Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions - Case Study Example

International Business Introduction and Objective The leading industries in global market are trying to capitalize on the benefits of effective business opportunities. US are the most developed economy in today’s world. They are the example before the other developed, developing and third world countries. After the crossing of every burden and obstacles they have the significant growth in every aspect and in every industry. US are the most powerful economy worldwide. The control of oil and fossil fuel is lies the OPEC. Very few gulf countries known as OPEC, which have the control of oil. They are doing all the pricing and distribution of crude oil worldwide. In a word OPEC maintains the price and distribution control of petroleum as they are largest crude oil producers globally. In order to reduce the oil dependency on the OPEC countries US went for the introduction of substitute of fossil fuel. Ethanol is the effective solution and substitute. The ethanol industry from the starting days has created the objective in order to achieve the target audience base. In order to become the strongest economy the US government has motivated the industry from the starting point. The reduced dependency on OPEC will cut down several oil cost of US economy. Moreover, the adoption and the usage of ethanol will solve many problems. The problems of fuel consumption, emission of green house gas and air pollutant will be overcome (Elmendorf, 2009). The objective of the study is to analyze the ethanol industry according to the case study. The analysis will be followed by the industry SWOT analysis in US, and then the study will reveal the critical thinking, decision making and strategic analysis about the case in order to achieve the desired objective. Moreover the industry related issues are being found for the purpose of the study. The major objective is to bring the strategic solutions of those problems and structure some recommendations. Finally the study ends with the evaluation of analysis and conclusions. SWOT Analysis Ethanol is produced by sugar fermentation. It is an alcohol found in grains and different biomass. Now-a-days ethanol industry is one of the leading and profitable industries worldwide. In order to achieve the objective of the study ethanol industry SWOT analysis has been implemented. The SWOT analysis is consisting of internal strengths and weaknesses of an industry or a product or a service and external threat and opportunities and threats of those. Strengths Reliable, cost efficient and flexible supply and distribution network is the important strength of ethanol industry in US. The producers strategically consider the networks that have direct access to several major supply and transportation hub. Energy which is produced from ethanol enriches the natural carbon cycle. It is one of the inner strength of this industry. It provides fuel for automobile industry. This fuel reduces the emission of greenhouse gas and harmful pollutants in the environments. The carbon dioxide that is released by the combustion of vehicles can be recycled by the ethanol plants. The use of ethanol as the vehicle fuel has reduced the carbon dioxide equivalent green house gas by the approx number of 10.1 Million ton in US in the year 2007 (Ethanol, 2013). The agriculture department in US has determined that 167 units of energy would be created by the total usage of 100 units of ethanol in US. It will increase the positive net energy value of ethanol acquiescent (Ethanol, 2012). Former president of US, Mr. G.W. Bush has introduced several supporting aspects in order to country’s dependent on the national fuel consumption than on the foreign oil resources. The regulations and the programs related bio-fuel industry which is introduced by the Federal and State government in US, for the purpose of increase ethanol production. The incentives and the subsidies provided by the government have helped the industry to grow. Weaknesses The low consumer demand is one of the major weaknesses of ethanol in US. Ethanol has not marketed efficiently due to inadequate support of government, regarding the marketing strategies and activities. The limited number of gas stations has failed to take away the awareness of Americans. This is the larger substitute of fossil fuel. Moreover, crop stability is the other weakness of this industry. The low imperfections and lack of regulation of firm management is failing to motivate the average farmers. Depending on the single source and input regarding the production of crops has created some risk factors. The high potential firms are lacking behind due to appropriate management. Opportunities The modern and advanced method of farming with the implementation of better corn yields and developed technologies has motivated the farmers for more productions. The soil nutrients, better water supply, implementation of advanced bidding technologies has created the huge opportunity for the farmers in order to produce better hybrid crops in a huge number. Moreover, the ethanol industry throughout last 25 years is contributing the country’s economy. It increases the farmer’s motivation level to produce crop and in other hand it increases the employment opportunity of the country. Looking into these factors government is looking forward to motivate the ethanol industry. Creating job opportunities, in both domestic and international market has impacted on the country’s GDP. US have able to save approximately $12 billion in a year by the help of creating job opportunities by ethanol industry. Threats Organization of the Petroleum exporting countries is creating threat for ethanol industry in US. US are applying the strategy to introduce ethanol massively against the substitute of petroleum oil and gas, in order to cut down the fuel price. So OPEC is trying to follow the backward integration policy by purchasing ethanol products. Moreover, the intense competition within the industry in the domestic market in US has made the production industry less concentrated. Still the large number of production capacity is under construction due to this factor. The switching cost of ethanol consumption is affecting thy industry. There is maximum American who has old model vehicles in which ethanol would be not supportive. They need gasoline to run old vehicles. Therefore the industry remains helpless in order to get that customer base. Last but not the least, the increasing substitute of ethanol like Cellulosic which is non-food crop is creating some threats for industry. The present president of US’ Mr. Obama’s approach towards this non-food crop based ethanol is creating the risk factors of ethanol. Critical Thinking and Strategic Understanding In terms of US ethanol industry the primary stakeholders for this industry is the farmers, policy makers, foresters, consumers and the other environmentalists (Salzman and Thompson, 2010). They have contributed some major roles to this industry. So the industry itself and the government of US have to motivate these stakeholders in order to get some social, economical and environmental advantages from the country’s prospective. US are the strongest economy in today’s present era. Moreover the consumption of ethanol will benefit the civic life in US. The consumption of ethanol will help the people to lead more healthy life in social and economical consideration. The advantages of consumption are listed below. The ethanol industry has maintained the corporate social responsibility and the social values by the production of ethanol in US. The consumption of ethanol will reduce the emission of green house gas and air pollutant. The environment pollution is responsible for several diseases. The consumption of oil affects on the society. So the usage of bio-fuel like ethanol will be responsible for the reduction of carbon emission in society ( Afdc, 2012). The normal fuel which is used in automobiles or in vehicles by extracting from the fossil oil is expensive enough than the fuel of ethanol. Therefore the consumption of ethanol by Americans will tend them to save more than the past years. Last but not the least the fuel will increase the combustion energy of their vehicles as the ethanol based fuel save huge energy. So people can enjoy the user friendly fuel. From international government perspective the production of ethanol will help the producers as it deals with the international economics. The demand of crude oil is more than the supply due to very few oil producing countries. The countries have created an organization among themselves known as OPEC globally. They are the price controller, supplier of petroleum. On the other hand US are the strongest economy in all aspects but they have failed to control oil price. In 1980s US came up with a substitute of crude oil that is ethanol based fuel. Moreover the fuel generates more power than the consumption rate. The other impact of the usage of ethanol is it may cut down the oil cost in near future by producing more crops. Ethanol is produced from the crop corns and this fuel is highly environment friendly. The implementation as the solution of oil consumption government of US should handle the things carefully. The government can earn more taxes and tariffs by exporting the oil. Moreover, the government has to take lesser burden about the green house emission as it reduces the air pollutants. Moreover it maintains the level of carbon dioxide and green house gas in air. The economical advantages that government can enjoy by more number of productions of ethanol are like increase in GDP, increase in per capita income, decrease in the import cost of oil, increase in job opportunities and many more. Problem Statements In today’s present situation, US ethanol refineries are trying to pull all the controversies regarding this industry in order to convince the already diverse stakeholders. The issues or the problems which are facing by the industry are listed below: Ethanol was introduced in order to reduce the dependency about oil on the OPEC countries and to decrease the emission of global green house effect. Gradually after few years it is creating food crisis globally. Therefore the perception about this industry proved to be wrong. The renewable fuel association who is existing since 1980 in US. The ethanol industry has emerged with the RFA and other association named Growth Energy; the reputation of ethanol industry has declined due to the working different. They major aim of these two groups on the debate is food versus fuel. It changes the growth climate of ethanol industry in US. The substitute of food based ethanol is creating the risk factor to this industry (Schmitz, 2011). The intense rivalry among the industry is creating too much competition in the domestic market in US. There is more than 200 companies represent ethanol industry in US. The major issue is the OPEC countries are tending to buy the ethanol products by implementing the backward integration policies in order to remove the threat of substitute in global market. The rapid climate change is affecting badly on the production of crops which is required for the ethanol industry. Strategic Planning and solutions Ethanol industry in US is collecting the controversial issues in order to rectify the problems. The strategic plans and the solution of the problematic issues which are undertaken by the industry and the government are listed below: In response to the food versus fuel issue the industry relocated that they are consuming more than what they had the availability. Now-a-days more number of corns is being cultivated in order to maintain the balance the demand and supply of corns. Moreover it will help to increase the consumption level of both food and fuel. The introduction of modern and advanced refineries system has reduced the affect of climate change on the crops. Implementation of energy-intensive harvesting techniques and strategies are actually consuming the energy while farming and harvesting the crops. The industry and US governments’ objective behind the establishment of ethanol industry was to reduce the fossil fuel and oil dependency on OPEC. This will reduce the cost and will increase the fuel consumption for the Americans. Therefore they are trying to focus on the major objective as the current issues will be forgotten after few days, because nobody remembers the previous data. Everybody believes the performance according to the objectives. Recommendations As ethanol and other renewable fuels are used to increase the energy security, government and the industry should carefully handle the ethanol industry (Zivin and Perloff, 2012). The ethanol industry should implement the ethanol awareness program with the help of US government in order to motivate the farmers and the people of country. The events and the programs related to the industry are necessary due to some social environment advantages also. The consumption of ethanol fuel will decrease the pollution level of the society. Government should provide funds and subsidies to increase the motivational level of the farmers and the industries. The government should introduce the federal tax incentives in order to encourage the growth factor of so called second generation bio-fuel industry. US should introduce tariff on the imported ethanol. It is necessary because of the present low price of ethanol and moreover since 2009 import has fallen drastically. The US environmental association should implement the environmental standards in order to maintain the green house gas emission. Therefore the industry can get some motivation for the business operations. Last but not the least the US state policy has to be implemented as early as possible. This will help the employees by tax exemption, mandates for ethanol and product incentives. These state policies will help the country to increase the job opportunities for Americans. The state policies will help to reduce the emissions through the product incentives and the product investments (Entrix, 2010). Evaluations and Conclusions Since last more than 25 years ethanol industry is one of the leading industries in US (Tickell and Tickell, 2003). This industry significantly contributing in country’s GDP and other economic advancement. As the ethanol fuel is the substitute of petroleum fuel and the usage of this is environment friendly, government of US is motivating the farmers and the other stakeholders to concentrate regarding the improvement of the industry (Ottman, 2011). The industry is facing several problems like OPEC’s backward integration strategy, substitute of the food based ethanol, intense competition within the industry, inadequate marketing orientation of the industry. Therefore in reply the US government has to solve out the issues as this is the potential industry in US market. According to the SWOT analysis of the industry, strength like cost efficiency and the external opportunities like the ethanol fuel is the strong and effective substitute of fossil fuel. As the farmers and the producers of ethanol are the primary stakeholders of the industry it can be concluded that government should look after the product and process incentives and the subsidies regarding farming and harvesting the crops in order to more number of consumption of both food and fuel. If the issues related the operation and marketing strategy is overcome then US can confidently introduce ethanol for the mass in order to generate more energy and to solve the pricing control of oil. References Afdc. (2012). Ethanol Feedstocks. Retrieved from http://www.afdc.energy.gov/fuels/ethanol_feedstocks.html. Elmondorf, D. (2009) Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions. Darby: Diane Publishing. Entrix, C. (2010). Current state of the U.S. Ethanol Industry. Retrieved from http://www.nrel.gov/analysis/pdfs/doe-02-5025.pdf. Ethanol. (2012). Net Energy Balance of Ethanol Production. Retrieved from http://www.ethanol.org/pdf/contentmgmt/Issue_Brief_Ethanols_Energy_Balance.pdf. Ethanol. (2013). Ethanol and the Economy. Retrieved from http://www.ethanol.org/index.php?id=51. Ottman, J. (2011). The New Rules of Green Marketing: Strategies, Tools, and Inspiration for Sustainable Branding. California: Berrett-Koehler. Salzman, J. and Thompson, B. (2010). Environmental Law and Policy. New York: Foundation Press. Schmitz, A. (2011). The Economics and Alternative Energy Sources and Globalization. Sharjah: Bentham Science Publishers. Tickell, J. and Tickell, K. (2003). From the Fryer to the Fuel Tank: The Complete Guide to Using Vegetable Oil As an Alternative Fuel. Hollywood: Biodiesel America. Zivin, J. and Perloff, J. (2012). The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies. Chicago: University of Chicago Press. Read More