Beijing, Jan. 21 - Guangxi, China's top tapioca producer, may have to downgrade its ethanol ambitions due to a raw material shortage, casting doubt on the country's plans to double its capacity for the alternative fuel by 2010.
Even the country's first tapioca ethanol plant, expected to start full-operations in February, is likely to face difficulties in getting enough material to produce 200,000 tonnes of fuel ethanol a year, officials and traders say.
Guangxi initially planned to build an annual capacity of 1 million tonnes for tapioca ethanol, accounting for half the country's overall target, while encouraging farmers to cultivate unused land and increasing the tapioca yield by 50 percent.
"The 1 million-tonne-ethanol is surely no more possible," said Shao Naifan, an adviser to the Guangxi government on ethanol industry. "Tapioca supplies will be a problem, and not a minor problem for the region."
Tapioca is now the only realistic feedstock for new ethanol projects in China. Worried about inflation and food supply, Beijing has stopped approving projects using food grains. There is not yet matured technology for sweet potatoes or sorghum.
"Biofuel development is going to be slowed down due to the non-food grains policy," said an ethanol trader in Beijing. "Non-food grains for the time being refer to tapioca. And tapioca resource is not sufficient in China."
TAPIOCA IMPORTS
China Agri-Industries Holdings Ltd , a unit of state-owned agri-giant COFCO, said last week it was confident it could source tapioca locally and make a profit at the Guangxi plant.
However, the plant has been importing tapioca chips from neighbouring Thailand and Vietnam, the world's top producers of the crop, also known as cassava, traders said.
Although denied by China Agri, traders also heard COFCO was moving about 30,000 tonnes of ethanol from its northeastern province of Heilongjiang to Guangxi, where cars in two cities will officially begin using ethanol blended gasoline in February.
"Where are they going to get the raw material? China's tapioca output has been stagnant," said a tapioca trader at an international house based in Singapore.
"Tapioca does not need high-quality land. But first you have to convince the farmers to do the job. They are leaving for the cities. You have to give them incentives to do the dirty job."
The traders said tapioca chip prices had shot up to historic highs of above $200 a tonne, including costs and freight, helped by market anticipation that COFCO would need to source as much as two-thirds of its requirement from abroad.
The prices stood at about $100 when the Guangxi project began construction late in 2006.
China already imports about 2.5-3 million tonnes of tapioca chips each year to make alcohol and starch, compared with its annual international trade of about 4.5 million tonnes.
Shao said farmers in Guangxi, also the country's largest sugar producer, would rather grow canes. There was little extra land to support a large quantity of additional ethanol.
The region harvests about 6.5 million tonnes but uses the crop for making alcohol and starch.
COFCO would need 1.5 million tonnes of fresh cassava and it would be particularly in difficulty in sourcing locally after March when the local harvest was over, said Shao.
"It would be great if all goes okay with COFCO plant," said Shao. "It would work if you had enough material of your own. How can you rely on others for your feedstock?"