of alternative sources of energy – such as bio-fuels – could stabilise agricultural production.”
Andries Theron, a member of Grain SA’s senior management, said at a recent farmers’ meeting in the Western Cape that ethanol could indeed be manufactured economically in SA but many more impact studies would have to be conducted first. Government must also become involved, as in the US, by offering financial incentives and other assistance.
Theron says that fuel manufacturing has already pushed up the prices of maize and other types of grain in the US and that the same will definitely happen in SA as soon as the production of bio-diesel begins.
Therefore, it does seem that maize and other farmers – and, naturally, agri-businesses involved in this industry – will benefit, thanks to higher product prices. However, it could prove disadvantageous to others, such as the poultry and livestock industries, which depend largely on grain for feeding their animals.
It could mean higher meat prices and could even push up the prices of other products, including soft drinks, because corn syrup, which is used as a sweetener in soft drinks and other products and is responsible for about 10% of the costs of manufacturers like Coke and Pepsi, will become considerably more expensive.
In the US, Heinz cautioned its shareholders that the cost of the sweeteners used in its tomato sauce would increase by about US$10m this year due to the far higher maize price.
So ethanol production should be seen from different angles. For some it would offer greater profit opportunities, but others will suffer.