By Jason Simpkins
Associate Editor
Archer Daniels Midland Co. (ADM), the nation's largest ethanol producer, could begin shifting much of its biofuels operation to Brazil, as corn-based ethanol attracts continued political scrutiny in the United States.
ADM profits from oilseed, corn processing, and agricultural services hit a record $3.4 billion for the 2008 fiscal year, in part because of strong ethanol sales. However, ethanol has come under fire from meat and dairy producers who argue that the diversion of corn for ethanol production is the principle catalyst for soaring food prices.
The price of corn soared from about $3.50 a bushel to $7 in the last two years, driving up the price of cattle and poultry feed - and causing the prices of many meat and dairy products to skyrocket.
Not everyone subscribes to that theory, as a report from the Council of Economic Advisors in May said only 3% of the 40% increase in food costs worldwide could be attributed to the diversion of corn to ethanol production.
Still, the controversy has gained plenty of political traction. Senator John McCain, the Republican nominee for president, has voiced his opposition to federal subsidies for corn-based ethanol and senators John Warner (R-VA) and Jim Webb (D-VA) have petitioned the Environmental Protection Agency to temporarily waive a congressional mandate that requires the oil industry to blend increasing amounts of ethanol into gasoline.
ADM Chief Executive Officer Patricia Woertz said she is "reasonably optimistic" that Congress would continue to support the current legislation, which mandates annual ethanol usage of 9 billion gallons by 2009.
If the waiver passes, however, that usage would be slashed in half.
With pressures mounting at home ADM is turning more of its attention to Brazil - the world's second-largest ethanol producer and the leading exporter.
"We have been interested and continue to stay interested in an investment in sugar and ethanol processing in Brazil and we have talked with several potential partners," Woertz told the Financial Times.
Part of the reason for ADM's interest growing interest Brazil is the large flow of cash pouring into the country's thriving ethanol industry. The Inter-American Development Bank, Latin America's largest development bank, recently provided a $260 million loan to Santa Elisa Vale do Rosario to build three ethanol plants - a project that's expected to cost more than $1 billion.
The loan, which will sit alongside a $360 million commercial bank credit, is the biggest ever by a multilateral institution for a green fuel initiative, the Financial Times reported.
The Brazilian ethanol industry also enjoys the total support of the government. Brazilian officials have made its ethanol exports a key issue in global trade talks, where they have pressed the United States and Europe to open their markets.
The European Union recently exempted 450 million gallons of Brazilian ethanol from higher tariffs as part of a larger trade deal. Marcos Jank, head of Brazil's sugarcane industry association, expressed his happiness with the deal but said he was now hoping for a better offer that reflects the rise in ethanol consumption moving forward.
Brazil is also pressing the United States to reduce, if not eliminate, the 54 cents per gallon tax it currently levies on Brazilian ethanol imports. Critics have in the past labeled that tax as a frivolous roadblock designed to protect American corn farmers who cannot produce ethanol as cheaply as Brazil's sugarcane growers.
News and Related Story Links:
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AOL Finance:
ADM Conference Call
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The Associated Press:
Senators ask easing of ethanol mandate
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Financial Times:
ADM in talks to tap ethanol in Brazil
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The Associated Pres:
Brazil presses US, EU on ethanol at WTO
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Financial Times:
Brazilian ethanol plants to get $260m loan
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Money Morning:
U.S. Corn Crop Could Decrease by 10% Further Fueling the Great Ethanol Debate.
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Whitehouse.gov:
Council of Economic Advisors