GLOBAL ETHANOL INDUSTRY

Across the world, USA is the largest ethanol producing country with a contribution of 39% to the global production. Brazil comes second, with a contribution of 31% to global production. However, despite Brazil’s second position, its ethanol industry is more prosperous than US corn-based ethanol industry due to appropriate, cheaper, and efficient feedstock (sugarcane) selection. The basic cause for the ailing condition of the US ethanol industry during 2008 was the skyrocketing corn price that touched USD 7 per bushel, which drastically reduced producers’ profitability even after the incentives and subsidies provided by the US Government. US charges import tariff of around 40-55% on Brazilian ethanol to make Brazilian's ethanol price competitive with US ethanol, which indicates the incompetence and ineffectiveness of the US ethanol industry. The price of corn is expected to drop by almost 14.5% from the baseline level and the loss of demand subsidies would cause the price of ethanol to drop by 18.6%. The fuel price is expected to increase by 0.2%; domestic ethanol production would drop by 11.5%; ethanol imports would increase by 28.1%; total gasoline supply would increase by 0.5%; and total fuel demand would remain almost unchanged from baseline levels. On average, 82% of ethanol plants would be operating in this scenario. The average net welfare gain from removing all ethanol policies would be USD 5.8 billion. The expected producer surplus of the biggest winner, gasoline suppliers, would increase by USD 5.05 billion. Average government revenue would increase by USD 4.9 billion. Corn growers and ethanol producers would lose USD 9.4 billion and USD 2.65 billion in average producer surplus, respectively.