Sugar Cane Ethanol From Peru

February, 2007

(continued) A large portion of the growth in the ethanol market however, is due to changing environmental laws. Increasing numbers of U.S. states require fuel refiners to substitute ethanol as an octane-producing gasoline additive in place of the lower priced, MTBE (methyl tertiary-butyl ether).  MTBE, a chemical that has fouled water sources, and is believed to be a carcinogen, is being phased out of gasoline refining.  Increasing ethanol supplies have already begun to affect prices. Ethanol was trading in early 2007 for about $1.90 a gallon, down about 50% from a record $3.98 in July the year before.   Meanwhile, the cost of corn continues to increase due to ethanol production, creating a tortilla hardship for much of the population in Mexico.  The strong demand has driven the cost for the well known food source and raw material to nearly $4 a bushel, surging nearly 90% in 2006. A bushel of corn reached a 10-year high of $4.205 on Jan. 17, 2007.

The increased demand for ethanol is expected to continue as the big 3 automakers deliver on promises to manufacture more cars that can run on the alternative fuel. Detroit is expected to be rolling out nearly 4 million so-called flex-fuel vehicles (ffv's) by 2010. Flexible fuel vehicles are capable of running on 85% ethanol, gasoline, or any combination of the two fuels. Only 1 million flex-fuel vehicles were produced in 2006 with most of them qualifying for a federal income tax deduction.

Ethanol producers in the US were able to keep pace with demand in 2006 but things may change in the near future. While the cost of producing ethanol is typically higher than that of gasoline, some distributors such as Kroger and HEB stores are definitely pro renewable fuel minded. Both Kroger and HEB stores started offering E85 at a lower price than unleaded gasoline. About 110 ethanol processing plants have opened in recent years, mainly in the Midwest, four in California, and more than 70 are under construction across the country.

Regardless of the lower priced distributors, E85 demand has grown so rapidly that imports of ethanol from Brazil, Costa Rica and Jamaica were needed to fill the gap. Imports ended up supplying 10% of all ethanol sales last year, and that percentage is expected to grow in coming years with more U.S. supplies coming from tropical locales such as Peru.

Ethanol demand is likely to rise, as long as oil prices remain relatively high and consumers continue the renewable fuel mantra, "Live Green, Go Yellow." Ethanol accounted for 3% of all auto fuel sales in the United States in 2006, compared to 50% in Brazil, the most advanced country when it comes to using green fuels. According to Maple Cos., Peru's growing conditions, and low labor costs will make ethanol production cost effective. That combined with the duty-free status for importing into the US under terms of the Andean Trade Promotion and Drug Eradication Act is expected to give Maple an edge over other suppliers, even after accounting for the cost of shipping ethanol by tanker.

Taking full advantage afforded by the Andean trade act, Piura has an ever-expanding portfolio of agricultural exports to the United States. The area has seen the growth of enormous mango and lemon groves in recent years to supply U.S. supermarkets. In Southern Piura, farmers have planted snow peas and asparagus grown specifically for U.S. consumers. The Maple Cos. Ethanol project will take the area to another level, and Governor Trelles hopes that other ethanol producers will follow suit with additional factories. "We are at a historic moment in the region," Trelles said. "With this creation of a new industry, we will see wages go up, better conservation of our water, and more jobs."

The Peruvian region will be strengthened by the bilateral free trade deal that Peru and the United States have signed. The pact, which has been approved by legislators in Peru, may go into effect in 2007 if it is passed in Congress. The accord would make the trade preferences permanent but would also open Peru to imports of U.S. grains with which rice farmers in the Piura area cannot hope to compete.

Governor Trelles hopes that rice farmers in the area will switch to sugar cane when the ethanol plant goes online. Such a change would have an added benefit for the farmers as well as the country, because cane crops need only one-third as much water as rice.

[The Peru-United States Free Trade Agreement officially the United States-Peru Trade Promotion Agreement (PTPA); Spanish Acuerdo de Promoción Comercial Perú-Estados Unidos) is a bilateral commercial treaty, whose objectives are eliminating obstacles to trade, consolidating access to goods and services and favoring private investment in and between both nations. Apart from commercial issues, it incorporates economic, insitutional, intellectual-property, labor and environmental policies, among others. The agreement was signed on 12 April 2006. The Peruvian Congress ratified it on 28 June 2006, but the U.S. Congress still needs to ratify it for it to come into force. Negotiations for an Andean free trade agreement between the United States and Bolivia, Colombia, Ecuador and Peru were announced in November 2003; negotiations started without Bolivia in May 2004. Eventually, due to the slow progress, each of the three remaining Andean countries pursued a bilateral agreement with the United States. Only Peru and Colombia have reached deals so far. (wikipedia)]

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