FTC annual ethanol report finds industry is unconcentrated

By Erin Voegele | November 27, 2013

The Federal Trade Commission has published its annual report on the status of domestic ethanol production, noting that the market for fuel ethanol continues to remain unconcentrated. The report, titled “2013 Report on the State of U.S. Ethanol Production,” estimates that 158 firms are either producing ethanol or are likely to begin producing ethanol in the next 12 to 18 months. According to the FTC, there has been a lack of market concentration in the industry since it began issuing the annual report in 2005.

To complete the report, the FTC used two different methods to measure market share: production capacity and actual production. The analysis also features three methods of allocating those shares. Overall, the analysis finds that the level of concentration in the U.S. ethanol industry has remained largely unchanged from last year.

In the report, the FTC said that the unconcentrated nature of the U.S. ethanol industry suggest that the exercise of market power to set prices, or coordinate on price or output levels is unlikely. “At this level of concentration, a single ethanol producer or marketer lacks market power. Successful anticompetitive coordination would require agreement among a very large number of producers and thus would be unlikely,” said the FTC in the report. Furthermore, imports and ease of entry would act as a serious impediment to the exercise of market power by a group of domestic firms.

The report also indicates that demand for ethanol increased from July 2012 through June 2013, with 12.8 billion gallons of ethanol blended. During the prior 12 months, only 12.7 billion gallons of ethanol was blended.

The analysis also found that domestic ethanol production decreased since 2012 report was issued. However, production capacity increased slightly. Domestic ethanol production decreased between 8 and 9 percent for the July 2012 through June 2013 period, to 12.8 billion gallons. Approximately 14 billion gallons was produced during the prior 12 month period.

Capacity, including capacity under construction, increased to 15.6 billion gallons, up from 15.5 billion gallons in last year’s report. As of September 2013, the FTC found 156 firms are either currently producing ethanol or are likely to begin doing so in the next year. In September 2012, only 154 firms were producing ethanol or expected to begin producing in the following 12 months.

The nation’s largest ethanol producer currently has 10.9 percent of domestic capacity, down from 11.1 percent in 2012.

A full copy of the report can be downloaded from the FTC website.