Even as Caribbean countries contemplate the likely future impact of ethanol on their predominantly oil-importing economies, the United States may already be pondering the fate of the fuel which just recently was being regarded as a solution to any future global oil crisis. Recent reports indicate that the frenzy of distillery construction and record corn prices in the United States and the attendant rising global food prices may be inching towards its zenith.
A September 24 New York Times article noted that talk of a “biofuel gold rush” that dominated farming communities less than a year ago as prices for ethanol and the corn used to produce the fuel soared has now been reduced to a whisper.
Apparently, the initial rush by investors to erect distilleries to produce “the fuel of the future” has helped create a glut on the market. According to the New York Times report since May the average price of ethanol on the stock market in the United States has dipped by around 30 per cent. Apparen-tly, most of that decline in price has occurred over the past few weeks.
While the fledgling nature of the ethanol industry in the Caribbean means that there is no immediate danger of similar occurrences in the region the “shakes” which the US ethanol industry is currently experiencing reflects the volatility of international markets. “The end of the ethanol boom is possibly in sight and may already be here,” says Neil E. Karl, an economics professor emeritus at Iowa State University who lectures on ethanol and is a consultant for American producers of the new fuel. “This is a dangerous time for people who are making investments.”
In the short term at least the ethanol glut in the United States does not appear to pose any real danger to production since, according to the New York Times article “generous government support is ex-pected to keep the output of ethanol fuel growing,” Ex-perts, however, are reportedly monitoring what the article calls “the poorly planned overexpansion of the industry” which, they say, raises questions about its ability to fulfil the hopes of United States policy makers that the fuel can serve as an antidote to the nation’s heavy reliance on imported oil.
The current experience of the American ethanol industry could well serve as a sobering lesson to the Caribbean where several countries are paying more than a passing interest in the possibility of ethanol production as a possible solution to the high oil prices that have been a primary factor in keeping their economies depressed. Potential investors in both the United States and Brazil have been quick to show an interest in the ethanol production potential in the sugar-producing countries in the Caribbean. In Guyana, the largest sugar producer in the Caribbean Community (CARICOM), government is known to have been discussing the country’s prospects as an ethanol producer with interested inves-tors.
In the Caribbean there are several considerations that could influence the future growth of a regional ethanol industry. On the one hand the seemingly gloomy future of the sugar industry could influence a switch to ethanol to help fuel growth in other sectors of the economy.
Some Caribbean countries, however, notably Guyana, appear to be hedging their bets about a rush into ethanol. Just last week Agriculture Minister Robert Persaud told an investment forum here that the government was not about to compromise food production to plunge into the ethanol industry, a comment that underscored the sensitivity of the sugar industry to the authorities here. And while the prospects of an oil find in Guyana may still be some distance away, the recent International Law of the Sea ruling on the respective maritime jurisdictions of Guyana and Suriname and the imminent resumption of offshore oil exploration may further influence the long-term thinking of the Guyana Government with regard to investment in the ethanol industry.
It appears, however, that a point is yet to be reached where doom and gloom begin to settle over America’s ethanol industry.
The prevailing glut on the market is attributed – in large
measure – not to a lack of demand for the fuel but to logistical problems associated with transporting it across the United States. The New York Times article alludes to “transportation bottlenecks in getting ethanol from the heartland to the coasts, where it is needed most.” Apparently, the chemical composition of ethanol does not allow for its transportation through existing oil pipelines while the railway system – the principal means by which the fuel is transported – has still not developed the infrastructure to move the fuel quickly enough.
Some American farmers have reportedly had to absorb losses arising out of less than anticipated returns in ethanol plants.
However, prices for corn and other commodities used in the manufacture of ethanol have remained sufficiently high for them to reap what the New York Times article calls ‘a separate bounty” And if the glut of ethanol in the US market does not result in a downward trend in the price of corn and other products, that presents another dilemma for the Caribbean and other developing regions that would at least have been hoping that the ethanol industry would “soak up” less farm produce and restore prices to manageable levels.
Evidence of concern over food prices in the region has been apparent in every Caricom territory and has triggered a region-wide focus on boosting food production.
However, with the prospect of reduced prices for corn, wheat and other American farm products still appearing somewhat remote despite the current glut on the US ethanol market Caribbean food security concerns are unlikely to disappear in the near future.
