Low ethanol prices and political decisions squeeze Agroetanol


The low price of ethanol, a glut on the European ethanol market and unfavourable political decisions are squeezing profitability at Lantmännen Agroetanol.

As a consequence, Lantmännen has decided on an extraordinary write down of the value of its ethanol plant in Norrköping, Sweden. The SEK 800 million write down is based on a valuation of the business factoring in future cashflows and will not affect day to day operations, where both cost and resource efficiency drives are proving highly productive.

The Lantmännen Agroetanol ethanol plant is highly dependent on the price of ethanol. Ethanol has dropped sharply in price over the past four months, due to a combination of increased supply and falling demand. Every krona per litre change affects annual profitability at the Lantmännen plant by around SEK 200 million, assuming unchanged prices for feedstocks.

The unfavourable price picture for ethanol production combined with unfavourable political decisions, are squeezing profitability at Lantmännen Agroetanol. Added to which, the future market continues to look very unpredictable. In particular, the decision by the Swedish Government to introduce new controls on biofuels in May 2014 has dramatically worsened prospects. Altogether, these factors have persuaded Lantmännen to write down the plant in Norrköping by SEK 800 million.

“Stabilising our ethanol business was one of my most important goals when I was appointed chair.  The sharply falling ethanol prices make for extremely tough conditions.  The political proposals allied to low prices of ethanol are very challenging. I get incredibly frustrated when I see how carelessly politicians are addressing our investment in the future at Lantmännen Agroetanol. If we are to be able to combine the wish for new job opportunities and a strong economy with environmental responsibility, politicians and enterprise must take a long-term approach and form a confidence building partnership,” said Lantmännen chair Bengt-Olov Gunnarson.

In November, the Swedish Government approved a proposal for a volume based quota system for biofuels, and this law comes into force on 1 May 2014. The decision opens the door to increased imports of subsidized ethanol with an environmental performance half that of ethanol produced by Lantmännen Agroetanol. In association with this change, the tax and duty rules are being modified for Swedish and imported ethanol respectively. Other countries are evaluating alternative solutions: Germany, for instance, has resolved to introduce a system in 2015 based on the actual environmental benefits of each fuel.

“With the uncertainty we are seeing in the price of ethanol and the political situation, the previous valuation of the ethanol plant is unsustainable. At the same time, I wish to make clear that the write down will have no impact on cashflow or liquidity,” added Gunnarson.

Lantmännen’s ethanol business is highly dependent on external factors. In connection with this, Lantmännen is implementing a strategic review of the business, that will include defining various strategic options for the future along with the associated risks and opportunities. As the review is still in progress, no conclusions have yet been drawn.