corn.jpgLike motherhood, everyone thinks biofuels are a good idea but that doesn't necessarily make them profitable.

Some ethanol plants in China have chosen to suspend production due to the high cost of corn coupled with low ethanol prices due to oversupply in the market.

At current ethanol prices of 4,200 yuan to 4,300 yuan, producers are losing 400 to 500 yuan on each ton per ton of production, according to one producer interviewed by Interfax.

Corn prices have soared nearly 24% over the past 12 months but the tightness of the current corn market is blamed on traders stockpiling corn in the expectation of higher prices and only a small amount is making it onto the market.

Because of the supply problems, China will not approve new grain-based ethanol fuel projects and those companies currently engaged in corn-based ethanol projects will be ordered to gradually shift to non-grain ethanol projects.

China has been encouraging the production of biofuel such as ethanol and bio-diesel from renewable resources to satisfy the country's appetite for energy and reduce its growing dependence on imported petroleum.

While a relative latecomer to the biofuel market, in the past two years China has grown to be the world's third largest producer after Brazil and the US. But that very success now creates a problem as ethanol producers are competing for corn that once would have been used to feed the nation or, more accurately, its pigs.

Despite three years of bumper harvests, Chinese planners remain worried that fast-shrinking farmland could affect grain supply in the near future and so they are increasingly reluctant to see nmore grain diverted from food supply to the biofuel industry.

China Biodiesel, a small London-listed alternative fuel play, makes its biofuel from waste cooking oil not corn but it too has been hit by soaring prices of its raw material — see this EngagingChina story.

One solution is higher-yielding crops, which would enable China to produce more from less land. This an opportunity being targeted by Swiss biotect company Syngenta, for example — see this story.

More on China's food or fuel dilemma in this EngagingChina story and this Asia Times article.

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