By Dr. Christoph Berg
January 1999.

Our special thanks are due to Dr. Berg, commodity analyst and editor of F.O. Licht's International Molasses and Alcohol Report, for contributing this previously-unpublished review. F.O. Licht may be contacted at:


UK Office:
80 Calverley Road,
Tunbridge Wells,
Kent, TN1 2UN,
Telephone: +44-1892-533813
Fax: +44-1892-544895


  Germany Office:
P.O. Box 1220,
23909 Ratzeburg,
Telephone: +49-4541-88920
Fax: +49-4541-82145

There is a lot of confusion surrounding ethanol production and trade. This is hardly surprising given the fact that there are a variety of feedstocks from which it can be produced, a number of different production processes and many very different uses for this commodity. While these obstacles to increased transparency in the ethanol market may be termed "technical", there are also economic obstacles. In many countries the production of ethyl alcohol is controlled by one or two companies. As publicly-available figures in sensitive areas could provide foreign rivals with a competitive edge, governments often allow statistical data on trade and production to be suppressed. But there is yet another economic reason for the notorious unreliability of data on alcohol. Usually, beverage alcohol is heavily taxed, which provides an incentive to smuggle it, or produce it illicitly, which can have a significant impact on the overall supply picture. Additionally, there is semantic confusion with regards to the term "ethanol". Very often the term is used as a synonym for alcoholic beverages. This is misleading even though ethanol may be used as a raw material for the production of spirits. In order to avoid misunderstandings, the terms "ethanol" and "ethyl alcohol" will be used interchangeably in the following text. They have to be distinguished from 'spirits", "liquors", etc., which are products using ethanol as an input.

The sources for the data presented here were numerous, ranging from statistical services in the various countries, to interviews with representatives from the industry and the trade. Despite this, it was necessary to apply the method of educated "guesstimates" for some countries, using various proxies, such as known distilling capacities and utilisation rates, raw material usage and net trade statistics.



The product

Ethanol is a clear, colourless, flammable, oxygenated hydrocarbon with the chemical formula C2H5OH. Even though the definition is fairly straightforward, there are various categories for describing a particular type of ethyl alcohol, which are not mutually exclusive:


- By type of feedstock: fermentation vs. synthetic.

- By composition: anhydrous vs. hydrous; denatured vs. non-denatured.

- By use: industrial, fuel or potable.

Figure 1


The feedstocks, and hence the production processes by which ethanol can be produced, are diverse. Fermentation alcohol may be produced from grain, molasses, fruit, wine, whey, cellulose and numerous other sources. Synthetic alcohol may be derived from crude oil or gas and coal. Both fermentation and synthetic alcohol are, however, chemically identical.

On a global scale, synthetic feedstocks play a minor role. Only seven per cent of overall output is accounted for by synthetic feedstocks. Roughly 60 per cent of world ethanol production is from sugar crops, both cane and beet. Most of the remainder comes from grain, with maize playing a dominant role.

The ethanol of commerce contains about five per cent water. Hence the term "hydrous (water-containing) alcohol." If the last traces of water are removed, "anhydrous alcohol" (water-free or "absolute") may be obtained. Ethanol which is used for the production of spirits is usually heavily taxed, but it is also sold in an untaxed "denatured" form, unfit for human consumption but suitable for many other purposes. Denaturing is accomplished by the addition of a few per cent of foreign materials which are not easily removed.

Non-denatured ethanol is the alcohol contained in beverages, thus the expression "potable alcohol". It also finds wide use as an industrial solvent. Furthermore, it is the starting material for the preparation of a long list of industrial organic chemicals.

The history of ethanol as a fuel dates back to the early days of the automobile. However, cheap petrol (gasoline) quickly replaced ethanol as the fuel of choice, and it was not until the late 1970s, when the Brazilian government launched their "Proalcool" programme, that ethanol made a come-back to the market place. Today, fuel ethanol accounts for roughly two thirds of world ethyl alcohol production.



World ethanol production: a regional analysis

World ethanol production (all categories, fuel, industrial and potable) reached an estimated 31.2 bln litres in 1998, down from the previous year's 33.4 bln. The downturn was mainly due to the developments in Brazil, the world's largest producer (see below). The Asian financial crisis also contributed to the lower figure. Total output in the Americas in 1998 reached 20.3 bln litres, followed by Asia (5.5 bln), Europe (4.7 bln), Africa (0.5 bln) and Oceania (0.2 bln).


Figure 2


Brazil: alcohol surplus calls viability of biofuel programme into question

The dominant producer in the Americas, and indeed the world, is Brazil, where output in 1998 reached 13.5 bln litres, down sharply from the previous year's high of almost 16 bln. The downturn was primarily due to the record output seen in 1997, which forced distillers to sell at prices well below the official level of R$410 (reals) per 1000 litres, thus reducing profitability. Indeed, many alcohol units are likely to go bankrupt as a result of the 1998 downturn, even though the highly-regulated structure of the Brazilian market may prevent quick adaptation processes.

Originally, the Brazilian alcohol industry was an offshoot of the sugar industry, but after world oil prices soared in 1974, the country launched the world's first major programme (Proalcool) for the production of renewable fuels, in 1975. There were political and economic reasons for the implementation of the scheme.

If one wishes to analyse the future of Brazil's fuel-alcohol programme, one has to distinguish between the production of anhydrous alcohol and hydrous alcohol. Anhydrous alcohol is used as an additive to petrol, with present regulations stipulating a blend of 24 per cent. This mixture can be used in any type of car without modifications to the carburettor or engine. Hydrous alcohol, on the other hand, is used alone in its pure state, in specially-designed engines. While output of anhydrous alcohol has been rising sharply in recent years, production of hydrous alcohol has seen some decline. In Brazil, this phenomenon is known as the "anhydrisation" of the alcohol industry. The reason for this is the gradual change which has occurred in the country's sugar and alcohol policy in recent years.

The production of hydrous alcohol lies at the very heart of Proalcool. Initially, the programme proved to be rather successful and the production of hydrous alcohol rose from 323 mln litres in 1975/76 (May/April), to the all-time high of 10.768 bln in 1991/92. From then on, the "anhydrisation" of the Brazilian alcohol sector set in, and output of hydrous alcohol reached only 9.727 bln litres in 1997/98. The production of anhydrous alcohol followed a completely different course. Until the beginning of the 1980s, it was the leading product in the Brazilian alcohol mix, retreating only when the government started its massive incentive programme for the use of alcohol-only cars. Since 1990/91, production of anhydrous alcohol is on the rise again, and the total in 1997/98 was 5.696 bln litres, the highest figure ever.

The advantages of anhydrous alcohol are numerous, given the fact that the conditions on the Brazilian energy markets in particular, and in the economy of the country in general, have changed rather dramatically over the past 5 years or so. Today, the rigidities caused by the strategy to boost the role of hydrous alcohol as a substitute for petrol, prove to be a heavy burden for both the government and the industry. The former wants to reform the sector, ending years of expensive subsidies, which in recent years amounted to over R$1.5 bln annually, while the latter has to face dwindling demand for its product, as sales of hydrous-alcohol-powered vehicles tumble.


Figure 3


In late 1996, the government announced Proalcool II, which aimed at deregulating the alcohol markets. As a result, prices for anhydrous alcohol were liberalised on May 1, 1997. Moreover, prices for hydrous alcohol were scheduled for liberalisation one year later. However, this step had to be postponed repeatedly as, in the view of Brazilian policy-makers, excessive production in 1997/98 rendered a smooth transition process unlikely. The eleventh hour decision not to deregulate prices for hydrous alcohol threw the industry into complete disarray. Many distillers had already negotiated long-term contracts with distributors at prices below the official level of R$410 per 1000 litres. They then tried to renegotiate the agreements, a move which was resisted by the distributors. Those alcohol producers that had felt threatened by the liberalised marketing environment and lower prices, welcomed the decision. However, they soon discovered that alcohol sales at the regulated price were no longer the rule, but the exception. The alcohol surplus of around 1.8 bln litres at the start of the 1998/99 campaign, forced producers to either sell at a lower price, or run up expensive stocks. Confronted with the disintegration of the alcohol market regime,the government started to introduce various counter measures. These ranged from buying up alcohol for state reserves, to the implementation of draconian fines for those circumventing official marketing channels. Moreover, proposals were made for the introduction of a "green fleet" consisting of taxis and official cars, as well as the blending of anhydrous alcohol (3 per cent) in diesel fuel. All this is likely to boost alcohol demand, and the surplus problem is expected to be resolved soon.

Concerning the future of Brazil's alcohol economy, there seems to be the consensus that the "anhydrisation" will continue, and that overall output will continue to grow, although at a much more modest pace than in previous years. There are good reasons to assume that production of alcohol in Brazil will grow further. Rising incomes will result in more cars being sold in the country, and a growing economy will make sure that the number of miles travelled will rise. Even the recession seen in 1998 left the car industry relatively unscathed. While in 1977 the number of Brazilians per car amounted to 15.4, this ratio had already dropped to 11.6 by 1980. According to industry sources, this trend is expected to continue, so that by 2010 there could be one car per 5.6 inhabitants.



The USA: new future for ethanol after positive decision on tax incentives

Ethanol production in the US has grown from an insignificant amount in 1978 to a record 6.4 bln litres in 1998. Of this, around 3.9 bln litres were consumed in the domestic fuel mix. This tremendous growth in output was due to a variety of reasons, all of which, however, have something in common, namely a strong dependence on government intervention. Ethanol was promoted as a solution for a variety of complex problems, among them:



The real boost for ethanol production came in the 1990s, when the makers of US energy policy were shifting their priorities. After oil prices stopped rising, and the supply situation seemed to have stabilised, energy self-sufficiency ceased to be a top priority. Instead, environmental issues started to enter centre stage. Compared to fossil fuels, ethanol was seen as having the advantages of being renewable, cleaner burning and producing no green-house gases. In 1990, President Bush signed the Clean Air Act Amendments (CAAA). Among the provisions was the requirement that certain regions should use oxygenated, reformulated gasoline during certain high-smog, mostly winter, months. Moreover, the law required that a certain percentage of oxygenates should be derived from renewable sources. Thus, because it was renewable, ethanol became the oxygenate of choice.


Figure 4


To provide economic incentives to ethanol producers, the federal and state governments have granted tax concessions and operated loan programmes since the 1970s. Since January 1991, the tax exemption has been set at 5.4 cents per gallon (1 gallon = 3.785 litres) for a minimum 10 per cent ethanol blend. This provision translates into an effective tax exemption of 54 cents per gallon of ethanol.

The tax concession on the federal level, and a number of incentives on the state level, resulted in massive plant expansions, and in 1996 total operational capacity stood at around 1.8 bln gallons (6.8 bln litres). After a setback in 1996, due to record high maize prices and uncertainty surrounding the future of the tax concessions, production volumes recovered in 1997, and in 1998 a new output record of 1.37 bln gallons (5.2 bln litres) was achieved.

In the summer of 1998, the industry was able to secure the continued support of the government. In the so-called "Transport Efficiency Act of the 21st Century", the extension of the ethanol tax incentives through 2007 was approved by both chambers of Congress and subsequently signed into law by President Clinton. Under the law, the support will be reduced to 53 cents per gallon in 2001, 52 cents in 2003 and 51 cents in 2005. As a result of the extension the industry announced several new projects, which are likely to push US ethanol production capacity well beyond the 2 bln gallon (7.57 bln litres) mark in the next couple of years.



The European Union: fuel ethanol production to grow

Within the European Union (EU) there has been much discussion about bio-ethanol, but tangible results have emerged only recently. Of the more than 2 bln litres produced in the community, less than 5 per cent are used as fuel. The EU has the long-term goal of achieving a 12 per cent share for renewables by 2010, compared with 5.6 per cent in 1997. Bio-fuels will play an important role in achieving this target. However, as the production of bio-fuels is more expensive than conventional fuels, the manufacture and the use of these products will have to be subsidised. Consequently, the Commission decided in 1994 to allow tax concessions for pilot plants producing bio-fuels. As a result, new bio-fuel projects have been announced in the Netherlands, Sweden and Spain.

Despite these developments, France is the country which has seen the most progress in fuel alcohol production. In 1987 a law was passed allowing the blending of 3-15 per cent of organic oxygenated compounds with petrol (3 per cent for pure ethanol and 15 per cent for ethers such as ETBE). In 1992, the French government agreed to an exemption for bio-ethanol from a domestic tax on the consumption of petrol (the so-called TIPP). Finally, in November 1996, the French parliament approved a draft law on clean air, that made the use of oxygenated components in fuel mandatory by 2000. At the time of writing, the government had not yet decided upon the blend, but the farming sector were lobbying for a 2 per cent admixture. If the government decides in favour of the growers requests, fuel ethanol production would rise to roughly 500 mln litres compared to 120 mln litres in 1998.

The first ETBE plant, which has been operational since 1993 in Feyzin near Lyon, has a yearly production quota of 113 mln litres, and is owned by the French oil group Elf Antar. A second facility near Dunkerque with a quota of around 88 mln litres, went on stream in spring 1996, and a third plant of 95 mln litres followed in October 1996. Chemical company Lyondell (formerly Arco) was granted a production quota of 11 mln litres for its site at Fus-sur-Mer.

The most important single agricultural feedstock for the production of ethanol in France is sugar beet, from which roughly 50 per cent of the total is manufactured. There are seven self-contained distilleries with a combined rated capacity of almost 82 mln litres per day. Furthermore, there are 16 integrated sugar and alcohol complexes. Besides "agricultural alcohol", France has a large synthetic ethanol production base (SODES) which accounts for around one fifth of overall production.


Figure 5


The new fuel-ethanol projects in the EU are Nedalco's plant in Bergen-op-Zoom, Netherlands, with production capacity of 30 mln litres per year, Agroetanol's facility in Sweden (50 mln litres per year) and the 100 mln litres per year distillery in Cartagena, Spain, to be operated by Biocarburantes Espanoles. All these plants will come on stream around the turn of the century.

The second-largest producer of ethyl alcohol in the EU is Germany, where output in 1998 has reached around 390 mln litres. In contrast to most other alcohol producing countries, the German alcohol market is dominated by the manufacturers of synthetic ethanol, Hüls (177 mln litres per year) and Erdölchemie (75 mln litres per year), account for around two thirds of overall output. Output of fermentation alcohol ranges between 140 and 180 mln litres per year with the most important agricultural feedstocks being potatoes (35 per cent) and grains (40 per cent).

The United Kingdom ranks third as far as European ethanol output is concerned, with total production capacity of around 430 mln litres per year, of which the oil and energy giant British Petroleum plc alone accounts for 417 mln litres. At present, synthetic ethanol is produced at two sites, namely Baglan Bay and Grangemouth, making BP the largest manufacturer of synthetic ethanol world-wide. In late 1998 BP announced major restructuring plans for its chemicals division, as a result of which ethanol production at Baglan Bay will cease, while operations at Grangemouth will be expanded. The restructuring is scheduled for completion by 2001, when the production capacity at Grangemouth will be 462 mln litres per year.

Italy and Spain come next, with each producing between 180 and 350 mln litres per annum. Production in both countries is fluctuating very strongly, depending on the amount of wine distilled into alcohol. Under the wine-market regime of the EU, surplus amounts may be distilled into alcohol, which is intended partly for the potable-alcohol market and the remainder for export to third countries. A whole industry has emerged around the wine-distillation business, and the largest producers can be found in the big wine-growing countries in the Mediterranean. For quite some time, the EU has been trying to streamline the costly distillation programme by gradually cutting back wine production. However, the policy of distillation and grubbing-up vines have so far not succeeded in eliminating the structural imbalance in the wine market.



Eastern Europe: illicit production continues to plague the industry

Production in eastern Europe is dominated by the manufacturers in the Russian Federation. The industry there has experienced formidable difficulties after the dissolution of the former Soviet Union in 1991. Radical market reforms which were introduced in the early 90s forced many distilleries to leave the market. Even though the Russian industry may still go through the rather painful process of restructuring, with capacity-utilisation rates in the official beverage alcohol sector hitting a low of not more than 30 per cent in 1996, output surged in 1997 after the government introduced tough measures to eradicate illegal production. However, the following year showed that the crisis had not been overcome yet, as output fell again by roughly 4 per cent. The decline could have been much more pronounced were it not for the fact that on November 1, 1998, the government reintroduced the state monopoly on the production and the distribution of alcohol. The extensive monitoring measures which go along with this step are expected to boost legal output, even though authorities acknowledge that the problem of bootlegging may never be stamped out completely. At the same time, the government was considering a complete ban on imports, a process which had not yet been completed at the time of writing (January 1999). The vital interest which the government takes in the alcohol industry does not come as a surprise. Before the dissolution of the Soviet Union, roughly 30 per cent of tax revenues were accounted for by this sector. Thereafter, revenues fell to no more than 2 per cent, resulting in the state's inability to pay pensions and wages.

Total ethanol capacity in Russia can presently be estimated at around 2.5 bln litres, with beverage alcohol accounting for around 60 per cent. The range of feedstocks used in the beverage alcohol sector is diverse, including grains, fruit, whey, wine and molasses. The enormous capacity is hardly surprising, given the fact that Russians drink almost 2.2 bln litres of pure alcohol a year. Of course, Russia has always been a deficit region importing large amounts from neighbouring countries and overseas. The inflow of alcohol into the country has risen tremendously over recent years, after an ever-increasing tax burden and the removal of state support dramatically decreased the competitiveness of the Russian distilleries. The same reason can be cited for the enormous rise in illegal alcohol production. There has always been a good deal of moonshine production (so-called 'samogon") going on. However, this sort of business got a boost in recent years, in the wake of a rather chaotic industry and trade policy. The reintroduction of the state monopoly may help to stem illicit production and raise state revenues from the sector



Asia: production largely unaffected by currency crisis

China is by far the largest ethanol producer in Asia. The Chinese distilling industry is highly fragmented, with more than 60 per cent of the overall total being produced by very-small-scale plants. Most facilities use only a fraction of installed capacity, with the result that production figures are rather hard to ascertain. Around 95 per cent of the volume produced is of agricultural origin, and the most important outlet is the beverage industry.

India is the second-largest producer of ethanol in Asia. Installed annual production capacity reaches around 2.7 bln litres, but utilisation rates are usually rather low. The major feedstock is molasses, of which the industry regularly utilises 5 mln tonnes per year. Roughly 50 per cent of the ethyl alcohol produced is destined for the production of spirits, while the other half is consumed by a large alco-chemical industry for the manufacture of a wide variety of products. Government intervention is a big issue for the industry, with differential taxation and temporary prohibition causing significant distortions in the sector. Confronted with a declining domestic market, it could well be that ethanol exports will rise in the future, providing Indian distillers with new outlets. Another hope for local alcohol producers (and indeed the sugar industry), is that the government would embark on a fuel-ethanol programme along the lines of the Brazilian "Proalcool". However, the Energy Ministry has made it clear that molasses production in the country is much too volatile to allow for a secure and constant supply of alcohol to the fuel market.



Africa: production heavyweights in the south look for new markets

The only producer of significance on this continent is the South African Republic. There are four major producers in the country. The biggest is the South African Coal, Oil and Gas Corporation Limited (Sasol) which produces ethyl alcohol from coal. Mossgas, based in Mossel Bay, produces ethanol from gas. In addition there are the Illovo Sugar and the National Chemical Products Co. (NCP), both of which are using molasses as a feedstock.

Sasol was founded in 1950 and privatised in 1979. Products include fuel alcohols and a wide range of industrial solvents. During its first three decades, Sasol's primary drive was to produce a range of high-quality synthetic fuels, especially petrol and diesel, from coal, in order to decrease the country's dependence on oil imports during the apartheid era. Since the mid-1980s, the group's emphasis has shifted towards developing and marketing higher-value chemicals for a wide spectrum of domestic and international markets. The first synthetic fuels and chemicals site at Sasol One in Sasolburg successfully produced synfuels in the mid 1950s. In response to the international oil crisis of the mid-1970s, a second synthetic fuels plant, Sasol Two (ten times the size of Sasol One) was commissioned in Secunda. Sasol Three became fully operational in 1982. In late 1998, the company announced plans to expand its ethanol capacity by adding a plant for the production of 107 mln litres per year of anhydrous ethanol, (min. 99.99 per cent purity) to its operations at Secunda. The new facility will come on stream in 2000.

Sasol's synthetic ethanol production can top the 400 mln litres per year mark, but usually fluctuates with demand on the world market in general, and on the Brazilian market in particular. The decline in Brazilian import requirements meant that the company had to find markets for its products elsewhere. Besides opening up new export markets, Sasol is also trying to develop the domestic market (estimated at around 250 mln litres). Mossgas produces around 140 mln litres of alcohol products a year. Its major product is so-called "Mosstanol" comprising 65 per cent ethanol and 35 percent iso-propanol.

After a thorough upgrading, Illovo's operation at Merebank (43 mln litres) has become the largest distillery using the fermentation route in Africa. The NCP has one production site at Umgeni (Durban area).



World production outlook

Growth in world ethanol production crucially depends on the development of the fuel-alcohol market. Spurred on by the Brazilian Proalcool programme and the US Gasohol scheme, output jumped in the early 1980s, and growth continued at very strong rates up to the mid-1990s. In 1998, fuel-alcohol production fell sharply due to the crisis in the Brazilian alcohol sector, which was not compensated for by the record output in the US.

It is unlikely that there will be a repetition of the growth rates seen up to the mid 1990s. The reasons are straightforward. Although bio-fuel programmes enjoy a good deal of political goodwill, no new major incentives schemes are on the cards. There will be a strong rise of bio-ethanol output in the EU around the turn of the century. The new projects will contribute over 280 mln litres of ethanol once they get started.


Figure 6


It has to be emphasised that the forecast is based on fairly conservative assumptions:



Both in California and Mexico there have been some promising developments, but it remains to be seen whether it will be possible to establish ethanol firmly in these markets. Given past experience it is going to be a tough ride. The Brazilian alcohol programme, on the other hand, has proved to be remarkably resilient in the past, and we consider it justified to expect that it will be continued in the future, although possibly in an altered structure.



World ethanol trade

The world ethanol trade saw some large gains in total volumes in recent years up to the mid-1990s, due to a variety of reasons:


The disintegration of the USSR resulted in massive imports.

Increasing sugar-for-alcohol swaps in Brazil led to a tightness in that country's fuel-ethanol market which forced large imports.

At the same time, import demand in the Far East, most notably in Japan and South Korea, rose.


For 1995, the total was estimated to have reached close to 4.0 bln litres, up from 3.5 bln litres in 1994. In the following years, the world trade volume contracted again and by 2000 the total may be no more than 3.5 bln litres. The following reasons may be given for this development:


- Restrictive trade policies in Russia;

- The alcohol surplus in Brazil;

- The Asian crisis leading to lower imports by Japan and South Korea.



Estimating the world ethanol trade volume

The method which we apply here to arrive at the overall world trade total is fairly simple as we arrive at the overall total by analysing the import statistics of all the countries for which we collect data on a regular basis. From this data we can draw conclusions for the exports of the countries of origin. One may ask why we chose this way around and not the other (namely analysing the export statistics). The reason is straightforward: as has already been mentioned in the introduction, the ethanol market in many countries is monopolised. Any information on exports from these countries is therefore considered to be confidential, with the result that much of the data is being suppressed. By analysing the import statistics of the countries of destination, this shortcoming can, at least partly, be avoided. However, another deficit emerges, namely the loss of data which are in fact at our disposal. We have tried to avoid this deficit by taking account of the trade statistics of the European Union and the United States (the most important exporters in this field) to the group of eastern European countries and the Caribbean.


Figure 7



A regional analysis of ethanol trade flows

The Americas were the largest exporters of ethanol in 1997, shipping a total of 1.27 bln litres, down from the previous year's 1.65 bln. The largest exporter in the region is the United States which in 1997 exported 930 mln litres, the largest part of it to the Netherlands (182 mln litres) and Georgia (169 mln litres). It may be assumed that much of the ethyl alcohol shipped to both destinations ended up on the Russian market. As the largest producer of grain alcohol world-wide, the US enjoys a distinct advantage with the markets in eastern Europe. Other large export markets for US ethanol in 1997 were Brazil (86 mln) and Japan (62 mln).

Besides importing large amounts of ethanol, Brazil is also a big exporter of the product. In 1997 total exports amounted to roughly 180 mln litres, down from the level seen in earlier years. However, the decline has to be seen in conjunction with imports. Here volumes fell from the high of 1.5 bln litres seen in 1995 to less than 500 mln in 1997, and to below 20 mln in 1998. The largest countries of destination were Japan (69 mln) and Argentina (34 mln).

The only other trade bloc of importance in this region is that of the Caribbean countries which export fuel-grade ethanol to the United States under provisions of the so-called "Caribbean Basin Initiative" (C.B.I.). Most of the ethanol which goes to the US market from countries like Costa Rica, El Salvador and Jamaica is dehydrated wine alcohol, which these countries in turn import at very low prices from the European Union. Total exports from the entitled CBI countries to the US in 1997 amounted to roughly 90 mln litres, sharply down from 200 mln in 1995.

Europe was the second-largest exporter of ethyl alcohol in 1997, shipping a total of 9.80 mln litres against 1.0 bln in 1994. The largest Western European exporters in 1997 were France (325 mln litres), the United Kingdom (180 mln) and Italy (71 mln). With the notable exception of the Caribbean trade connection, most of the ethyl alcohol is shipped to regional destinations.

Although the alcohol trade in Eastern Europe is substantial, no reliable figures are available. According to our figures, total EU and US alcohol exports to Eastern Europe in 1997 amounted to 360 mln litres, of which over 270 mln came from the US. The largest countries of destination in 1997 were Georgia (188 mln), Ukraine (24 mln) and Latvia (20 mln litres).

The third sizeable trading region is the Pacific Rim and Southern Asia. The largest part of the trade is centred around the big importing nations Japan and South Korea, while Saudi Arabia, China and Thailand feature as the largest exporters. Saudi Arabia's SABIC exports exclusively synthetic ethanol produced from petrochemical feedstocks. The product is exported in a crude form, mostly to the United States for rectification, for industrial uses. Another large outlet for Saudi Arabian ethanol is South Korea. Thailand almost exclusively delivers to the Japanese market, regularly shipping between 50 and 80 mln litres per year. The exports from China, one of the leading players on the export markets in the Asian region, are a roller-coaster. They dropped from 179 mln litres in 1994 to somewhat above 20 mln litres in 1995, only to rise again to over 100 mln litres in 1998. The drop was mainly due to the increased demand on the domestic market, as well as tightness in the market for grains - the major feedstock for ethanol production. The largest markets for Chinese ethanol continue to be Japan and South Korea. India might be a sleeping giant in the region, having the capacity to produce well above 2.4 bln litres, but with actual output achieving barely 50 per cent of the overall total. The major problem seems to be the regulation of the country's sugar sector which results in wild fluctuations in the supply of molasses, which is by far the most important feedstock for Indian distillers.



The outlook for world trade

There is reason to believe that the political nature of fuel-ethanol production makes it unlikely that there will be a consistently large international trade in this product. Fuel-ethanol programmes have been put in place to create additional demand for the purchase of feedstocks from domestic farmers. It would run contrary to this intention if large-scale imports were allowed, as they would support foreign farmers. A bio-fuel programme usually incurs large costs, and it would become completely unjustifiable if that money was spent on imports.

As a result, world trade will by-and-large be limited to industrial and potable alcohol. As the development in these markets is less spectacular, the outlook for world trade volume is not for strong growth rates. There could, of course, be special events driving up the volume traded in one specific year. But, on average, the volume of world trade is likely to grow at a slower pace than overall production.

Back to The Distillery Website