Ethanol production in the US is "not unduly concentrated" the
Federal Trade Commission
concluded in its first mandated analysis of the market.
FTC, required under the
Energy Policy Act of 2005
to preform an annual market concentration analysis of ethanol
production, said the sector falls under the "unconcentrated" or
"moderately concentrated" models. The analysis is based on the "Herfindahl-Hirschman
Index" (HHI), which provides a guideline on whether there
is sufficient competition to avoid price-setting and other
anticompetitive behavior.
"Based on the HHIs and on qualitative considerations of the
competitive dynamics of ethanol production, staff concluded that US
ethanol production currently is not unduly concentrated," FTC said
in its report, Dec 1.
The agency said it had come up with HHIs of between 499 and 1259,
with the higher figure of market concentration linked to the
assignment of individual producers' shares to common marketers.
Under FTC guidelines, an HHI of 499 indicates an "unconcentrated"
market and an HHI of 1259 a "moderately concentrated" market. An HHI
over 1800 indicates a "highly concentrated" market.
"Viewed in isolation, these concentration levels do not justify a
presumption that one firm, or a small group of firms, could wield
the market power necessary to set prices or coordinate on prices or
output," FTC said. "Moreover, the concentration figures overstate
the likelihood of anticompetitive behavior in light of significant
new entry in ethanol production and marketing that will occur in the
next year and is expected to continue for several more years."
FTC noted ethanol production in the US has grown in volume and
the number of participants. Production in 2004 was 3.4-bil gal, more
than double the volume in 2000. It noted "more than 75 different
firms operate more than 90 fuel ethanol production facilities in the
US, with a current capacity of more than 4.1-bil gal/yr," versus 43
firms and just under 2-bil gal/yr of capacity in late 2000.
The largest producer's share of capacity is about 25%, down from
over 40% in 2000. "The industry continues to expand, as incumbent
producers are currently expanding existing plants and 18 new
entrants are constructing new plants. As a result, an additional
1.3-bil gal/yr of ethanol capacity are expected to be operational
within the next year," the analysis said.
The study was required in the US energy bill, signed into law in
August, which mandates use of ethanol in motor fuels rise from 4-bil
gal in 2006 to 7.5-bil gal by 2012.
"Although ethanol sales will likely exceed these requirements in
the short term, the Energy Policy Act's guarantee of certain
renewable fuel sales provides additional incentives for producers to
build new ethanol production capacity," the analysis said.
FTC's findings will go to Congress and the EPA administrator.
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