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China Halts Expansion of Corn Ethanol Industry; Focus on Biomass Feedstocks

20 December 2006

New Kerala. China has suspended further expansion of its corn ethanol industry in order to halt a rapid increase in corn prices, which climbed almost 5% in November.

The National Development and Reform Commission (NDRC) has ordered local governments to stop approving new projects that process corn for industrial uses, to use non-grain feedstocks to produce biofuels (e.g., cellulosic ethanol from biomass), and to develop the industry more effectively.

China processed more than 23 million tonnes of corn for industrial use last year, an increase of 84% from 2001, while output of corn only grew by 21.9% over the same period. China currently produces around 10 million tonnes of ethanol annually (3.3 billion gallons).

Ethanol mixed with gasoline is sold in five provinces and 27 cities in China, accounting for 20% of the country’s total gasoline consumption.

Expanding industrial demand, along with increasing need for corn by livestock and the reluctance of corn growers to sell in expectation for higher prices, have contributed to a 6.8 per cent rise in the price of corn this year.

“Excessive expansion of corn growing will squeeze the production of wheat and rice,” an official with the NDRC said.

December 20, 2006 in Cellulosic ethanol, China, Ethanol | Permalink | Comments (26) | TrackBack (0)

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Same things could happen here in the USA if we arent careful, in using our food as "feed" for our cars..........

Same thing is happening here wrt pricing - except the big 3 need the E85 cafe loophole and corn farmer politicians continue the lobbying pressure > another fine example of "free" market bs

There's nothing "free market" about corn subsidies. I've never been a fan of corn ethanol because the energy balance makes it a dubious gain, if that much. But it's not just the subsidies, it's the oxygenates the EPA requires, and the 54 cent/gal tariff on imported ethanol. Though the way things are going sugar cane ethanol might be cheaper even with the tariff.

All this should advance the state of cellulose and gasification for fuels. Biomass is much better and the sooner we advance it the better it will be.

Yes, corn is not the right biomass for ethanol.
But it doesn't matter.
It's not the product we NEED to have, it's the process. We are using the corn subsidies as a way to ensure that the infrastructure is developed in America instead of importing the ethanol. Later, when the superbarges of oil stop coming, we can diversify the crops we use to produce fuel and find the best feedstocks (which will vary by area and need to include crop rotation). Without the subsidies and the corn lobby in the process, there would be no support/investment in the new infrastructure. The switchgrass lobby just doesn't have the power.

Of course, the dirty little secret is that we will still need to eliminate the majority of the amount of fuel we burn as a country regardless of what we make fuel out of and when it needs to happen by. But if Joe six pack realizes this, he won't support or care about any of this, since he probably won't be able to afford personal transportation in 10-20 years.


This is how the Chinese system works -- command and control, still to some extent. If corn becomes too expensive in this country, the first thing to get cut will likely be ethanol production (due to the increasing availability of substitutes and near substitutes from other sources). I'm hardly a laissez-faire libertarian, but this appears to be one area in which the market will probably sort itself out well enough. If sustained increases in corn prices mean we get to cut back our farm-support subsidy programs, all the better.

I look at it as the corn farmer having another cash crop from the same acre, cellulose ethanol from the corn stover. They might make more money from the stover ethanol than a bushel of corn kernels per acre. If that eliminates subsidies we are all better off.

I wouldn't count on the subsidies going away.
The farm lobby in the midwest has a lot of power.
The subsidies are meant to encourage overproduction (for food security reasons among others). Without the subsidies:
Overproduction (pre-ethanol) would drive the price down and bankrupt many farms (mostly the small farmers who don't even receive the subsidies like the ones controlled by ADM, Cargill, etc.) Cheap foreign imports would take their place.

As ethanol becomes of strategic national importance, the farm lobby will have even more power and claim a need for subsidies due to the high cost of farming (IE: fuel for farm machinery and crop transport). So instead of farm subsidies due to low crop value, we'll have subsidies for the high cost of operating industrial farms.

What I'd like to see discussed is the efficiency of farm equipment. Farm equipment was developed in the era of cheap oil. The fuel cost was an afterthought and seems still to be. Nowdays people discuss the amount of oil required to produce a gallon of ethanol, but based on these innefficient farming practices. Why does no one discuss the fact that farming needs to and will become more efficient in terms of machinery, crop transport, chemical use, etc.?

This affects the ROI on producing ethanol (not just corn either). (Oh, and machinery replacement will be another reason farmers continue to get subsidies).

NBK-Boston:

There is no such thing as free market for farm products in wonderful democracies such as USA, Canada and western Europe. We all know that farm lobbies and huge subsidies completely rule and dictate produce market prices.

China, with almost 1.5 billion people, has the right and is fully justified to favour the food chain instead of gas guzzlers.

Unfortunately, due to the power of farm lobbies, USA and Europe will not be able to stop the drain of food stocks to ethanol factories. High ethanol subsidies + the eagerness to reduce oil imports will drive food prices much higher within 2 or 3 years.
This will be the dark side of corn ethanol.
The corn based ethanol (3+ gals/day) required to run one gas guzzlers could feed many people.

Cellulosic ethanol or buthanol would be much better solutions, even at a slightly higher cost.

Let's hope that many countries will follow China and restrict the production of corn based ethanol.

The increase in the price of corn itself will not prevent people from eating corn (you probably won't even notice the few cents increase on your corn flakes), however the price of things that require huge amounts of corn, such as industrially produced beef and ethanol will shoot way up. I think we need to cut WAY back on the amount of factory animal farming, both from an ecological point of view and health perspective, not to mention the looming economic one, but somehow I imagine we'll do everything we can to protect our 'right' to feast on cheap animal flesh regardless of the consequences.

Boy I have a lot of problems with that post.
Ethanol from cellulose, butanol, etc are all end results of where we are going with this. Corn ethanol is just the method to get there politically.
Restricting "Corn Based" ethanol won't change a thing (except to maybe leave the US more vulnerable to an oil crises). We need those processing plants running regardless of what the feedstock is. When the fit hits the shan, SUV's are not going to be burning ethanol. But MAYBE there will be enough ethanol production for the country to fuel tractors, semi's, mass transit and other mission critical infrastructure and prevent an all out collapse.

Food costs NEED to go up. They are artificailly low and Americans are VERY wasteful with food (myself included!) As the prices of food goes up (meat will see the highest inflation), less food will be wasted, more food will be grown in "victory gardens", the types of foods we eat will change, AND less food will be exported to 3rd world countries (the real dark side of ethanol).
Currently. excess food (grain) is exported and oil is imported. When the oil stops coming in, the food stops going out. Not a pretty thought for the overpopulated countries dependant on grain imports for food. But population dynamics are always ugly to contemplate.

Yes, feed the people first before you would feed the cars! Ethanol is far too inefficient when used as main transportation fuel. For E10, that's OK in highly populated area.

Bio-methane or hydrogen from waste biomass, or renewable electricity (PHEV) would be far more efficient, though cars should still be significantly downsized, or public transportation or bikes would be even better!

Just some round numbers. If a bushel of corn kernels is 56 pounds, you can get 2 1/2 gallons of ethanol per bushel, the average SUV burns that in a day and the same bushel could feed 200 people for that same day...it puts it into some perspective.

Commenters,
Most of the ethanol produced in mainland China is from wheat, corn, or other grains. Although all comments above concentrate on motor fuel, there are many other uses for C2H5OH. From disinfectant, to chemicals, the PRC-and 1.3 billion users/consumers- have other important considerations. That said, a move to more economical and environmentally friendly feedstock will be needed. PRC also still use MTBE and other oxygenates. If ethanol becomes a prefered choice, there will be further demand.

Harvey D.:

I said nothing about a "free market" in corn. I spoke about a "market" in corn -- one which, at present, is rather distorted and not terribly free, but which still exhibits certain market-like behaviors from time to time. One of those is the tendency for prices to go up when both demand goes up and supply goes down. If you don't believe me, ask the boys down at the Chicago Mercantile Exchange about the corn market.

The point is, if you look at the price of raw corn as a fraction of the price of finished goods made with corn inputs, and then, for the sake of argument, double the price of corn, you see something like this:

1. Corn based foods, such as those that contain a lot of corn syrup, corn starch, corn meal, etc. The price of corn is a single-digit percentage of the retail price of the product. Result of doubling the price of corn: A 2L bottle of coke or jumbo-size bag of tortilla chips costs a dime more.

2. Animal products made from animals fed a lot of corn, such as milk, meat, etc. The price of corn is a low double-digit percentage of the retail price of the product. Result of doubling the price of corn: A pound of beef or a gallon of milk costs a quarter to fifty cents more. This is complicated by the availability of a large number of substitute animal feeds, as well as the fact that DDG, a byproduct of ethanol production, is a useful animal feed too.

3. Ethanol, made entirely from distilling corn mash. Doubling the price of corn raises its price something like 50%. At that point, it becomes too expensive to sell, relative to gasoline, cellulostic ethanol (which finally, finally seems to be happening), batteries to stick in electric cars, etc.

Having become too expensive to sell, ethanol production will be cut back. This eases demand on corn, and prevents the price from going up further.

It's as simple as that. Because the price of raw corn is such a large portion of the price of ethanol, it will choke itself off before it threatens our long-term food supply. At which point we will need a different alternative fuel, granted, but that's just what we're discussion on all our other posts.

For 2006 corn ethanol is estimated to substitute for about 3% of US gasoline consumption (on energy basis, gallon per gallon it is 4.5%). Amount of corn exported was about the same as was used for corn ethanol.

NBK-Boston:

Just to go alone the same path, have you ever compared the price of a bushel of wheat in 1920 vs a loaf of bread = (about $2.00 vs 5 to 7 cents) and repeat the same exercise in 2006? The raw material price barely doubled (at best) but the load of bread has gone up 30 to 40 times.

I'm not saying that doubling the price of corn would multiply the price of the end product 40 times as it did with wheat but it may (will) have much more than the marginal effect you mentionned.

Whenever the price of the raw product doubles, the finish product price has a tendency to multiply by 3 ++ unless it is an heavily taxed product such as gasoline, whiskey, tobacco etc. Food products being mostly excluded from direct an indirect taxes the retail price will go up much faster than the farm price.

I know you could find many more examples of this non-linear relationship. Have a look a the farm price of fresh potatoes vs chips, corn farm price vs breakfast cereals, etc and you will find many examples of non-linear variations.

Corn may currently supply a minute (4%) amount of the fuel used but with a few hundred new plants coming on board in the next 3 to 4 years, surplus corn will melt away and pressure on corn price (and derivatives) may be more than expected.

Harvey,

Good point about the bushel and loaf prices. It looks like the bread makers are making some dough :)

Kudos, NBK, for the analysis. I did it before, as 1000 of other researchers. It is no way that use of food crops for fuel production could anyhow substantially influence our over-the-counter food prices.

We are actually live in terribly wicked world of rich people (luckily), where price of cup of coffee or bottle of distilled water (which is destroying our teeth) cost more than one ton of reverse-osmosis distilled sea water terribly missing in most of developing countries.

Gentlemen,
Your position that elevation in raw crop prices has little to do with final product price may apply to the USA, but may not apply for China.
China has over 1.3 billion people with much less arable land than the USA. It is in fact a miracle that China can feed their own people, after the horrendous famine following Mao's disastrous cultural revolution, let alone any food left over for fuel or chemical production.
From a moral and ethical stand point, NO food should ever be used for fuel or chemical production. These are sacred and only for human and animal consumption. Only biowaste should be use for biofuel production.

Roger,

I agree completely. After Katrina, they could not get grain through the Gulf, so people were actually burning corn in their pellet stoves, it was that cheap.

Andrey:

Have you noticed that every time the price crude oil goes 1 cent/L the retail price of gasoline/diesel goes up by as much as 5 cents/L.

Since most (but not all) applicable taxes are by volume, what are the main other reasons for this gross non-linearity in crude vs end product relation? One may say -oil refiners/distributors greed for extra profits etc etc. Regardless of the reasons, it happens all the time.

This is not an isolated case, there are hundreds others.

Roger Pham:

I fully agree with you.

Biowastes (not foodstocks) should be used to produce the essential liquid fuels required, until such time as on-board stored electric energy takes over.

We need lighter more efficent PHEVs (all sizes) soon to reduce liquid fuel consumption by 80% to 90% and avoid (stop) using food to feed our gas guzzlers while others are starving.

I was talking to my neighbour the other day. He has a stove that is fed wood pellets here in Canada. Now he is purchasing corn and mixing it with wood pelletes. I don't know how/why is it suddenly cheaper to burn corn than wood?!?!? Certainly something is out of whack when corn is cheaper than wood!

The majority of China's ethanol is produced from cassava. They want to follow the example of Thailand, who is the world leader in cassava-based ethanol:
http://www.greencarcongress.com/2005/09/thai_oil_planni.html

Southern China is taking the lead in cassava ethanol:
http://www.worldwatch.org/node/4351

Cassava is close to corn in the amount of gallons of ethanol that can be produced per hectare (roughly 950-990 ga/HA).. I can understand why cassava is becoming more popular as an ethanol feedstock, the economics are favorable.

Colombia, whose gov't wants an eventual E10 blend nationwide, is now actively looking at cassava to augment its existing sugar cane ethanol industry:
http://www.ipsnews.net/news.asp?idnews=35088

Any futher commentary on cassava ethanol is appreciated...

Roger:

You spell the word of the Wise. For developing countries transition of food stock to be hard-currency import earner has disastrous consequences to local families dinner tables. For US/Canada, or relatively well-off Brazil and Argentina it is not…

Harvey:

You are totally, absolutely, 200% right. Well, I consider crude oil prices generally market-driven (with crook’s speculations skimming couple of billion dollars weekly, which is not a big deal considering shear volume of crude trade), but multiplication of gasoline prices over base oil crude price in Canada (same in US, but not such shamelessly linear and stable) is just outrageous. With all my dislike to governmental price regulation, I would applaud measures to curb this scum scheme. Unfortunately, most of ours gasoline taxes are calculated as per cent of gasoline price, not fixed 15 cents per liter, so our government is actually benefiting in tax revenue from gasoline price spikes, and from oil companies taxes on net profits.

The good thing we can find comforting is that fuel efficient cars you and I drive do not benefit “Receiver Generale Du Canada” (pardon me my French) on same degree as gas-guzzlers. Yes, I know, our government spends money with the efficiency of James Watt steam engine (8%), but still it ends up in good things like health care…

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