Not too many agribusiness owners would argue to potential windfall that government approval of an ethanol blend would bring. That seems to be close to happening – the EPA announced in December that it was satisfied with the feasibility of ethanol, and contingent on further testing, it could soon approve 15 percent ethanol blends based on testing results, approval that could reach the industry by mid-2010.

 Environmental group objections of climate change and environmental damage notwithstanding, agribusiness owners are happy because of the potential creation over 136,000 jobs. The federal government is looking to ethanol as a first step in cutting dependencies on foreign oil. It would seem that ethanol is the issue that could restore profitability to a flagging agriculture industry.

Yet there are risks, many still to be discovered. No one is arguing the side effects of an ethanol-based agriculture industry focus. It takes little imagination to see how lower corn production/harvest, such as this year’s widespread inability to harvest crops due to weather, could limit ethanol’s positive impact on the industry. That argument, along with the objections raised with the food-for-fuel debate, has increased the push for cellulosic-based ethanol products culled from grasses, wood chips, and other biomass products.

Tests have shown that ethanol works well in cars built after 2001, prompting the EPA’s announcement. While the lack of an immediate decision by the EPA disappointed some, the industry is hopeful a decision will come soon. In the meantime, the Renewable Fuels Association is pressuring the EPA to approve a 12 percent ethanol blend immediately in hopes that the lower blends would jump start market share.

The question going forward – how much room is there in the ethanol market for agribusiness? What would it cost to convert your business to a ethanol production model? How will insurers handle insuring the product? At the moment, there are a few ethanol insurance products on the market, but the agriculture insurance industry lacks historical data to accurately assess risks. Based on current crop models, insurance pays for loss in much the same way it does for lost harvests.

If ethanol production is in your future, contact us. We can walk you through the various available policies, limits, and exclusions.

Flickr photo credit:  mrobenalt

Filed under: Agribusiness by afis blogger