Global Trade Looks Different Now, But for Better or For Worse?

The global economy is going to look different for a while. Our industry’s reliability under pressure, coupled with open supply and trade links, and sound policy, will continue to be ethanol’s advantage in the global marketplace.
By Andrea Kent | November 29, 2020

At the time of writing, the U.S. is heading into an election, Canada’s minority government survived a confidence vote that would have triggered an election, geopolitical tensions with China continue, and Brazil implemented a tariff rate quota (TRQ) on U.S. ethanol.

And that was all in the same week! These turbulent times are shifting the global landscape, and some changes may stick. Which begs the question: How do we drive trade during a pandemic, for better or for worse?  

International trade has been the major driver of growth for the last half of the 20th century. Countries with strong international trade have become more prosperous, as have the industrial sectors with healthy and open trading. In our industry, exports allow our farmers and ethanol producers to benefit from larger markets and more stable pricing. And imports have filled market shortages and allowed regions with newer or developing renewable fuels industries access to ethanol’s environmental benefits sooner and in greater quantities. World trade had challenges before COVID, but the pandemic is undoubtedly affecting the export landscape both in theory and practice.

Economies have dramatically slowed with recent partial recoveries in jeopardy due to new waves of the pandemic. Shelter-In-Place restrictions and travel bans caused over 4 billion people worldwide to stay at home. Global fuel demand fell by around a quarter at the lockdowns’ peak, forcing many ethanol plants to cut production or close. Fuel consumption and oil prices have recovered some ground as governments relaxed restrictions, but worries about global fuel demand remain amid second wave infection rates. But, as many global portfolio managers and traders have pointed out, it’s not just the volume of trade that has changed, but the nature of it.

Governments and businesses have spent the better part of this year dealing with border closures, market shocks, and unprecedented challenges in transporting goods. Very quickly, countries and companies were forced to move their supply chains back home. Today, supply chain resilience is a necessity many expect to become a lasting trend from the pandemic lockdown.

All of this is to say that the market will worsen before it gets better, and trade will have a lens increasingly focused on domestic markets first. Although it’s safe to assume that some governments may take an “anything and everything” approach to defend local markets, global trade opportunities still exist. To help us get there, we need to address domestic goals.

1. Look at markets that are continuing to grow. Despite some lingering bilateral trade disputes, worldwide, many jurisdictions are looking to increase renewable fuel use. Proposed or expanded ethanol mandates exist in Canada, India, Philippines, Japan and Vietnam, which recently reduced its ethanol tariff.

2. Ensure policies support stable trade. For example, Canada’s Clean Fuel Standard should be committed to low carbon fuels’ market development on a level playing field. This includes treating CCS in biofuels production equally (i.e., domestically and abroad) and recognizing any sustainable products, such as American biofuels, with aggregate compliance to favor continued trade flows that are of mutual benefit.

3. Build with resiliency in mind. Many jurisdictions are continuing to tackle their environmental challenges during COVID. Now more than ever, we have to keep advocating, so the proper regulatory signals are put in place to ensure resilient and meaningful biofuels policies. This includes enforceable renewable fuels blending mandates, an obligation for fuel to reduce carbon intensity, and ending exemptions that erode the market for ethanol.

It’s been a turbulent, difficult year. The global economy will look a lot different for some time to come. Working to keep supply and trade links open, ensuring sound policymaking, and our industry’s reliability under pressure will continue to be ethanol’s advantage in the global marketplace and key to making opportunities out of these challenging times.

 

Author: Andrea Kent
Board Member, Renewable Industries Canada
Vice President of Government and Public Relations, Greenfield Global
833.476.3835
andrea.kent@greenfield.com