A provision in the version of the 2007 Farm Bill that recently passed by the House of Representatives would make surplus sugar available for use by ethanol producers. However, some wonder if the proposal makes economic sense.

Under the Farm Bill, the federal government would buy surplus sugar from U.S. refiners and resell it to ethanol producers. The provision was added in response to an expected influx of Mexican sugar into the United States in 2008, which is dictated by the North American Free Trade Agreement. Currently, U.S. sugar prices are supported by import limits that keep the market price of sugar above a government-guaranteed minimum. U.S. Rep. Collin Peterson, D-Minn., inserted the provision in the Farm Bill. Peterson is chairman of the House Agriculture Committee.

Sugar producers support the measure, saying it is necessary to retain balance in the marketplace in the face of unlimited imports. "[The] USDA will make sugar available to ethanol producers only when imports from Mexico or other foreign suppliers exceed U.S. market needs," said Luther Markwart, executive vice president of the American Sugarbeet Growers Association.

In 2001, the USDA offered 100,000 tons of sugar to ethanol producers, but only 10,000 tons were sold, making some wonder if the program is practical. According to the USDA Economic Research Service, corn as a feedstock for ethanol costs just over $1 per gallon at current market prices. Using refined sugar would cost ethanol producers between $3.48 and $3.97 per gallon. The Congressional Budget Office estimates the federal government would have to take a loss of more than $1 billion on the sale of the sugar to make it worthwhile to ethanol producers. "I don't know what the economics are today, but the marketplace will ultimately decide that," said Matt Hartwig, communications director for the Renewable Fuels Association (RFA). "Another thing to remember is that while technically you might be able to bleed a little sugar into a traditional corn-to-ethanol plant, you couldn't just dump in large amounts. It would upset the fermentation process that producers have established using the starch from the kernel of corn."

However, the RFA doesn't oppose the program. "The RFA supports ethanol production from whatever you can make it out of," Hartwig said. "So if these companies determine that this is something that works for them, the marketplace will decide that."