China Lowers Producer Subsidies on Ethanol From Grain

China, the second-biggest corn consumer, lowered subsidies for producers of grain-based ethanol by more than half in the latest move to curb industrial use and ensure livestock-feed supply.

Producers now get 500 yuan ($79) for a ton of ethanol made with corn or other grain, down from 1,276 yuan last year, COFCO Biochemical Co. said in a statement dated April 16 to the Shenzhen Stock Exchange, citing a Ministry of Finance order. Subsidies on ethanol from non-grain crops such as cassava will be 750 yuan, it said, without giving a previous figure.

Corn prices in China surged to a record this year as rising demand from producers of hogs, cattle and poultry outpaced production. The nation may more than quadruple corn imports to 4 million tons in the 2011-2012 marketing year, according to the U.S. Department of Agriculture.

“It’s obvious the government is phasing out corn-based ethanol, because we no longer have the luxury of a surplus,” Zhang Qi, an analyst at Yigu Information Consulting Ltd., said from Heilongjiang. With rising gasoline prices, losses from producing ethanol are shrinking, so “it doesn’t make sense to continue subsidizing this industry,” he said.

China started its ethanol policy about 10 years ago when it was a corn exporter, to absorb low-quality inventory caused by a glut and lack of storage, Zhang said. The mandate created ethanol production capacity of 1.35 million tons, using 4 million tons to 5 million tons of corn each year, he said.

In November, the government said it would discontinue rebates on value-added taxes paid on grain-based ethanol by 2015.

source: bloomberg