July 14, 2008

    

The US corn ethanol group, the Renewable Fuels Association, sent a letter to President George W. Bush late Friday urging him not to stray from the $0.54-a-gallon duty on competing ethanol from Brazil.

 

The Bush administration along with the leaders of the G8 meeting in Tokyo has lately come under fire from food groups for encouraging the use of biofuels which in turn had led to soaring food prices.

 

The criticism saw RFA joining forces with rival Unica, the Brazilian Sugarcane Industry Association, to convince Group of Eight leaders meeting in Japan not to scrap any biofuel programmes because of high food prices.

 

However, that's where the partnership ended.

 

The RFA is now fighting to keep Brazilian ethanol out by insisting that the tariff on Brazilian ethanol remain.

 

Unica launched a campaign over the Independence Day weekend in the US arguing that more Brazilian ethanol in the US means lower gasoline prices.

 

Brazil makes ethanol from sugarcane and can make it more cheaply than the US ethanol industry, which derives the same product from corn. Due to higher production costs, US ethanol can cost twice as much as Brazilian ethanol.

 

Over the last several days, calls from Unica, major food companies like Tyson Foods, have called for Washington to promptly scrap the long-standing 54-cent tariff on Brazilian ethanol to cool down soaring food prices.

 

However, the RFA had sought to divert the focus on corn ethanol and instead argued that high food prices were sparked by high oil prices, rising demand, droughts, and the declining value of the dollar, not ethanol.

 

If Brazilian ethanol is allowed into the US tariff-free, US ethanol prices would tumble, shaving off already meagre profits at US ethanol companies. Several ethanol companies have gone under as corn prices continue to soar. 

 

The RFA said that the 54 cent/gallon tariff on Brazilian ethanol were used to offset the same amount the government gives to US refineries to blend ethanol into motor fuel. Hence, US refineries would find that alternatives such as Brazilian ethanol would not be more attractively priced than the US version. If the tariffs were not imposed, Brazilian ethanol makers would benefit from the ethanol subsidies, which came from US taxpayers. 

 

Ethanol has served to lower gas prices uin the US and at the same time reduced its reliance on foreign oil, said Bob Dinneen, president of the RFA. Removing the tariff would not lower food prices, he added.

 

Joel Velasco, chief representative of Unica in Washington, fired back that if higher priced corn ethanol was helping to lower gasoline prices, even lower priced Brazilian ethanol would help lower them even further.