Ethanol from Sugar
What are the prospects for U.S. sugar co-ops?
By James Jacobs, Ag Economist
USDA Rural Development
ore than half of world ethanol production is produced from
sugar and sugar byproducts, with Brazil being by far the world
leader. Currently, there is no commercial production of
ethanol from sugarcane or sugar beets in the United States,
where 97 percent of ethanol is produced from corn.
Technologically, the process of producing ethanol from sugar is simpler
than converting corn into ethanol. Converting corn into ethanol requires
additional cooking and the application of enzymes, whereas the conversion of
sugar requires only a yeast fermentation process. The energy requirement for
converting sugar into ethanol is about half that for corn.
However, the technology and direct energy costs are but one of several factors that determine the feasibility of ethanol production. Other factors
include relative production costs (including feedstocks), conversion rates,
proximity to processing facilities, alternative prices and government policies, facility construction and processing costs. As other countries have shown that it can be economically feasible to produce ethanol from sugar and other new feedstocks are researched, interest in the United States in ethanol production fr om sugar has increased.
In response to the growing interest around sugar and ethanol, USDA
released a study in July 2006 titled: “The Economic Feasibility of Ethanol
Production from Sugar in the United States” (on the internet at: www.usda.gov/oce/). The report found that at the current market prices for ethanol, converting sugarcane, sugar beets and molasses to ethanol would be profitable. “At this summer’s unusually high price, I can conclude that it’s economically feasible to produce ethanol from sugarcane and sugar beets,” USDA Chief Economist Keith Collins said. However, there is not a clear-cut case that U.S. sugar will be commercially converted to ethanol anytime soon. This article will explore some of the economic and technological factors for the potential of sugar-based ethanol production for farmer-owned cooperatives.
U.S. sugar industry
Sugar beets are an annual crop grown in 11 states across a variety of climatic conditions, from the hot climate of the Imperial Valley of California to the colder climates of Montana and North Dakota. Sugar beet byproducts include beet pulp, which can be sold for animal feed, and molasses, which is also sold for animal feed or further processed to extract more sugar.
Sugarcane is a perennial tropical crop produced in four states: Florida,
Hawaii, Louisiana and Texas. Byproducts of sugarcane processing include
molasses and bagasse, the fibrous material that remains after sugar is
pressed from the sugarcane. Bagasse is often burned as fuel to help power
the sugarcane mills.
Total U.S. sugar production fell by
more than 20 percent from 2000 to
2006 due to low prices and structural
changes in the industry. Production
declined significantly or ceased altogether
in five states.
Sugar beets have gained a greater
share of U.S. sugar production over
the past decade, now accounting for
58.8 percent of the nation’s sugar output
while sugarcane fell to 41.2 percent.
Sugar producers and the members
of farmer-owned cooperatives are
increasingly interested in new technologies
and product markets for their
crops, including the growing ethanol
market.
Cooperatives in the sugar industry
Producer-owned cooperatives now
dominate the sugar beet and sugarcane
processing sectors as market conditions
prompted more farmers to take ownership
of their processing facilities to
ensure a market for their beets or cane.
Sugar beet processing: Beet processing
facilities convert raw sugar beets
directly into refined sugar in a 1-step
process. While planted sugar beet
acreage has fallen slightly since the
1990s, sugar production actually
increased due to investments in new processing
equipment, the adoption of new
technologies, improved crop varieties
and enhanced technologies for the desugaring
of molasses.
Sugar beets are very
bulky and relatively
expensive to transport
and must be processed
fairly quickly before
the sucrose deteriorates.
Therefore, all
sugar beet processing
plants are located in
the production areas.
During the past
decade, there was a
steady conversion of
sugar beet processing
plants to cooperative
ownership. All 23 U.S.
sugar beet processing
facilities are now operated
by farmer-cooperatives. These
include: Michigan, four facilities;
Minnesota and North Dakota (the
largest sugar beet producing region)
seven facilities; Colorado and Nebraska,
three facilities; Wyoming, two facilities;
Idaho, three facilities; Montana, two
facilities; and California, two facilities.
Sugarcane processing: Sugarcane is
initially processed into raw sugar at
mills near the cane fields. Like beets,
cane is bulky and relatively expensive to
transport and must be processed as soon
as possible to minimize sucrose deterioration.
The raw sugar is then shipped to
refineries to produce refined sugar.
Cooperative ownership of sugarcane
mills is not as dominant as with sugar
beets. In some states, there has been a
decline in the number of cooperativeowned
mills. Hawaii has gone from 12
mills in 1994 down to two in 2006,
none of which are cooperatives.
Louisiana has gone from 20 mills and
10 cooperatives in 1994 to 12 mills and
4 cooperatives in 2006. However, while
Hawaii sugarcane acreage has declined
significantly, Louisiana’s acreage
increased slightly as the remaining mills
were upgraded and expanded. Florida
sugarcane acreage and mill numbers
have remained relatively constant, with
one cooperative among the six mills.
The lone mill in Texas is cooperatively
owned, and acreage has been fairly stable
over the past decade.
Because all sugar beets and a significant
portion of sugarcane is processed
at cooperatively owned facilities, there
would be significant cooperative
involvement in any future sugar-toethanol
production.
A conveyor transports sugar beets from stockpiles into the
ACS processing plant in Moorhead, Minn. USDA
Factors impacting
sugar to ethanol viability
Corn is currently the least-cost feedstock
available for ethanol production.
Ethanol from sugarcane or sugar beet
feedstocks costs twice as much. USDA’s
recent sugar/ethanol report provides
these comparative production costs.
High oil prices have spurred interest
in ethanol, to put it mildly. But for how
long? (Prices were dropping at press
deadline in September.)
With ethanol prices hovering near
$4 a gallon this summer, the USDA
report concludes that it would be profitable
to produce ethanol from sugar
and sugar byproducts. However, if
ethanol prices were to drop below $2.35
a gallon, it would not be profitable to
use raw or refined sugar as a feedstock.
Based on current futures prices, the
price of ethanol is expected to drop.
Alternative market
prices for sugar
As can be seen above, it is far more
costly to convert U.S. refined sugar to
ethanol than to convert corn. One reason
is that recent domestic sugar prices
make it more profitable to convert sugarcane
and sugar beets to sugar than to
convert it to ethanol. As Jose Alvarez,
vice president of operations for the
Sugar Cane Growers Cooperative of
Florida, said: “It’s simple economics.
Refined sugar sells at about 18 cents a
pound, and the experts tell us ethanol
from sugar would be close to 10 cents.”
(Florida Sun-Sentinel, May 31, 2006.)
U.S. policy has long been to protect
domestic producers from unstable
world prices, where sugar is sold below
the cost of production for most countries
(often called the “dump” price).
Imports are limited to keep domestic
prices stable, with the current price
support level at 18 cents per pound.
Refined sugar is currently a few cents
above that, and unlikely to ever fall
much below the support price to avoid
forfeitures to the government under the
sugar loan program.
When domestic sugar prices were
very low a few years ago and some
sugar was forfeited to the government,
alternate uses for surplus sugar were
explored. The Minnesota Energy
Cooperative experimented with incorporating
beet sugar with corn in a drymilling
ethanol plant. They found
some synergy in combining the two
into their fermentation tanks —
increasing ethanol production and
decreasing the fermentation time, and
allowing them to produce an additional
442,800 gallons of ethanol.
When sugar prices rebounded, the
concept of mixing sugar with corn for
ethanol was put on the back burner.
However, it demonstrated that when
market conditions warrant it, the technology
is there to significantly boost
ethanol production by combining sugar
with corn.
Ethanol from molasses
Molasses was found to be an ethanol
feedstock that was fairly cost competitive
with corn. Molasses is typically sold
as food or a livestock-feed ingredient.
However, there are limited supplies to
economically support a new ethanol
facility.
It is bulky and costly to transport,
limiting the feasibility of drawing supplies
from multiple sugar processing
facilities.
Molasses would be most feasible if
supplying an ethanol facility already colocated
at a sugar processing plant.
Plant location & capital costs
For new facilities, capital costs are
estimated to be higher for those using
sugarcane or sugar beets than for cornbased
ethanol plants. Also, the economics
of plant location is largely dictated
by proximity to feedstocks for ethanol.
Most ethanol plants are located in
the Midwest near corn supplies.
Sugarcane and sugar beets cannot be
shipped very far for processing into
any product, be it sugar or ethanol.
However, building an ethanol plant
onto an existing sugarcane or sugar
beet factory would have a much lower
capital expenditure cost and may make
it more comparable to corn-based
facilities.
In Brazil, nearly all sugar mills have
the capacity to produce both ethanol
and sugar. One advantage of co-locating
an ethanol processing facility is that
sugar producers already bring their
crops to these facilities. Another is that
the front end of the milling process is
the same for ethanol as for sugar, where
beet and cane juices are extracted for
converting into either ethanol or raw or
refined sugar.
Additional fermentation equipment
would be needed to make ethanol at
existing facilities.
Additional feedstocks needed
USDA’s Economic Research Service
(ERS) reported the annual capacity of
ethanol plants could expand from 4.4
billion in 2006 to 7 billion gallons in
2010. ERS also raised a key question:
Where will the corn come from to supply
this expansion?
In 2010, the ethanol sector will need
at least 85 percent more corn than in
2005. How the market adapts to this
increased demand will likely play a
major role in the potential demand for
additional ethanol feedstocks and the
incentives for developing new processing
technologies, especially around the
cellulosic conversion of biomass into
ethanol.
Cellulosic processing technologies:
The ethanol industry has grown
almost exclusively from grain processing.
In the future, ethanol will be produced
from other feedstocks, such as
cellulosic materials. Cellulose is the
most common organic compound on
earth. However, it is more difficult to
break down cellulosic materials to convert
into usable sugars for ethanol.
Yet, making ethanol from cellulose
dramatically expands the types and
amount of available material for ethanol
production, including bagasse and sugarcane
trash (stalks and leaves). Instead
of having to first convert the sugarcane
to sugar juice, ethanol could be produced
by processing the entire plant
material.
Conversion of sugar byproducts and
waste via cellulosic technologies would
greatly increase the ethanol yields of
sugar feedstocks. Cellulosic ethanol
production will augment, not replace,
grain-based ethanol, but ultimately
expand potential ethanol supplies exponentially.
Bagasse
EERG
Sugarcane bagasse, the material left
over after sugar juice is squeezed from a
cane stalk during milling, is another
potential feedstock for cellulosic
ethanol. Creating fuel from bagasse and
other biomass materials holds promise
but will require technology development.
The Audubon Sugar Institute in
Louisiana has a sugarcane-to-ethanol
research project underway focusing on
bagasse.
Bagasse is currently burned as fuel in
sugarcane mills, but researchers hope to
increase the value of what is now considered
a waste product. The project
received two $500,000 grants from the
U.S. Department of Energy for
research on producing value-added
products from bagasse and molasses.
Research shows that one dry ton of
sugarcane bagasse can generate 80 gallons
of ethanol. This compares favorably
with 98 gallons per ton of corn.
Peter Rein, director of the Audubon
Sugar Institute, says “The challenge is
economics. We can do it in the lab.
The technology is there, but the economics
aren’t there yet to be commercially
viable.”
Government policy
The growing ethanol industry in the
United States can partially be attributed
to government policies promoting the
production and use of ethanol.
Incentives such as the motor fuels excise
tax credits, tax credits for small ethanol
producers, import duties and state government
initiatives helped make ethanol
production more cost effective.
Regulations for cleaner air and
increased fuel efficiency significantly
increased demand for ethanol.
The Brazilian ethanol model is often
mentioned when the potential for sugar
as an ethanol feedstock in the United
States is discussed. In the 1970s, Brazil
initiated a program of direct investments,
subsidies and incentives to
increase ethanol production from sugarcane
and increase the use of ethanol as a
substitute for gasoline.
Brazil is now world’s largest producer
of both sugar and ethanol. However,
the economics — in terms of production,
facility costs and government policies
— are not directly comparable to
those in the United States. Brazil production
costs for ethanol from sugar are
much lower than here. It has a much
longer growing season than U.S. sugarproducing
regions and has higher yields
per acre because of better climate and
investment in more-productive strains
of sugar cane.
Some lawmakers from sugar-producing
states have been pushing sugar-toethanol
legislation. The Energy Policy
Act of 2005 included $36 million for
sugar-ethanol demonstration grants.
The funds will be used to explore commercialization
of sugar cane ethanol,
particularly for small producers with
outputs of under 30 million gallons per
day.
The Act also included federal loan
guarantees to build plants to produce
ethanol from cellulosic biomass or cane
sugar. Recent proposed legislation to
encourage the use of renewable fuels
included a 100-million-gallon mandate
for sugar-based ethanol beginning in
2008 and each calendar year thereafter.
How this would happen was not stated
in the pending legislation; it is just a
mandate for minimum quantities of
renewable fuel derived from sugar.
U.S. sugar producers are a little
more tempered in the economic
prospects for sugar-to-ethanol. Selling
refined sugar is still their primary business
and the opportunity costs of converting
it to ethanol are still such that
the market for sugar is more profitable.
There is a general sentiment that policies
to increase ethanol production
from sugar should augment, but not
replace, current U.S. sugar policy.
The American Sugar Alliance, an
association of beet and cane sugar producers,
has stated that the government
would need to step in to stimulate a
sugar-to-ethanol industry. “It would
take a combination of consumption
mandates to ensure that the demand
would be there, and conceivably some
production incentives to use ethanol.”
(CNN.com, June 20, 2006)
USDA’s sugar/ethanol report concludes
that corn certainly has a competitive
advantage in the current market
environment, and is helped by the current
51-cent-a-gallon federal tax
exemption. Some people have suggested
that one way to spur sugar-to-ethanol is
to provide an increased credit for sugar.
This was proposed, but not adopted,
to compensate for more sugar imports
negotiated in the latest Central
American Free Trade Agreement.
Some states are pursuing their own
sugar-to-ethanol policies. With unique
transportation circumstances and a
declining sugarcane industry, Hawaii is
aiming to become the first state with a
sizeable sugar ethanol industry. In 2007,
Hawaii state law will require that at
least 10 percent of all gasoline sold in
the state be blended with ethanol.
Co-ops would play major role
While the recent USDA report concludes
that at current prices sugarcaneand
sugar beets-to-ethanol would be
profitable in the United States, many
factors — especially the domestic price
of sugar and the government’s energy
policies — will affect the future commercialization
of sugar-to-ethanol in the
U.S. USDA Chief Economist Keith
Collins said at the release of the USDA
report: “At some point in the future it
may be worthy of commercial development.
Technologically, it’s possible. The
question is: is it economically feasible?”
As pointed out by panelists at the
recent International Sweetener
Symposium, cost is the major hurdle
and new technologies and government
investment will be needed to overcome
that barrier. Says Steve Williams, president
of the American Sugar Beet
Growers Association and member of
the American Crystal Sugar Co. cooperative:
“We’re always open to new uses
of sugar and will look very hard at
ethanol. The question is: Will it be
economical in the long term?”
The most promising scenario for
sugar-to-ethanol appears to be linked to
advances in cellulosic and “mixed
stream” technologies, especially for sugarcane
because of its broader cellulosic
properties. In any scenario, it appears to
be clear that if ethanol is to be produced
from sugar, the facilities must be
located at existing sugarcane or sugar
beet plants because of transit cost limitations.
This means that cooperatives
will likely have a significant role in any
commercialization of sugar-to-ethanol
because of their dominance at the initial
processing stages.
