An Economic Assessment of Bioethanol Production from Sugar Cane: The Case of South Africa

Working paper 630
Author(s): 
Marcel Kohler
Publication date: 
August, 2016
Journal: 
Interdisciplinary Journal of Economics and Business Law, 2016, Vol 5
Classification-JEL: 

The destabilising economic impact of South Africa’s dependence on imported crude oil is a key motivation behind the country’s drive to develop a biofuel industry. Much concern has been raised over the impact of biofuels production on price of food for the country's poor. It is this concern that has seen the prohibition of maize and the favouring of sugar cane as a feedstock in South Africa's Biofuels Industrial Strategy. This paper sets out to analyse the economic feasibility of producing bioethanol from sugar based on the industry's efforts to diversify its market base. The study suggests that bioethanol production is financially viable at an average US$102/bbl for the period 2005-2015, based on estimates that producers typically pay the equivalent of US$67/bbl for sugar cane feedstock, incur approximately US$20/bbl in operating & maintenance costs and require the equivalent of US$15/bbl to recoup capital investments. To kick-start the commercial production of fuel grade ethanol in South Africa, producers require mandated subsidisation. State support for bioethanol producers in the form of a guaranteed minimum selling price for bioethanol of 95 percent of the basic fuel price, exemption from fuel taxes in addition to specific capital investment allowances are required.

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