The future of ethanol, in the hands of the Ministry of Commerce

Taken from: Portfolio.

An objective assessment of market conditions is expected.

As an unprecedented event in the history of the country's trade agreements, the Ministry of Commerce will decide the compensatory rights that correspond to a national industry that has operated with market disadvantages vis-à-vis foreign products. The imposition of countervailing duties is part of the regulations of the World Trade Organization (WTO) and is activated when an imported product can cause the destruction of local industry, affecting employment and national production.

This high possibility of economic disaster is being experienced by ethanol producers since May 2017, at which time the bioethanol imports of corn from the United States were released. This dramatic situation was predictable, considering that the opening to ethanol imports, put local industry to compete with imports from the USA. UU. in unbalanced price conditions.

In Colombia, the price of ethanol is regulated by the Ministry of Mines and Energy, while the prices of ethanol imported from the USA. UU. They are not regulated and have high levels of direct subsidies.

According to a study by the American firm Hughes, Hubbar & Reed, such aid originates from 9 federal and 22 state programs, reaching a value of $ 2017 billion in 6.400.

The growth of imports in this short opening period has displaced 40% of national production, which has progressively eroded the incomes of local producers, because ethanol prices in the United States have proved to be artificially low. In the first half of this year, the regulated average price that governs domestic producers was 7.604 pesos per gallon, when the imported US was 5.681 pesos per gallon.

In view of this critical and obvious reality, the WTO rules have required the Ministry of Commerce to advance a process that seeks to achieve market equilibrium, compensating national ethanol producers.

Given the seriousness of the situation, on May 8, the Ministry established a temporary compensation of 9,36% to domestic producers, for four months, and at the end of October or beginning of November the final compensation will be decreed.

Unfortunately, the percentage of transitory compensation failed to reverse the level of imports and paradoxically in the period that was in force they increased by 77%. Thus, in a few days the Ministry of Commerce has to decree the percentage of compensation that certainly balances the market.

One of the main questions is the technical novelty faced by public officials responsible for estimating the fair percentage of compensation to which producers are entitled; This is a demanding challenge as it is the first time that calculations of this type are performed.

The facts showed that the temporary compensation of 9,36% was greatly undervalued, because in the period of its validity, contrary to what was sought, imports accelerated and prices fell; with the aggravating circumstance that the Ministry of Commerce ignored the percentage suggested by the industry of 22,58%, which was estimated in the study by Hughes, Hubbar & Reed.

In that direction, the Government only managed to identify 11 subsidy programs for corn that directly affect the price of ethanol while the research provided by the producers located 31 programs. For this and other technical reasons, the Government stopped considering subsidies worth $ 3.751 million. Such radical undervaluations cannot be justified by the fact that this is the first calculation exercise that the Government does, but it must be extremely rigorous to ensure compensation consistent with the reality of the market.

Likewise, this transcendental estimate must be shielded from any pressure that the US government may exert, since it is public knowledge that the United States Secretary of Agriculture himself has interceded before the Colombian government, in favor of the interests of exporters of Ethanol from that country.

That the fear of possible reprisals by the United States with other products is not part of the decision criteria.

The determination is expected to be focused on an objective assessment of market conditions because what is at stake for the country is not small.

A suboptimal compensation could destroy the industry and thus 48 direct and 150 indirect jobs in the Valle del Cauca, Cauca, Risaralda and Meta would disappear.

Ivan Dario Arroyave
Former president of the Mercantile Exchange of Colombia