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Production of Biomass in the Louisiana Sugarcane Belt: What could it mean for the sugar industry? Tyler Mark Pablo Garcia Michael Salassi Michael Deliberto Department Of Agricultural Economics & Agribusiness Louisiana State University
External Factors Driving the Demand for Biofuels • Mandates • Banning of MTBE • Energy Policy Act of 2005 • The Energy Independence and Security Act of 2007 • Crude Oil Prices • Government Incentives for Ethanol Production • 2008 Farm Bill • Biomass Crop Assistance Program (BCAP) • 75% of Establishment costs • Environmental Concerns • Carbon Emissions • NGOs
Structure of U.S. Sugar Market • Sugarcane produced in 4 states • Sugar Beets produced in 11 states & on average accounts for 54% of total sugar production • Supply of domestic sugar production is controlled by quota which is allocated to mills and not producers • No provision for reassigning deficits between crops • Tariff Rate Quota system where individual country allocations are based on the 1975-81 period • 40 countries
Why are Louisiana producers considering biomass production? • Lower yields relative to other states • Stagnate prices • Rising input cost (fuel) • Infrastructure already in place • Sugarcane acres have been falling • Shrinking number of mills Sugar Mills
Objectives • Update US portion of Benirschka, Koo, & Lou (1996) with minor modifications • Examine the impact on sugar imports as a result of biomass production and the buyout of US Sugar • What might this decrease in domestic sugar production mean for TRQ?
Methodology: Supply Side • Area Harvested • Yield • Total Production • ah: area harvested • ps : domestic raw sugar price • pc : price alternative crop • y : yield • t : time • er: extraction rate
Methodology: Demand Side, Ending Stocks, & Imports • Per Capita Consumption • Total Consumption • Ending Stocks • Net Imports • cpd: per capita consumption of sugar • ps : domestic price of refined sugar • pa : price of alternatives • cy : per capita GDP • qd : total sugar demand • qs : ending stocks • qx : net imports
Methodology: Scenario Analysis and TRQ Impact • Using the estimates from the sugar model four different scenarios analyzed to determine the impact on imports and domestic sugar price • 5% reduction in Louisiana Sugarcane acres • 15% reduction in Louisiana Sugarcane acres • 5% reduction in Louisiana Sugarcane acres plus 180,000 acres decrease in Florida acres • 15% reduction in Louisiana Sugarcane acres plus 180,000 acres decrease in Florida acres • Determine net imports for each case and compare to historic TRQ allocations
Results: Sugar Model (Supply) Total US Sugar Production
Results: Scenario Analysis (1,000 short tons) • Increasing imports from introduction biofuels • Scenario 1 & 2 overstated • Scenario 3 & 4 understated
Results: TRQ (short tons) • Scenario 1 on average been enough surplus TRQ • Scenario 2 & 3 have to increase level of TRQ pre 1999 levels • Scenario 4 would require imports similar to 1996 and 1997 levels • Barbados, Congo, Cote D’lvoire, Haiti, Madagascar, St. Kitts & Nevis, Trinidad & Tobago (2007: 59,657 and 2008: 56,135)
Summary and Conclusions • Introduction of energy crop into Louisiana Sugarcane Belt could have significant impacts on the domestic sugar market • May need to think about reallocating TRQ to include more countries because of dramatic changes in the industry • Updating could have WTO implications • If world prices remain at current level may not be a need for TRQ • As demand for biofuels increases worldwide there may not be enough sugar to fill demand