Impact of Expanded United States Sugar Imports from CAFTA Countries on the Ethanol Market

Abstract

The need to decrease the United States’ dependency on oil has pushed ethanol to the forefront of energy sources. In the U.S., corn is used to make ethanol. Corn-based ethanol production has been profitable over the past few years, but there has been a near doubling of corn prices in late 2006 and early 2007 (Outlaw, et. al., 2007). The trend is a constant rise in prices, which has given way to ethanol production by other sources of raw materials like sugarcane. Sugarcane ethanol is the most cost-efficient biofuel available anywhere in the world, and in the United States, the government supports sugar prices. Through the US sugar policy, sugar prices are controlled, and foreign imports are severely limited. Brazil is leading the way in sugarcane ethanol, and its neighbors in Central America are following suit. In 2006, the Central American Free Trade Agreement (CAFTA) was established. The agreement allows sugar imports into the U.S. from these countries duty free. Those countries have extreme ethanol growth potential with low production costs and large sources of sugarcane. This paper uses GIS and statistical tools to determine the impact of the expanded U.S. sugar imports from CAFTA-DR countries on the U.S. ethanol market in terms of production and regional concentration. To estimate the relationship between ethanol production and sugar imports, an OLS regression model has been developed with monthly U.S. ethanol production as a function of imported sugarcane, gas, ethanol , and corn prices; covering January 2000 to September 2008.