Colombia Ethanol Aided By Government Regulations
Support for New Sector Consolidates Reformers in South America
Apr 24, 2009
Aided by its government, Colombia is becoming a significant ethanol producer, second only to Brazil in South America, according to two recent US government reports.
“Colombian sugar production is already below historical levels due to the increase of sugarcane use for ethanol production,” said the USDA’s Foreign Agricultural Service´s recent GAIN (Global Agricultural Information Network) report on sugar.
The GAIN report is the second report by the US government flagging the rise of Colombia as a large scale producer.
Consolidating the Ethanol Helps Washington in South America and oil-man Hugo Chavez
Washington is relaxed about this as not only does the growth of the market suit it but consolidating the ethanol bloc within South America is a handy balance to the oil group led by the more Bolivarian and anti-US Hugo Chavez of Venezuela.
More immediately though the rise of ethanol has economic consequences .
Colombian Sugar Production
Colombian sugar production has been declining since late 2005 because of the diversion of sugarcane to ethanol, the report goes notes. It acknowledges other factors among them a cane-cutters strike and heavier than usual rain which hindered harvesting were also downward forces on production.
Whilst a well–developed sugar industry is one of the assets ethanol has capitalised on there are two others as outlined in another US government report “Colombia: A New Ethanol Producer on the Rise? By Jose Toase, published by the Economic Research Service of the USDA. The advantages are the clever almost forensic use of technology and the role of the government in encouraging the sector.
Increasing Amounts of Ethanol in Car fuel
Bogota by progressively mandating ethanol be blended into car-fuel in increasing amounts and over an expanding geographical area did not more than cheerlead it incentivised the sector.
The began in 2001, with Law 693 which established gasoline must contain a 10-percent ethanol blend by 2006 and a 25-percent blend within 15 years. That the ERS report notes was when Colombia had no ethanol production facilities. It was not until October 2005 that Colombia started to produce ethanol from sugarcane.
In the beginning the law applied only gasoline sold in southern metropolises of over 500,000 people. It was extended to include the centrally-located capital, Bogota, in 2006.
Helping out further has been government flexibility. The 10% blend requirements were eased when there wasn’t enough produced for compliance in summer 2008. That allows absorption nearly all of Colombia’s daily production of 383,000 gallons per day thereby limiting Colombia’s potential as an exporter, despite it being amongst the top eight producers in the world.
New Law
And that support keeps on rolling. Bogota is developing a law requiring all new cars be equipped to handle fuel with a 20% ethanol blend, the Hacia el E-20 or until E-20 project, by 2012. It has also created a multibody agency which by looking at areas such as prices, taxes and research will see more coordinated and sustained development.
Indeed the problem identified by the reports for further still development of the sector is not so much the role of government but the lack of space in the Cauca Valley where much of Colombia's sugarcane comes from.
