FTC: US ethanol market remains unconcentrated in 2012

By Susanne Retka Schill | November 27, 2012

The market for fuel ethanol in the United States remains unconcentrated, with 154 firms nationwide either producing ethanol or likely to be in production in the next 12 to 18 months, according to the Federal Trade Commission’s 2012 report on the state of U.S. ethanol production.

The number of firms producing ethanol has decreased since last year’s report. “As of September 2012, 154 firms currently produce ethanol or likely will begin producing ethanol within the next 12 to 18 months, as compared to 164 firms in the 2011 report,” the FTC reported.  It found the largest, unnamed, ethanol producer’s share of domestic capacity is “11.1 percent, a slight decrease from its 11.5 percent share in 2011 and below its 12 percent share in 2010. This figure is comparable to the largest producer’s capacity share of 11 percent in 2008 and 2009, and it remains below the largest producer’s capacity shares of 16 percent in 2007, 21 percent in 2006, and 26 percent in 2005.”

The FTC calculates market share several ways, by individual producer’s capacity and by allocating those market shares to the firm that actually markets the output, as well as to the marketing firm only if there is a pooling agreement. In addition to those three, the FTC also looks at the market shares based on production capacity plus another calculation done by the U.S. Energy Information Administration using actual confidential ethanol production data which it collects from all producers with capacities over 8 MMgy. The analysis uses the Herfindahl-Hirschman Index to assign a value to the market concentration. Four of the six calculations indicate a relatively minor increase in concentration while the other two calculations showed a decrease. In all cases, the HHI values indicate the domestic ethanol production industry remains unconcentrated, the FTC stresses.  The accompanying chart shows the dropping market concentration, indicated by HHI values, compared to capacity from 1998 to 2012.

In addition to reporting the results from calculating market concentration, the annual FTC report, which is required by the Energy Policy Act of 2005, gives an overview of the year examined, from October to October. “Actual ethanol production increased this year even as production capacity decreased slightly, reflecting greater utilization and more efficient use of existing capacity,” the FTC reported.  “Domestic ethanol production increased approximately 2 percent between 2011 and 2012, from 13.7 billion gallons to nearly 14 billion gallon.” The FTC used EIA monthly oxygenate production reports as well as industry figures from the Renewable Fuel Association, and other sources. “Production increased over 870 percent since 2000, when domestic ethanol production was 1.6 billion gallons. Domestic ethanol production capacity decreased slightly to approximately 14.19 billion annualized gallons as of September 2012 from 15.2 billion annualized gallons as of September 2011.”