U.S. sugar is too expensive to convert to fuel

President Bush is touting the process in South America. Here, price controls make it unlikely.

Published March 8, 2007

WASHINGTON - Shortly after President Bush meets with his Brazilian counterpart today, the two are expected to announce an "ethanol alliance" that, among other things, will encourage Latin American nations to produce ethanol from sugarcane.

Fast-growing, cheap and easy to convert to fuel, sugarcane is a big reason Brazil has achieved energy independence and become the world's leading exporter of ethanol.

If other nations in the region follow that lead, it could reduce the influence of Venezuela, which opposes U.S. foreign policy and uses its oil reserves to curry favor in the region.

But don't expect America to jump on the cane train, even though sugarcane is grown in abundance in Florida and Louisiana.

Thanks largely to a complicated system of tariffs and quotas that keeps the U.S. price of sugar artificially high, using sugarcane as fuel would not be cost effective.

Critics contend that if the United States is serious about meeting its ambitious goals for ethanol production and use - President Bush wants a five-fold increase over the next 10 years - government price supports shouldn't get in the way.

Most ethanol is made from corn, but experts say the nation will never grow enough to meet future demands.

"If we're going to push ethanol, let's push it in the cheapest and most efficient way we can," said Demian Moore, a senior policy analyst for Taxpayers for Common Sense, a nonpartisan watchdog group.

"Let consumers and the market figure out the prices, and what's best for the taxpayers. Don't let government pick the winners."

Sugar producers, however, say that letting the free market reign would essentially bankrupt them, because the world price for sugar isn't enough to cover U.S. labor, equipment and production costs.

"I don't think the sugar industry wants to give up a price support system that's supporting their income for the prospect that someone making ethanol is going to pay them enough to let them stay in business," said Michael Salassi, an agricultural economist at Louisiana State University and co-author of a federal report on the feasibility of using cane.

The U.S. sugar program, which applies to both sugarcane and sugar beets, uses low-interest loans to processors, import quotas and tariffs, and domestic growing quotas to make sure the supply doesn't exceed demand.

Unlike the corn and most other federal farm programs, which pay farmers when prices dip, the sugar program costs taxpayers virtually nothing. But the result of controlling the market is that sugar costs almost twice as much in the United States as it does on the world market.

In January, the U.S. price for raw, unrefined sugar was 20 cents per pound, compared with just less than 12 cents abroad.

At those prices, corn is far cheaper to use for ethanol. Salassi's report, commissioned by the U.S. Department of Agriculture, found that making ethanol from cane would cost about $2.40 per gallon here, compared to about 85 cents per gallon from corn, although corn prices have risen since the report was published.

In Brazil, using cane costs between 68 and 95 cents per gallon. In France, a major producer of sugar beets, it costs about 97 cents per gallon to make ethanol from beets.

Dalton Yancey, executive vice president of the Florida Sugarcane League, noted that the Brazilian government has invested $10-billion and 25 years to make sugarcane viable as a fuel source.

"We could do it if we had a government program that would encourage us and incentivize us to do it," he said. "Economically, it may not make sense anywhere, and I don't think it would have made sense in Brazil had they not had the government program and the funds to do it."

Florida grows about 400,000 acres of sugarcane. But using it for fuel also would pose environmental challenges, experts say, because every gallon of ethanol from cane produces 10 to 15 gallons of vinasse, a dark, viscous waste product.

In Brazil, the vinasse is largely used for fertilizer, but Jay Levenstein, Florida's deputy commissioner of agriculture, said that may not pass environmental muster here. Researchers are studying its use as animal feed and fuel.

Florida agricultural officials and the sugar industry hope to join the ethanol boom, however, by using the fibrous pulp left over from processing, called bagasse.

The state recently gave Florida International University almost $1-million to study using bagasse for ethanol, and Florida Crystals Corp. matched it. Louisiana also is building a prototype plant to make ethanol from bagasse.

Levenstein said he has spoken to sugar producers about growing more cane outside the sugar program, to use exclusively for ethanol. But Yancey said there's just no good incentive.

"Of course you could, but not until the government decides they're going to get into the business of encouraging the diversity of feedstocks other than corn," Yancey said.

Despite significant efforts by Congress to encourage ethanol production, including a 51-cent-per-gallon tax credit and a 54-cent tariff on Brazilian ethanol, sugar supporters always defeat efforts to get rid of sugar price-supports.

This year is expected to be no different. Several Senate leaders represent major sugar producers.

And the top crop back home for Collin Peterson, D-Minn., chairman of the House Agriculture Committee? Sugar beets.

Wes Allison can be reached at allison@sptimes.com.

By the numbers

Projected U.S. cost of producing ethanol from sugarcane: $2.40 per gallon.

U.S. cost using corn for ethanol: 85 cents per gallon.

Brazilian cost of producing ethanol from sugarcane: 68 to 95 cents per gallon.

U.S. price for unrefined raw sugar, January 2007: 20 cents per pound.

World price of unrefined raw sugar, January 2007: 12 cents per pound

U.S. ethanol production from corn, per acre: about 400 gallons

Brazilian ethanol production from sugarcane, per acre: about 590 gallons.

Source: Louisiana State University, U.S. Department of Agriculture