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Growing U.S. Interest in Ethanol May Shape Future Sugar Policy

Nov 20, 2006

Growing U.S. Interest in Ethanol May Shape Future Sugar Policy

Noting the rising interest in ethanol as a renewable fuel and the changing fuel landscape caused by soaring crude oil prices, a new study examines the growing ethanol market and its impact on agricultural products, including sugar. Because sugarcane and corn are the most widely used crops for producing ethanol, the agricultural sector is increasingly becoming a source of energy, which has the potential to raise the cost of sugar for food processing manufacturers and corn for dairy cattle feed.

In 2005, the dairy industry used approximately 1.2 billion pounds of sugar, representing about 11% of the total amount of cane and beet sugar used for food processing in the United States.

"Sugar is extremely important to manufacturers of ice cream, yogurt and other sweetened dairy foods," said Helen Medina, IDFA manager of international affairs. "To remain competitive in domestic and international markets, the industry needs a stable, reliable, high-quality supply of sugar at competitive prices."

The new report, "An Analysis of the Link between Ethanol, Energy, and Crop Markets," was issued this month by the Center for Agricultural and Rural Development at Iowa State University. According to the report, agricultural commodities play an important role in the dynamics of ethanol markets.

IDFA will continue to monitor reports on ethanol and its impact on sugar to provide regular updates to members. Links to these new reports will be available at a new ethanol section coming soon at www.idfa.org.

The new report examines the current effect of ethanol production on markets in the United States and Brazil, the two largest producers of ethanol. As demand grows, the study explains, both countries may begin to focus more on ethanol production, especially in Brazil, which would tighten sugar supplies and increase sugar prices. Ethanol production in the United States currently relies on corn.

Citing the interconnecting dynamics of the market, this report urges countries to pay special attention to the links between energy, ethanol and agricultural markets to understand the impact that a change in one market can have on related markets.

Member of Congress have already expressed interest in reviewing these links when they consider sugar policy in the 2007 Farm Bill. During a Senate Agriculture Committee hearing in July on the current domestic sugar program, the senators discussed the use of sugar crops for ethanol. At the time, Committee Chairman Saxby Chambliss (R-GA) said he expected the production of ethanol to become a key part of any future sugar policy. Senator Richard Lugar (R-IN) also pushed this theme, emphasizing the importance of developing a strong ethanol program to face the challenges of rising worldwide demand for energy.

To read the full report, click here.

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Posted November 20, 2006

 
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