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US ethanol industry booming

Ethanol production in the United States has more than doubled in the last three years despite growing concerns over its benefit to the environment and doubts raised by ecology groups over its long-term sustainability.

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Blamed for a spike in food prices, its environmental benefits increasing disputed, ethanol production nonetheless is booming in the United States, where factories are multiplying to keep up with demand.

The number of ethanol factories operating in the country has nearly tripled, from 50 in 1999 to 134 today. And 77 plants are under construction, according to the Renewable Fuels Association, an ethanol industry trade organization.

Ethanol production, which amounted to only one billion gallons (3.7 billion liters) in 2005, has already surpassed the 2012 target of 7.5 billion gallons (28.3 billion liters) and is expected to reach 10 billion gallons (37.8 billion liters) in 2009, the US Department of Agriculture (USDA) says.

"As long as oil prices ... stay higher, demand for ethanol will increase," Sam Cotdill, a manager at Cass County Amaizing Energy, an ethanol producer in Iowa, told AFP in a phone interview.

In a drive to reduce dependence on foreign oil, the US government is providing subsidies and tax breaks to encourage the production of corn-based ethanol, which is being blended by law into gasoline.

Benefiting are the producers of corn, the main US grain crop and source of 97 percent of the US-made ethanol, biofuel refiners.

The US government wants production to reach 36 billion gallons (136 billion liters) by 2022.

The result: 14 percent of the US corn crop is now dedicated to ethanol production and that is expected to rise to 30 percent in 2009-2010, the USDA says.

The United States accounts for between 60 and 70 percent of the world's corn exports. Due to the demand from ethanol producers, the price of a bushel of corn on the world commodity market has doubled in a year, to more than six dollars.

The increase in corn prices for livestock feed has affected other grains. As farmers increasingly shifted into lucrative corn production -- in 2007 corn-planted acreages increased 18.6 percent -- it has reduced the amount of land devoted to cotton and soybeans, thus driving their prices higher.

And the impact of corn-based ethanol also has rippled through the food production chain, pushing up retail food prices for the American consumer.

The expansion of ethanol is a factor in the spike in global food prices after their relative stability for the past 20 years, according to the USDA.

The International Monetary Fund, the UN World Food Program and the World Bank have directly blamed ethanol in the current global food crisis that has swept developing countries in recent months.

"Ethanol has contributed at about 25 percent to the recent increase in food prices," said Bill Nelson, an analyst at Wachovia Securities in Missouri, told AFP in a phone interview. The higher corn price has had a "huge impact because corn is primarily used for animal feed."

Ethanol's green credentials are also under debate: although in principle its use is less polluting than gasoline, producing it entails massive amounts of water, fertilizer and pesticides, ecology groups say.

In response, the president and chief executive of the Renewable Fuels Association, Bob Dinneen, argues that gasoline's price would be 15 percent higher if ethanol producers had not raised their output.

"Current ethanol production is lowering the price of gasoline at the pump by 50 cents per gallon," said Tom Buis, head of the National Farmers Union.

Mounting public complaints that corn-based ethanol is diverting food away from consumers' plates have spurred interest in developing non-food energy sources.

The US government is hoping that production of so-called "second-generation" cellulosic ethanol will increase more than five-fold in the next 15 years, from 6.5 billion gallons (24.6 billion liters) in 2007.

Cellulosic ethanol, a renewable biofuel produced from non-food plant materials such as corn stalks and switchgrass, is not yet available on a mass commercial basis.

The government is pouring money into subsidies for their development and has set a 2022 production goal of 16 billion gallons (60 billion liters).

"The US will be producing on a commercial scale probably in 2012," said Bill Caesar, an analyst at McKinsey & Co. "But then it will take several years after that to see a build-up that you get several billions of gallons."
 

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