Ethanol plant dispute highlights unintended impact of subsidies

An ethanol plant in the US is pumping out fuel made from sugar beets, and corn farmers are suing to stop it — a small-town dispute that offers an unusual take on the debate over the market-distorting impact of sugar and corn subsidies.

The dispute in Aurora, Nebraska, population about 4,400, brings into conflict two of the largest US farm programmes, one promoting sugar production and the other corn-based ethanol.

Aventine Renewable Energy Holdings is reaping profits producing ethanol with cheap sugar, thanks to a US Agriculture Department subsidy of beet sugar.

Local corn farmers, who benefit from a government rule that forces oil companies to blend ethanol into gasoline, say in court documents that Aventine’s action violates an agreement to use their grain exclusively as a feedstock for the firm’s recently reopened plant in Aurora. Aventine denies any wrongdoing, saying it has abided by its contract.

The irony of the situation is not lost on George Hohwieler, president and chief executive of the Aurora Co-operative Elevator Company that is at loggerheads with Aventine.

“Hamilton County, Nebraska, by any measure, is one of the most productive corn-producing counties in the world,” he said. “The message being sent to the marketplace is that they’re making ethanol out of sugar.”

In fact, Aventine’s use of beet sugar is the first large-scale production of sugar alcohol in Nebraska since bootleggers used boxcars of sugar to make moonshine during Prohibition in the 1920s and 1930s.

Aventine chief executive Mark Beemer said the co-op was being short sighted in suing the company. “We’ve been very blunt. This is just a very short-term pathway to get the plant open and then convert back to corn ethanol,” he said.

The dispute illustrates the unintended impact federal farm subsidies can have on market activity.

One such initiative, the Feedstock Flexibility Programme, last year enabled buyers like Aventine to purchase below-market sugar at government auctions, then use it as feedstocks in their ethanol plants, putting the sugar in competition with corn.

Under the federal sugar programme, the government guarantees minimum prices for sugar loans, paying processors 24c per lb for beet sugar, or 19c for cane sugar, if sugar prices fall below those benchmarks. The USDA then must auction the sugar for non-food purposes.

Aventine was the biggest buyer at USDA auctions last autumn, purchasing some 660 million pounds of beet sugar.

Beemer said the firm earned up to 50c a gallon on each of the 80,000 gallons it churned out daily while burning beet sugar. If the supplies last through August, as expected, that could amount to a near $4m (€3m) profit for Aventine.

The company operates ethanol plants in Nebraska and Illinois. As a publicly traded company, Aventine filed for bankruptcy in 2009 and emerged as privately held in 2010.

Aventine’s sugar-fuelled profits have come at the price of intensifying a long-running dispute with the Nebraska farmers’ co-op.

When Aventine booked delivery of the sugar to the Nebraska plant in February, the farmers’ co-operative sued. The co-op owns the railroad tracks serving the plant, and Aventine had no right to use the tracks for any feedstock except corn bought from the co-op, the lawsuit claims.

By that point, the farmers and Aventine were engaged in multiple lawsuits. In one, the Aurora Co-op claims that Aventine did not live up to a commitment to operate the plant at close to its 110-million-gallons-a-year capacity by July 2012.

The cooperative said Aventine’s decision not to purchase corn in 2012, as prices headed toward a record $8 (€6) a bushel, cost the cooperative $1.7m (€1.25m). A National Grain and Feed Association arbitrator denied Aurora’s claim for damages on the corn sale. The co-op is appealing the ruling.

— Reuters


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