Co-ops nervously eye Ethanol Africa

Although the first local ethanol plant has yet to be constructed, Ethanol Africa is already gearing up to compete with the major grain co-ops for maize, production credit and silo facilities. Major shifts in the market are clearly on the cards. Johan Steyn reports.
Issue date: 2 March 2007

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Although the first local ethanol plant has yet to be constructed, Ethanol Africa is already gearing up to compete with the major grain co-ops for maize, production credit and silo facilities. Major shifts in the market are clearly on the cards. Johan Steyn reports.

Despite media reports that local ethanol producer Ethanol Africa has temporarily halted construction at its first Bothaville plant, the company’s Crop division is out in the market contracting with maize producers across wide areas of the maize-producing regions. This, and other inroads the company is planning to make in agricultural corporations’ traditional areas of business, could cause a stir among them.

At a recent seed suppliers’ day held in Bothaville, it was clear that Ethanol Africa’s Crop Security division will be competing directly with the likes of Senwes and Afgri for maize, production credit, silo facilities and the like. Hannes Haasbroek, director of Ethanol Africa, said they are offering the maize producer production credit and silo facilities for maize contracted to his company. He said they are aiming to contract between 350 000 tons and 400 000 tons of yellow maize per year. Haasbroek explained that they are looking for high starch-producing cultivars as these deliver the highest ethanol yield. fixed Safex-derived price per ton of maize delivered will be paid in the first year to establish standards. Once starch percentages produced by various cultivars are established, will pay a premium for high starch-containing cultivars. “We want the seed suppliers to make cultivar recommendations, we are already equipped to do starch percentage testing in-field to guide producers.”

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The company is planning to process 1 150 tons of maize per day, with a moisture content as high as 18%, at their first plant in Bothaville. This will be drawn from direct deliveries and the 100 000-ton silo that is being erected on-site. For producers supplying the daily 1 150-ton high moisture content maize, the savings in drying costs will be significant. S ilo owners in the Potchefstroom, Viljoenskroon and Bothaville areas receiving maize with a moisture content this high will levy drying costs of about R51/ton.
The equation becomes even more attractive, as contracted suppliers won’t pay silo storage costs either. Silo storage costs for a season (1 May to 30 April) are about R84/ton. maths is attractive for producers potentially able to increase their margin per ton by about R135/ton. enwes has silo capacity of 120 000 tons at Bothaville and Viljoenskroon each, while an independent silo owner has another 80 000 tons at Viljoenskroon. Africa will contract producers within an 80km radius of Bothaville, and could potentially capture 32% of the existing silo capacity in this area – a factor that could have existing players watching developments with interest. Grain storage and handling accounts for a significant percentage of co-ops’ business. Co-ops are waiting to see which direction recent developments with construction of the Ethanol Africa plant at Bothaville are heading. Johan Grobler, spokesperson for Senwes, declined to comment, as the matter was at a sensitive stage.

Ethanol Africa doesn’t seem too concerned about the construction interruption, saying that work has merely been “postponed for about two months” due to detailed engineering planning currently under way with engineering contractor Uhde. In the meantime, work on the office complex is proceeding according to schedule. Despite the construction delay, says Ethanol Africa, Crop Security is still out in the market with their production loan offerings. Loans will be offered to producers willing to contract with for the supply of their crop. Haasbroek says here there may be additional benefits for producers in that producer input costs could be reduced. “Through collective buying and bargaining processes, we want to pass on benefits obtained from input suppliers.”
He admits that three major factors in the feasibility of the ethanol equation are outside their control but denies that rising grain prices have anything to do with the construction delay. “The oil price, maize price and the exchange rate are very important factors in the profitability of this venture.”
In the past few weeks the oil price has dropped significantly from levels seen last year, before rising slightly again. The long-term indications are that the oil price is going to rise due to limited supplies and rapidly growing demand. While the exchange rate has been reasonably stable, the outlook for the maize price, and indeed the price of all grains, is that these will rise steeply in the coming months. This is largely due to seriously depleted world stocks and drought conditions in the US and Australia, along with strong and growing demand worldwide. recent weeks, grain traders have predicted a maize price of R1 800/t, a factor that is certain to affect the profitability of any ethanol venture.

Ethanol Africa is banking on their Strategic Industrial Project status, which allows them to receive certain benefits from the government’s National Industrial Participation Programme, to guarantee the future of the project. In a media release by the company, managing director Joe Kruger said the government has publicly stated its commitment to the biofuel industry. “The delay in formalising its support in the Draft Biofuels Industrial Strategy caused serious delays in our efforts to raise additional funding for the Bothaville plant.

The release of the draft strategy has contributed significantly to whet the appetites of prospective investors,” Kruger said. While certain questions have been raised in the minds of involved parties in recent weeks about the immediate future of the Bothaville plant, it seems likely that once it and other plants become operational, there could be a significant shift in business patterns in the maize-producing regions. |fw