If you don’t like paying $2-$4 for a gallon a gasoline or diesel now, consider that the future will bring a growing demand for fuel from China, India, and other Asian economies which will further stress global petroleum production. That part of the world has already become an important player in grain and meat exports and imports, but what impact will it have in the bio-fuels market? Will the demand for ethanol and bio-diesel in that part of the world equal its need for food, and what does that mean for the Cornbelt farmer who grows both food and fuel? Will Asian markets be consumers or competitors?

Soybeans came from China, but they are a major US customer for soybeans. China produces large volumes of corn, but depending on the year, their exports and imports are felt by the US commodities market. Japan and Korea can turn on and off the US meat economy with the flip of a switch. India and China are major producers of wheat, but sometimes have trouble keeping up with domestic demand. However, the Chinese and Indian economies have not yet been factored into the petroleum market, where the price is established for corn-based ethanol and soy bio-diesel. As the world economy grows and the two most populated nations buy cars and need fuel, Cornbelt farmers will feel the impact according to a report entitled The Future Role of Bio-Fuels in the Asia-Pacific Region by Walt Armbruster of the Farm Foundation and William Coyle of USDA’s Economics Research Service.

In addition to US ethanol and bio-diesel production, China is growing its ethanol industry, Europe is a significant producer of bio-diesel, and Southeast Asia has the resources to produce bio-diesel with all of its palm oil production. The Asian interest in bio-fuels is driven by a need to reduce dependence on foreign oil; reduce greenhouse gases and pollutants because 18 of the world’s 20 most air-polluted cities are in that part of the world; and revitalize the economies of their rural areas.

Needless to say, the future of bio-fuels will be sustained by the need to develop an alternative to the high price of petroleum. The Asian economies see continuing economic growth and subsequent demand for oil that will push prices higher. The sugar feedstock for Brazilian ethanol and unsubsidized corn feedstock for US ethanol have been judged by world economists in 2004 as the only viable bio-fuel alternatives based on oil prices. Although other bio-fuel alternatives are available, their economic viability depends on oil prices being $65 to $145per barrel. One of the benefits of US and Brazilian ethanol production was not only the relative low price of corn and sugar, but the opportunity to market the co-products (DDGS for livestock feed and bagasse for heat production) to further increase the value of ethanol production. Finally, the demand for bio-fuel will be sustained by the development of cellulosic ethanol estimated to be able to replace one-third of US transportation needs. Many of these issues are contingent upon government policies, and Asian economies are no exception.

Environmental issues will be driving the switch to bio-fuels, since the production of greenhouse gases derives from transportation, and the Asian economies will see extensive urbanization in the next 20 years. However, bio-fuel production will have an impact on available farmland say Armbruster and Coyle, “While average crop and bio-fuel yields are improving, bio-fuel production is still a very land-intensive energy source. According to the Organization for Economic Cooperation and Development, the European Union would have to convert 70 percent of its agricultural land area to meet 10 percent of its fuel needs; the United States 30 percent; Canada 36 percent; and Brazil 3 percent.” The study also indicates some significant rural impacts of bio-fuel production, such as providing increased employment in rural areas where fuel plants are built, as well as increasing the cost of the feedstock as has been seen by the US livestock industry.

Asian governments will also need to develop strategies or establish policies related to bio-fuel supply and demand, as all governments have typically been involved with energy and petroleum policies. Armbruster and Coyle say, “Bio-fuels will likely play an expanding but modest role in the energy mix of almost every country in the region but will represent only one element of a broad-based portfolio of policy responses to high oil prices. Other policy elements include promotion of energy conservation, development and promotion of more efficient uses of energy, and expanded production of oil and non-conventional fossil fuels.” They also suggest that Asian economies consider bio-fuel tax incentives to fuel producers, fuel consumers, and more money for research.

Summary:
The global population is not only growing and demanding more food, but the global economy is growing and that implies increased needs for motorfuels, potentially bio-fuels because of increased strain on petroleum supplies and the environment. Ethanol from sugar and starch feedstocks such as sugarcane and corn are currently the most economical, but the growing economies of Asia will have immediate needs beyond the supply of Brazil and the US and may develop a bio-fuel industry from their own feedstocks. In the meantime, costs of many commodities may be influenced by the development of bio-fuels, but the fuels themselves may see more domestic use than sold internationally.