WASHINGTON — Senior executives of three U.S. agribusiness giants presented views on the future of crop production for fuel during a special plenary session of the U.S. Department of Agriculture’s Agricultural Outlook Forum March 1. The executives embraced the notion renewable fuels will play an increasingly important role in enhancing U.S. energy security. But there also were suggestions for a balanced approach to U.S. bio-energy policy, with emphasis on a market-driven allocation of crops for fuel or for feed and food use and the need for the economics of biofuels "to work."
Patricia A. Woertz, chairman and chief executive officer, Archer Daniels Midland Co., Decatur, Ill., said ethanol could grow to replace 10% of gasoline consumption in America — requiring production of about 14 billion gallons of ethanol annually — with corn continuing as the primary feedstock.
Ms. Woertz said President Bush’s call for annual production of 35 billion gallons of renewable fuel by 2017 involves roles for cellulosic ethanol, biodiesel and other alternative energy sources in addition to corn ethanol, as it was expected corn ethanol alone could not realize the president’s goal.
"At ADM, we are already doing cellulosic research on current feed stocks," Ms. Woertz elaborated. "Our process involves thermo-chemically treating corn hulls to allow part of the fiber to be fermented into alcohol. We believe this process would boost our production of ethanol by 15% without requiring an additional ear of corn."
Ms. Woertz suggested the nation move toward greater ethanol usage incrementally, moving from a 10% to a 15% or 20% blend in the fuel supply.
"Incremental growth can make it easier and more convenient for drivers to fill their tanks with fuel that includes ethanol," she said. And if higher renewable fuel standards are implemented, they should be phased in to allow for new technologies, yield improvements and additional acreage that will be necessary to meet them, she said.
"We think the current incentives for ethanol are working well to encourage the development of the industry and promote the growth of a stable supply chain," Ms. Woertz said. "Overall, we think policy initiatives should look to provide the consistency that encourages the substantial investment needed to make new, evolving industries viable. And ultimately, the bio-energy industry will stand on its own in the marketplace."
Greg Page, president and chief operating officer of Cargill, Minneapolis, noted his company, too, was heavily invested in producing and trading biofuel.
"At the same time, we remain committed to participating across a broad portfolio of food, feed and fuel products from renewable sources around the world," Mr. Page said. "That is why I describe Cargill as an agri-food company with a biofuels component, not the other way around."
Mr. Page cautioned, "As we devote a greater proportion of crops to fuel, we can expect the pressures on the supply and demand equations to cause the price of food to rise. Higher food prices across the globe certainly will impact people in less developed countries far more than those in the developed world, who can more easily adapt to price increases … As a responsible society, we need careful thinking and planning as we navigate new ground and continue to face the challenge of providing food to an ever-expanding world population."
Mr. Page said balance was required in the nation’s approach to bio-energy promotion. That balance would be "best maintained through policies that are market-driven, trading arrangements that are open and compliant with existing agreements and production and use that benefit the environment."
Biofuels economical viability to date has been enhanced by government support such as mandates, targets, incentives and, in some cases, trade barriers, Mr. Page explained.
"While governments will make choices to promote biofuels with these measures, inflexible government mandates risk creating inefficiencies and exerting unnecessary pressures on food and feed supply systems, pressures that are likely to be inconsistent with market demands," he said. "Whatever incentives governments put in place, they should provide sufficient flexibility to allow markets to work and to allow relief from market distortions that mandates and other government programs can cause. Also, biofuels investors will react more rationally to incentive tools that move the industry toward free-market fundamentals."
Mr. Page raised the prospect of potential crop supply shortfalls.
"The more crops we devote to fuel, the greater impact drought or other stresses will have on our food and feed systems," he said. "An effective and non-political waiver of the biofuels mandate, which has the actual effect of relieving pressure on food and feed systems, is the best way to ease pressure in such times of stress."
Biofuels should be freely traded worldwide, Mr. Page asserted.
"Rather than view global biofuels trade as a threat (the U.S. currently maintains a 54c-per-gallon import duty on Brazilian ethanol), we should view overseas sources as an opportunity to develop a diverse and global biofuels market that can take advantage of multiple points of origin," he noted.
John D. Johnson, president and chief executive officer, CHS, Inc., St. Paul, Minn., pointed out his company was both a longtime producer and marketer of ethanol and a petroleum refiner.
"Given our more than three decades of experience, our knowledge of the ups and downs of renewable fuels, and our long commitment to adding value for farmers, ranchers and rural America, you might think that we’d be overflowing with enthusiasm for what has transpired over the past 18 months," Mr. Johnson said. "We are not. We are involved. We are committed. We see tremendous opportunity for many, particularly our nation’s farmers. We are moving forward. But we are also realistic."
Referring to the president’s proposal requiring 35 billion gallons of renewable and alternative fuels by 2017, Mr. Johnson said, "Candidly, we were quite surprised by both the extent of the mandate and the timetable." He said the government should encourage the nation’s energy producers and consumers to adopt alternative fuels.
"But we also recognize that mandates alone do not assure a clear path to energy independence," he added. "The economics must work."
He pointed out corn, soybeans and other prospective stocks for biofuel production remained commodities subject to the vagaries of nature and often volatile price swings. He contrasted the market environment in mid-2006, when corn prices were $2 a bu and oil prices reached $70 per barrel, making new investments in ethanol production incredibly attractive, with more recent market trends that have seen corn prices top $4 a bu and oil prices at times drop below $60 a barrel.
"We must be cautious of overly ambitious targets that result in too much, too soon and upset this industry’s economic equation through excess capacity or create other issues at a rate faster than we can address them," Mr. Johnson said. "Rather than supporting a goal that mandates a set amount of usage, we think the best strategy is to adopt requirements that all gasoline sold nationwide contain 10% ethanol, with E-85 as an option for those who can use it, along with a 20% blended option for states that want it. We believe this kind of across-the-board national standard is the best way to get every driver in our nation to embrace renewable fuels."