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March 2009
Mini Input from Industry, Giant Output of Agriculture: An Example of Gasohol
Chunte Tso

‘Agriculture’ was the backbone of Taiwan’s economic growth in the 1950s and 1960s. Sugar, rice and other agricultural products not only provided for domestic needs, but were also exported to international markets earning foreign currency reserves (in U.S. dollars), by which the Government assisted enterprises purchase machinery and equipment for industrial development with its foreign currency reserves.At the time, the policy was “engage in agricultural developments to cultivate the industrial sector; engage in industrial developments to develop the agricultural sector.”

However, along with economic development, the ratio of agricultural output in gross domestic product (GDP) that accounted for 34.28% in 1953 glided all the way down to 1.45% in 2007. No more the glory of agriculture, rural construction remained stagnant. There is insufficient manpower in rural villages and ‘agriculture’ seems to be of the past.

Since Taiwan’s participation in World Trade Organization (WTO), the fallow area increased from 68,000 hectares in 2001 to 220,000 hectares in 2006. The Government has subsidized more than NT$ 10 billion for fallow areas annually, resulting in a depression (economic downturn) in rural areas. As young people left for the city to earn a living, old farmers become major participants in agricultural activities. Rural economic activities were almost stagnant. On the other hand, the fallow agricultural lands were left idle, causing infestation of crops on surrounding farmlands and increased operating costs on the peasants. To utilize the fallowed land, as well as to increase the food self-sufficiency rate and to slow down greenhouse gas emission and global warming, the agricultural sector recently implemented incentive programs to convert fallow land for growing feed-corn and promote reforestation on the plains; but, there has been limited assistance for the revitalization of agriculture. The bulk grain under the influence of international price fluctuations has resulted in higher risks in corn-planting and low incentives for farmers; furthermore, the plain’s forestation policy is contradictory to the agricultural land rehabilitation policy. The level ground for farming is a scarce domestic resource and should be well planned to reactivate the rural economy effectively.

Taiwan’s rice self-sufficiency rate is 90%, so over-expansion will lead to an imbalance between production and marketing. As to the grain that relied on imports in the past, domestic engagement in substantial production bearing risks related to international price fluctuations would place the peasants in trauma again. On the contrary, biomass energy development has become one of the important options, which is clear in the international community. For example, The U.S.A. that prioritizes national security had been substantially subsidizing corn farmers to expand the production of corn ethanol to replace imported oil from the Middle East. In 2007, President Bush also proposed the “Twenty in Ten” plan and declared that the United States would reduce gasoline consumption by 20% through the use of biomass ethanol and other alternative sources of energy. The ‘Food, Conservation and Energy Law’ was passed in May, 2008, in which energy crops and material sources required by pioneering biomass energy technology were subsidized to ensure the development of biomass energy. The environmental protection-based EU regions also encouraged farmers to plant energy crops and proposed various subsidy programs targeting general agricultural lands and fallow lands in order to achieve the target of at least 10% of biomass energy for transportation use before 2020. Biofuel production in Brazil, China, India, and Thailand has increased besides advanced countries. To sum up, with appropriate natural conditions, bioenergy development planning is implemented in developed countries and developing countries alike and local material sources have been prioritized over imported goods unless there is a shortage of supplies.

In addition, the trends of international food prices, oil prices and alcohol transaction prices show that alcohol prices have been relatively stable in international transactions., after each country had determined mid-term or long-term development goals in biomass alcohol, Especially when the domestic market is one of the main considerations, it will be easier to balance its demand and supply, providing a more stable management environment for both farmers as suppliers and manufacturers of alcohol as buyers. Therefore, it is biomass energy that can provide a new development opportunity to domestic agriculture. In the planning of domestic farmland use, along with the food supply, the direction of energy supply should also be considered.

There are also controversies over biomass energy development, including crowding out the grain from the land, damaging ecology by cultivating rainforest, and creating positive economic values and net energy output. However, since domestic planning focuses on merely the utilization of the 220,000 hectares of fallow land and agricultural waste, the two controversies are not a problem locally. In energy and economic benefit related issues, Tso Chunte et.al. (2008) (Note 1) found greater energy output than input by taking sugar cane, sweet sorghum, maize and sweet potato as feedstock and adopting existing commercialized techniques to produce alcohol locally. Their outcome signifies energy conversion efficiency. Although the total input is higher than other countries, the cost is close to that of imported alcohol even without considering external benefits derived from carbon reduction of domestically produced alcohol. Meanwhile, economic benefits for rural areas are even more significant. Taking the promotion of 3% gasohol (E3) for example, ,planting 60,000-hectare sugarcane and investing NT$ 6-billion in building 3 alcohol producing factories each capable of manufacturing 100,000 kiloliters of sugar cane alcohol will create at least 110,000 permanent jobs. This is an indicator of the positive contribution of domestically produced alcohol oil on agriculture.

Thus, we recommend that the Government follow the world trend to formulate long-term development policies and objectives for the biomass energy industry such as replacing 10% of transportation fuel by biofuel before 2020 like EU nations or 20% by 2017 like U.S.A Once the biomass energy market objectives is determined, the agricultural sector can plan on large-scale farms which will bring out the possibility of reducing the production costs. Specifically, in consideration of the condition of our country, the Government is expected to announce the compulsory use of 10% (E10) gasohol (Note 2) beginning from 2020. It is estimated that with domestic annual consumption of 10 million kiloliters of gasoline, 1 million kiloliters of alcohol will be in demand every year. The surplus from existing agricultural land, deducting the ones reserved for food security, combined with the existing 220,000 hectares of fallow land can produce ethanol feedstock to meet the alcohol demand. By implementing agribusiness management on farming, dealing separately the ownership and using right of the agricultural land, and composing large-scale automation of farms, there will be opportunity to reduce the crop’s production costs.

When the long-term development policies for biomass energy industry are established, accompanying measures in Europe and the United States may serve as reference. First of all, amendments in the existing ‘Guidelines on Governing Fallow Subsidies’, provision of environmental subsidies for energy crops, integration of fallow lands and general agricultural lands, and excise tax exemption or pollution fee let-off for alcohol extracted from domestic energy crops facilitate the formation of a scale-economy farm to cultivate energy crops. If the energy tax is to be levied in the future, gasohol will be entitled to tax reductions in proportion to alcohol contents. Alcohol manufacturers will be provided the investment tax credit and other incentives. In addition, , imported alcohol shall be levied with alcohol fund similar to imported oil before the gasohol market reaches economies of scale. Since the accompanying measures involved undertakings of Council of Agriculture, Ministry of Economic Affairs, Ministry of Finance and Environmental Protection Department, in order to strengthen the effectiveness of unified management, it is suggested to set up ‘The Committee for Promoting Biomass Energy’ convened by the Council of Agriculture from Brazil’s experiences, which may in charge of coordinating relevant departments to set up priority on energy use,, mandate gasohol retail, and encourage consumer consumptions.

The domestic agricultural sector has long been in a weak position and has been compelled to abide by ‘fallow by limiting water supply’ or the ‘releases of agricultural lands’ to promote industrial developments. It resulted in the weakened and outdated agricultural sector. However, under the international consensus reached on carbon dioxide reduction, the use of ‘Fuel with an Alcoholic Base’ as an alternative of vehicles fuel is a new opportunity for the domestic agricultural development. The small-scale investments in industrial sector have brought a new situation and development for the domestic agricultural sector. Biomass energy is an indispensable item in national energy security and also a representative of green energy. Its full development by the government and the people is well worth it. The development of biomass energy technology is increasing day by day, from converting traditional oils and fats, starch and sugar crops into biomass energy converting cellulose into biomass energy. As a result, the controversy of crops being used as energy crops rather than being used as food will be resolved. The agricultural sector will be converted into an industry that takes both food and energy into consideration. This trend of development gained acceptance worldwide and shall serve as reference for our nation.

To conclude, biomass energy industry related developments feature energy independence, agricultural development, environmental protection, and economic growth. Long-term developments prospects are essential for the implementation of biomass energy development policies. With agricultural development as the focus, agricultural departments should make every effort to pursue the reasonable cost of material sources and minimize costs to economies of scale in conjunction with various accompanying measures such as subsidy and counseling. The industrial department’s compromises by retaining 10% of domestic-made alcohol from the 100% imported oil. In other words, over 220,000 hectares of fallow lands will be given an opportunity to develop and become fertile. In view of the current world economic downturn and lack of domestic investment and consumption, this kind of investment requires minimum inputs, but derives at maximum benefits. This program ought to be a prioritized development focus as it is intended to benefit local farmers, rural villages, and the agricultural industry as a whole.

■ Annotation

1. Tso Chunte, Su Meihui, Fang Chunte, “Research and Analysis Program of Productivity and Energy & Economy Indicators of Domestic Fuel with an Alcoholic Base” the report at the end of term, commissioned by Agriculture and Food Agency, the Council of Agriculture, June, 2008

2. Tso Chunte, “The Feasibility of Taiwan's Development of Biomass Energy Industry” Agricultural Biotech Industry Quarterly, 9th issue, 2007