Impact of Expanded United States Sugar Imports From

Impact of Expanded United States Sugar Imports From CAFTA Countries on the Ethanol Market : 

Impact of Expanded United States Sugar Imports From CAFTA Countries on the Ethanol Market Dr. Osei-Agyeman YeboahS. Janine Parker SAEA Annual Meetings Atlanta, Georgia January 31 - February 3, 2009

Background : 

Background Henry Ford predicted that “ethyl alcohol is the fuel of the future”. Corn-based ethanol production has been very profitable over the past few years. In the United States, corn is used to make ethanol, but it is not the most efficient resource. Sugarcane ethanol is the most cost-efficient biofuel.

Background Continued . . . : 

Background Continued . . .

Background Continued . . . : 

Background Continued . . . Brazil is the world’s second largest producer of ethanol and the most cost-efficient due to sugar. The ethanol industry in Central America and the Caribbean has extreme growth potential as well. low production costs large sources of sugar cane The geographical proximity to the United States and the tariff-free access to the U.S. market under CAFTA are important factors in the industry’s growth.

Background Continued . . . : 

Background Continued . . . For the United States: increased competition for production Increased export potential Central America: increased export potential Increases economic development due to CAFTA-DR One of the objectives of the trade agreement

Objective : 

Objective This paper uses econometric modeling to establish the relationships between domestic ethanol production, domestic gasoline prices, imported sugar cane prices, and domestic corn prices.

Methodology : 

Methodology Multiple Regression Q = β0 + β1x1 + β2x2 + β3x3 + ε Where: β = regression coefficients x = independent variables

Econometric Model : 

Econometric Model (1) QE = ƒ(GP, EP, SCP, CP) where all variables on both sides are real and expressed in natural logs. QE  Ethanol Production Volume GP  Gasoline Prices EP  Ethanol Prices SCP  Sugarcane Prices CP  Corn Prices

Data & Estimation Procedures : 

Data & Estimation Procedures Multiple Regression Model U.S. monthly data of prices January 2000 to September 2008.

Data & Estimation Procedures : 

Data & Estimation Procedures The quantity of ethanol produced was regressed on: domestic gasoline prices in gallons, GP domestic ethanol prices in gallons, EP imported sugarcane prices from CAFTA-DR countries in USD per kilogram, SCP domestic corn prices in USD per bushel, CP

Data & Estimation Procedures Continued . . . : 

Data & Estimation Procedures Continued . . . Ethanol Production & Gasoline Prices Collected from the United States’ Department of Energy’s (DOE) Energy Information Administration (EIA) Domestic Ethanol Prices Collected from the United States Department of Energy’s Energy Efficiency and Renewable Energy Imported Sugarcane Prices Collected from the United States International Trade Commission’s Interactive Tariff and Trade Data Web Domestic Corn Prices Collected from the United States Department of Agriculture’s (USDA) National Agricultural Statistical Service (NASS)

Data & Estimation Procedures Continued . . . : 

Data & Estimation Procedures Continued . . .

Results : 

Results Examine the validity of the multiple regression model with respects to ethanol production in the United States from January 2000 to September 2008, monthly. QE = 1.394 + 0.0241GP + 0.0396EP + 0.0140SCP + 0.0141CP

Results Continued . . . : 

Results Continued . . .

Results Continued . . . : 

Results Continued . . . The elasticity of 0.0241 for gasoline implies a 1% change in gasoline price will increase ethanol production by about 0.024%.

Results Continued . . . : 

Results Continued . . . The own price elasticity of 0.0396 for ethanol implies a 1% change in ethanol prices will increase ethanol production by about 0.0396%.

Results Continued . . . : 

Results Continued . . .

Results : 

Results

Results Continued . . . : 

Results Continued . . . The elasticity of 0.014 for corn prices implies a 1% change in ethanol production will increase corn prices by about 0.014%.

Conclusion : 

Conclusion Gasoline, ethanol and corn prices have a positive effect on ethanol production, while imported sugarcane prices from the CAFTA-DR region have cast a shadow on such a highly significant model showing a positive sign when a negative one was expected. There are ethanol facilities under construction at present to use sugarcane in their ethanol production process, and a review of this model after the usage of sugarcane in ethanol production is needed.

Slide 21: 

Thank You End of Presentation