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Jamaica Broilers Lobbies US for Ethanol Tariff Incentive

by 5m Editor
15 March 2012, at 7:08am

JAMAICA - Jamaica Broilers Group (JB) is hoping it will get the US to extend its tariff incentive on ethanol by the time it fires up its plants in mid-2012.

At midnight on New Year's Eve, a tariff of 54 US cents per gallon of ethanol entering the US expired, which dramatically dropped the price of the biofuel being imported from large producers such as Brazil. It also meant that countries benefiting from duty free concessions under the Caribbean Basin Initiative (CBI) would no longer get the incentive.

"In the ethanol operations, we have a number of contracts still in place although the CBI tariff, incentives to ship to the USA came to an end on December 31, 2011," said JB in its latest financial statements. "The lobbying effort is ongoing in the US, for the reinstatement of some modified forms of the tariff."

JB's vice-president of energy and finance Ian Parsard told the Business Observer that Brazil's sugar harvest ended in December and would recommence some time in April. JB would seek to fulfil its contractual arrange-ments by the middle of the calendar year (around June-July).

It is around that time, Mr Parsard hopes to see "at least a vote on the bill" that would see reinstatement of the incentive.

JB's idea is to engage with lobbyists and diplomats, who in turn would try to convince US House representatives of the benefits of extending the tariff, especially as it relates to Brazilian ethanol, which is cheaper than the corn-based variety of the biofuel, entering the US without having to pay a premium of an additional 54 US cents a gallon and potentially grabbing up market share from domestic producers.

Typically, Caribbean producers, like JB, import Brazilian hydrous ethanol and dehydrate it for export. The removal of the tariff means Brazil could bypass the dehydration step.

US congressman Charles Rangel, in early December, introduced a bill to extend "other duty or charge" (ODC), a key component of the Caribbean Basin Economic Recovery Act (CBERA), that provides duty-free treatment to ethanol imports from the Caribbean for three years, until 31 December 2014.

"My legislation would preserve duty-free ethanol for the US as well as ensuring that the gains achieved for the Caribbean remain intact," said Congressman Rangel in a press statement. "Extending the ODC for three years will help maintain US investments in the Caribbean, which benefits our long-term trade relationships in the region."

The statement went on to say that permitting the ODC to expire would greatly benefit Brazil.

"It is critical for US businesses and consumers to help our partners in the CBI retain a vibrant ethanol refining industry," added Congressman Rangel. "Allowing a single country to have an advantage over this critical energy source could devastate businesses in the region and drive up energy costs. It would also create market instability at a time when our country continues to steer a stable economic recovery."
A September 2011 report evaluating the impact of CBERA on US industries and consumers in 2009 and 2010, released by the US International Trade Commission (USITC), showed that ethanol imports from CBI countries fell from 18.1 per cent of US imports of energy products in 2008 to 0.5 per cent in 2010.

The drastic plunge was caused by developments in the global sugar market and the domestic Brazilian ethanol market that resulted in lower exports of ethanol from Brazil. Also, moderating corn prices in the United States and increased capacity utilisation by US corn ethanol producers resulted in lower production costs and prices in the United States.

"These market conditions virtually shut off the supply of hydrous ethanol from Brazil that is used as a feedstock by CBERA dehydrators," said the USITC report. "There are currently no economically viable alternative sources of feedstocks for CBERA dehydrators."

Furthermore, the USITC report showed that with the decline in US ethanol imports, Jamaica's CBERA utilisation rate fell from about 45 per cent in 2008 to just 27 per cent in 2010.

Indeed, Jamaica's export of ethanol rose from US$44.8 million in 2006 to US$170.3 million in 2009 before falling to US$48.1 million in 2010.

JB's ethanol revenue for the nine months to January 28, 2012 totalled $1.08 billion, up from the $865.8 million during the comparative period the year before, but the company's profit from selling the biofuel fell from $170.6 million (8.8 per cent of operating profit before corporate expenses) during the nine-month period last year to $64.4 million (3.8 per cent) during the review period.

Failing to get the tariff incentive reinstated would force JB to look more aggressively at alternatives to utilise its idle plants — two, 60 million gallon dehydration units — and storage capacity of 25 million gallons, according to Parsard, but he remains optimistic about the company's future in energy.

"The fuel mandate moving forward for the US has capped conventional biofuel (such as corn)," he said. "All of the increase must come from advanced biofuel for which sugar cane is the leader," while not eating away market share of domestic producers in the US.

In the meantime, JB reached another milestone in its foray into the Haitian market, having commenced production of feed, baby chicks and layer pullets there last month.

"We are now in a position to start having an impact on a large Caribbean market and look forward to its growth and development," said the company in its latest financial statements.

Domestically, poultry production was hit by two major factors: a significant increase in the cost of corn and a high increase in the number of permits issued by the Ministry of Agriculture & Fisheries in 2011 for the importation of chicken necks and backs.

JB's Best Dressed Foods Division reported a decline in profit from $882.8 million during the nine months ending 29 January 2011 to $712.6 million during the period under review.