Ethanol producers lose with cassava price hike

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Vietnam currently has seven ethanol production factories with the total designed capacity of 635 million litres per year. This includes three bio-fuel factories located in Quang Ngai, Binh Phuoc, and Phu Tho provinces invested by the state-run PetroVietnam. However, all of these factories are now operating at below capacity and could face losses off the back of the domestic weak demand and rising prices of cassava, the major raw material for their production.

According to the Vietnam Bio-fuel Association, increasingly high cassava prices have spelled trouble for local ethanol factories. Dried sliced cassava used to cost $120 a tonne in 2007 but the price had doubled to $250 by the end of 2013. Vietnam also suffers from lower cassava production than India, Indonesia, and Thailand according to Vietnam Ministry of Natural Resources and Environment.

Vu Kien Chinh, director of Dong Nai Ethanol Plant claimed that low cassava production in Vietnam as well as poor connectivity between farmers and firms had resulted in unstable cassava prices.

The association also claimed that factors including high raw material cost, investment and depreciation were posing challenges mostly to newly established ethanol producers in Vietnam, making it difficult for exporters to compete with US and Brazilian firms. To make the matter worse, the domestic demand for bio-fuels is still low, causing further challenges for domestic producers to stay afloat. In Vietnam, ethanol is mostly for producing environmentally-friendly fuel Gasohol E5 and E10.

Vietnam’s major petroleum distributor Petrolimex chairman Nguyen Ngoc Bao claimed that the bio-fuel demand was currently an eighth of traditional fuels.

According to the government-approved roadmap, bio-fuel compulsory use will begin in December for motor vehicles in seven cities and provinces of Hanoi, Ho Chi Minh City, Haiphong, Danang, Can Tho, Quang Ngai and Ba Ria-Vung Tau. From December 2015, it will be used widely across the country.

Nguyen Phu Cuong, deputy head of the Ministry of Industry and Trade’s Science and Technology Department said that relevant ministerial agencies were reviewing policies to stabilise prices of cassava and develop production chains in support of ethanol investors.