Monday, August 11, 2008

Sweet sorghum biofuel saga

Sweet sorghum is another crop being touted as a costless source of biofuel, but the road is not so smooth. Sweet sorghum looks like a giant corn stalk about 10 feet high. The stalk contains sugar that can be squeezed out and distilled into alcohol. Sweet sorghum is seen as an attractive alternative because it can grow on poor land that’s unsuitable for other crops.

Nongrain biofuel projects are the “in” thing and they’re being pushed by the government and everyone wants a piece of the action. Especially since there are generous government subsidies available.

Mr. Liu, an official of the local Agricultural Bureau’s seed company in Huanghua (Hebei Province), complained to a China Times journalist that COFCO had left the farmers at the altar. In March 2007 COFCO and its partner, BP petroleum, made plans for pilot projects in Hebei, Shandong, and Inner Mongolia, giving local officials and farmers some sort of promise that they would buy the sorghum to make biofuel on a trial basis.

(COFCO is a big state-owned company that used to be China’s grain and edible oils trading monopoly. It is now diversifying into various other mostly food-related ventures, including biofuels, with ambitions to become a global agribusiness giant.)

In April 2008, COFCO suddenly sent out a letter saying that it was suspending the project. A disgruntled Mr. Liu sees this as COFCO reneging on their promise, leaving the farmers at the altar.

It’s not clear exactly why COFCO backed out. A COFCO engineer explains that there are problems with the short harvest season for sorghum and the difficulty of getting it into the factory and processed in the short window of time between harvest and loss of sugar content. Another article says that just about all the sweet sorghum projects (there are also pilots in Xinjiang and Heilongjiang) are idle. COFCO claims it never made any official agreement with the farmers.

Tight cash is another reason advanced. According to industry insiders COFCO got a wad of cash from the government “to stabilize grain and oil prices” and didn’t use it well [exact meaning in original source not clear]. As a result, COFCO is backing off from some of its new ventures to concentrate on its core business. [The government gave subsidies to vegetable oil processors to compensate them for losses sustained due to price controls.]

Another aspect of the story is the freeze-out of private companies. You have to have a license to produce and sell biofuels and receive a subsidy, and the licenses are only awarded to big state-owned companies like COFCO. Journalists have found a couple of private companies that wanted to get into the sweet sorghum biofuel business but have not been able to without a license. One factory owner says he could make a profit selling ethanol for fuel with the subsidy, but without it he has to sell his ethanol as booze at a lower price. In Binzhou, Shandong it is said there is a biofuel factory sprouting weeds due to lack of license.

Is China a market economy? Well, kind of, but not really. Huge investments are made on the whim of officials. The hard-working private entrepreneur is frozen out by the big state-owned behemoth. China accomplishes a lot, but it also wastes tremendous amounts of resources by building idle factories that produce nothing.

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