All Chinese ethanol projects, grain exports to be halted as corn, wheat shortages hit hard

March 6, 2008

In China, state agribusiness Cofco said that all ethanol projects and corn and wheat exports would be halted, except small exports to Hong Kong and Taiwan, due to grain shortages. In addition, executives confirmed that the high cost of grain made the Chinese government reluctant to increase imports. The company said that the government’s moves would solve the grain shortage, but that soybean imports will soar on rapidly increasing demand and a domestic production and land shortage.

However, Gushan Environmental Energy Ltd, China’s largest biodiesel producer, said it planned to increase biodiesel capacity from 72 Mgy to more than 120 Mgy by the end of 2008.

According to observers, the cancellation of all new grain ethanol production will not save China from becoming a corn importer in 2008. The country, which has 20 percent of the world’s population but only 7 percent of its arable farmland is facing a corn shortage at the same time as it has ramped up biofuel production to reduce oil imports.

By 2010, China plans to consume 10 percent of its fuel needs via renewables, including 6.7 million tonnes of ethanol and 11 million tonnes of biodiesel, and analysts say that China’s policy switch from grain to crops such as cassava, sweet potato and sweet sorghum will be “too little, too late” in order for the country to meet its fuel targets and remain food secure. One of the four largest ethanol producers in the country, Henan Tianguan Enterprise Group, is reported to be able to use only 40 percent non-grain feedstocks to meet its production targets.

Overall, China produced 264 million gallons of ethanol, but recently imposed a moratorium on corn ethanol production because of the impact on corn prices, focusing investment on cassava, sorghum and sugarcane.
Across China, food prices have soared 60 percent on selected goods, prompting fears that food riots, similar to those which precipitated the 1989 uprising, may occur in major Chinese cities. Strong curbs on production of fuels from food crops is expected, to reduce pressure on prices, as the country emerges from an extreme cold crisis, on top of major crop failures. Tariffs of up to 25 percent have been placed on export of key biofuel feedstocks.

In recent weeks, the province of Guangxi said that a cassava (tapioca) shortage may lead it to curtail ethanol production projections for this year, and have cast doubt on the province’s plans to double production by 2010. Provincial officials originally set a production goal of 1 million tons of ethanol but is looking now at a best-case scenario of 200,000 tonnes.

Late last year in Shanghai, fuel riots began because of shortages.

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Written by Jim Lane · Filed Under International, Producer News