USGC helps create demand for US ethanol in Vietnam

By U.S. Grains Council | May 09, 2022

The U.S. Grains Council worked with the USDA’s Foreign Agricultural Service in Vietnam to engage the Vietnamese Ministry of Industry and Trade (MOIT) and Ministry of Finance (MOF) to reduce most favored nation (MFN) tariffs on imported ethanol, ultimately resulting in new tariff lines that spurred additional U.S. ethanol imports by Vietnam.

Vietnam practices a dual gasoline policy in which ethanol is offered in one grade at the pump and not the other. The Vietnam government cited average to below-average consumer acceptance of the grade that included ethanol as a rationale for not moving forward with higher blend rates. In response, the Council met with industry stakeholders, including the major oil companies, retail gasoline providers, traders, and government officials, to dig deeper into this information. After this extensive survey, it was identified that the tariff on U.S. ethanol was causing a burden at the pump, leading consumers to simply choose the cheaper option.

Having identified tariffs as one of the major constraints to the organic growth of U.S. ethanol sales to Vietnam, the Council partnered with FAS to engage the Vietnamese government at every opportunity, including presenting performance data, public health studies, and other material that would encourage the Prime Minister to lower tariffs on U.S. ethanol.

Despite the tariffs in place, Vietnam directly imported roughly 3.5 million gallons (1.24 million bushels in corn equivalent) of U.S. ethanol in the 2018/2019 marketing year, in addition to around 16 million gallons for fuel blending through the South Korean transhipment market.

It was thought a five percentage point reduction on import tariffs for ethanol would create opportunities to fill the current 170 million gallons (60.3 million bushels in corn equivalent) ethanol demand deficit in the country. During outreach efforts, the Council described a win-win for both U.S. farmers and agribusinesses looking to export more ethanol to Southeast Asia’s fastest growing economy and for the Vietnamese government, which is looking to reach its goal of a higher national fuel blend mandate to 10 percent.

Vietnam’s prime minister signed Decree 27 on May 25, 2020, decreasing the MFN tariff on certain agricultural imports, including ethanol. While the Council and its partners pushed for a tariff reduction in line with competing products like aromatics and other petrochemical oxygenates, the tariff was eventually reduced to 15 from 17 percent for 100 percent pure ethanol and to 15 from
20 percent for 99 percent or less pure ethanol, the maximum reduction applied to any commodity or product during this review period. The new tariff rate went into effect on July 10, 2020.

In the short-term, gasoline demand did drop 30 percent during the country’s COVID-19 lockdown, but in the longer term, total Vietnamese gasoline consumption is expected to grow nearly 15 percent over the next five years to reach an estimated 2.38 billion gallons by 2023.

The Council invested $42,443 of Market Access Program (MAP) funds to support this consulting engagement. As a result, Vietnamese ethanol import potential increased to 170 million gallons valued at $653.334 million dollars, a return on investment (ROI) of $15,393 per $1 of MAP funds invested.