1

2011 Report on Ethanol Market Concentration

I. Introduction

 Section 1501(a)(2) of the Energy Policy Act of 2005, as codified at 42 U.S.C. § 7545(o), 

requires the Federal Trade Commission (“Commission” or “FTC”) each year to “perform a 

market concentration analysis of the ethanol production industry using the Herfindahl-Hirschman 

Index [(“HHI”)] to determine whether there is sufficient competition among industry participants 

to avoid price-setting and other anticompetitive behavior.”1 The statute also requires the FTC to 

consider all marketing arrangements among industry participants in preparing its analysis.2 The 

FTC must report its findings to Congress and to the Administrator of the Environmental 

Protection Agency (“EPA”) by December 1.3 This report presents the FTC’s concentration 

analysis of the ethanol production industry for 2011. It builds upon Commission reports from 

previous years, which contain relevant background information that this report does not repeat.4

 For purposes of this analysis, FTC staff (“staff”) reviewed and analyzed publicly 

available data and conducted interviews with ethanol producers, marketers, and other industry 

 

1

 Energy Policy Act of 2005 § 1501(a)(2), 42 U.S.C. § 7545(o)(10) (2009). For purposes of this 

report, we presume that Congress used the term “price-setting” to mean “price fixing.” 

2 Id. at § 7545(o)(10)(A)(ii). 

3 Id. at § 7545(o)(10)(B). 

4 See FTC, Report on Ethanol Market Concentration (2005) (“2005 Ethanol Report”), available 

at http://www.ftc.gov/reports/ethanol05/20051202ethanolmarket.pdf; 2006 Report on Ethanol 

Market Concentration (2006) (“2006 Ethanol Report”), available at http://www.ftc.gov/reports/ 

ethanol/Ethanol_Report_2006.pdf; 2007 Report on Ethanol Market Concentration (2007) (“2007 

Ethanol Report”), available at http://www.ftc.gov/reports/ethanol/2007ethanol.pdf; 2008 Report 

on Ethanol Market Concentration (2008) (“2008 Ethanol Report”), available at 

http://www.ftc.gov/os/2008/11/081117ethanolreport.pdf; 2009 Report on Ethanol Market 

Concentration (2009) (“2009 Ethanol Report”), available at http://www.ftc.gov/os/2009/12/ 

091201ethanolreport.pdf; 2010 Report on Ethanol Market Concentration (2010) (“2010 Ethanol 

Report”), available at http://www.ftc.gov/os/2010/12/101203ethanolreport.pdf. 
 2

participants. As in previous reports, staff calculated HHIs for the ethanol production industry 

based on two different measures of market share – production capacity and actual production5 – 

allocated under three different approaches, for a total of six HHI calculations.6 Based on 

production capacity, the HHIs for the domestic ethanol production industry range from 291 to 

585, depending on the method of market share allocation. Based on actual production, the HHIs 

range from 284 to 601. Three of the six resulting HHIs for 2011 are slightly higher than those 

calculated for the 2010 Ethanol Report, indicating increased concentration. The other three 

HHIs for 2011 are slightly lower than those calculated for the 2010 Ethanol Report, indicating 

decreased concentration. All of the 2011 HHIs, however, reflect that the domestic ethanol 

industry remains unconcentrated, as it has been in each year during the life of the Commission’s 

reporting obligations under the statute. 

 These figures indicate that the U.S. fuel ethanol7

 production industry is unconcentrated,8

assuming domestic fuel ethanol production is a relevant market for competition analysis. This 

 

5

 Due to the confidential nature of the ethanol production data the Department of Energy’s 

Energy Information Administration (“EIA”) collects, EIA staff – at FTC staff’s request – 

calculated both the actual production market shares and the production-based HHIs presented in 

this report. EIA provided only the aggregated HHI figures to FTC staff and did not disclose the 

underlying confidential data or market shares. See Section IV.B, infra. 

6 See Section IV, infra. 

7

 This report analyzes fuel ethanol market concentration, rather than market concentration of all 

ethanol. Fuel ethanol and beverage-grade alcohol are not substitute products in consumption; 

fuel ethanol contains about five percent denaturant (for example, natural gasoline), rendering it 

undrinkable and exempt from the beverage alcohol tax. See Renewable Fuels Association 

(“RFA”), How Ethanol is Made, http://www.ethanolrfa.org/pages/how-ethanol-is-made (last 

visited Sept. 23, 2011). 

8

 The Commission and the U.S. Department of Justice characterize markets in which the HHI is 

below 1500 as unconcentrated. HHIs between 1500 and 2500 indicate moderately concentrated 

markets, which may or may not raise competitive concerns. Markets with HHIs over 2500 are 

highly concentrated and are more likely to pose competitive concerns. U.S. Department of 

Justice and Federal Trade Commission Horizontal Merger Guidelines (2010) (“Horizontal 
 3

assumption precludes consideration of (1) a broader relevant product market that includes other 

gasoline additives and (2) a relevant geographic market broader or narrower than the United 

States. Nonetheless, the level of concentration in the U.S. ethanol industry does not justify a 

presumption that a single ethanol producer or marketer or a group of such firms could exercise 

market power to set prices or coordinate on price or output levels.

II. Recent Industry Developments

 Since 2005, Congress has required the domestic consumption of a minimum annual 

volume of renewable fuels, including ethanol blended into motor fuels. The Energy Policy Act 

of 2005 originally established this minimum, the Renewable Fuel Standard (“RFS”), and set out 

escalating annual requirements for 2006 through 2012. The 2005 RFS required the use of 6.8 

billion gallons of renewable fuels in 2010, rising to 7.5 billion gallons in 2012.9

 In the Energy 

Independence and Security Act of 2007, Congress amended the RFS, significantly increasing the 

volume minimums – including a revised 2011 requirement of 13.95 billion gallons – and 

extending the annual mandate to a peak requirement of 36 billion gallons in 2022.10

 Ethanol demand has increased steadily year-over-year since the FTC’s first Report on 

Ethanol Market Concentration in 2005.11 This trend has held over the past year: for each month 

 

Merger Guidelines” or “Guidelines”) § 5.3, available at http://ftc.gov/os/2010/08/ 

100819hmg.pdf. 

9

 Energy Policy Act of 2005, Pub. L. No. 109-58, § 1501(a)(2), 119 Stat. 594, 1067 (amended 

2007). 

10 See Energy Independence and Security Act of 2007 § 202(a)(2), 

42 U.S.C. § 7545(o)(2)(B)(i)(I) (2009). 

11 See EIA, Annual U.S. Refinery and Blender Net Input of Fuel Ethanol (last modified July 28, 

2011), available at 

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MFERIUS1&f=A; see also prior 

Ethanol Reports, supra note 4. 
 4

from July 2010 to June 2011, the industry blended more ethanol than in the same month of the 

prior year,12 blending a total of 12.3 billion gallons.13 Consistent with the upward trend in 

blending volumes, industry participants believe that overall ethanol demand will meet or exceed 

the 2011 RFS minimum. 

In recent years, domestic ethanol blending volumes have exceeded the RFS 

requirements. According to industry participants, favorable blending economics (i.e., low 

ethanol prices relative to gasoline blendstock prices) have historically provided the primary 

incentive for refiners and blenders to blend ethanol volumes above the RFS minimum, and these 

favorable blending economics have largely persisted in 2011. Many industry participants believe 

that ethanol blending will continue to be economically advantageous in the coming year, despite 

the imminent expiration of the Volumetric Ethanol Excise Tax Credit (“VEETC”) on December 

31, 2011.14 VEETC provides a $0.45 tax credit to refiners for every gallon of ethanol they blend 

with gasoline, enhancing ethanol’s cost advantage and encouraging greater levels of blending. 

 

12 See EIA, Monthly U.S. Refinery and Blender Net Input of Fuel Ethanol (last modified Sept. 

29, 2011), available at 

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mferius1&f=m. 

13 See id. For perspective, this represents about nine percent of total U.S. gasoline consumption 

over the same 12-month period, which totaled approximately 136.5 billion gallons. See EIA, 

Monthly U.S. Product Supplied of Finished Motor Gasoline (last modified Sept. 29, 2011), 

available at http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGFUPUS1&f=M. 

14 VEETC originated in the American Jobs Creation Act of 2004. Pub. L. No. 108-357, § 301, 

118 Stat. 1418, 1459 (2004) (amended 2010). In 2010, Congress extended the tax credit through 

December 31, 2011, as part of a larger tax policy package. Tax Relief, Unemployment Insurance 

Reauthorization, and Job Creation Act of 2010 § 708, 26 U.S.C. § 6426 (2010). Congress 

continues to debate whether to continue and/or modify VEETC. See, e.g., Ethanol Reform and 

Deficit Reduction Act, S. 1185, 112th Cong. (2011) (proposing to extend VEETC through 2014 

at a variable rate based on quarterly average crude oil prices); Volumetric Ethanol Excise Tax 

Credit Repeal Act, H.R. 1075, 112th Cong. (2011) (proposing an early repeal of VEETC). 
 5

Industry participants have indicated that beyond 2011, fuel ethanol consumption may 

reach 10 percent of total motor gasoline demand, the maximum level permissible under current 

regulation.15 EIA notes that ethanol blending neared this saturation point, known as the “blend 

wall,” as use of 10 percent ethanol-gasoline blends increased over the past year.16 Since last 

year’s Ethanol Report, EPA has granted waivers to permit the use of gasoline blends of up to 15 

percent ethanol, or E15, in light-duty motor vehicles of model year 2001 and later.17 However, 

the industry must overcome several significant hurdles before E15 can reach the market. These 

outstanding requirements include registration of E15 with EPA, securing coverage under car 

 

15 The Clean Air Act prohibits fuel manufacturers from increasing the concentration of any fuel 

additive sold for general use in light-duty motor vehicles, but provides that EPA may waive this 

prohibition upon a determination that the new concentration will not cause vehicles to fail to 

comply with emissions rules. Clean Air Act § 211, 42 U.S.C. § 7545(f) (2009). In 1979, EPA 

granted a waiver permitting “gasohol” blends of up to 10 percent ethanol. See Fuels and Fuel 

Additives: Gasohol, 44 Fed. Reg. 20777 (Apr. 6, 1979). This 10 percent blend, E10, is now 

prevalent in the marketplace. Blends with higher ethanol concentration are not yet legal for sale. 

See EPA, E15 (a blend of gasoline and ethanol), http://www.epa.gov/otaq/regs/fuels/ 

additive/e15/index.htm (last modified Sept. 16, 2011); see also infra note 18. 

16 See EIA, This Week In Petroleum: The United States, from Ethanol Importer to Ethanol 

Exporter (Aug. 24, 2011), available at http://www.eia.gov/oog/info/twip/twiparch/110824/ 

twipprint.html; see also EIA, This Week In Petroleum: The Ethanol Blend Wall (July 8, 2010), 

available at http://www.eia.gov/oog/info/twip/twiparch/100708/twipprint.html. 

17 Partial Grant of Waiver Application to Increase the Allowable Ethanol Content of Gasoline to 

15 Percent, 75 Fed. Reg. 68094 (Nov. 4, 2010) (granting Clean Air Act waiver to allow sales of 

E15 for use in model year 2007 and newer light-duty motor vehicles); Partial Grant of Waiver 

Application to Increase the Allowable Ethanol Content of Gasoline to 15 Percent, 76 Fed. Reg. 

4662 (Jan. 26, 2011) (granting Clean Air Act waiver to allow sales of E15 for use in model year 

2001 through 2006 light-duty motor vehicles). 
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manufacturers’ warranties for E15 usage, and establishment of E15 distribution infrastructure.18 

According to industry participants, these issues limit E15’s ability to forestall the approaching 

blend wall. 

As in prior years, fuel ethanol prices have been volatile in 2011, leading to wide 

variations in margins. Margins were strong through the second half of 2010. In early 2011, 

increasing ethanol supply due to plant process improvements coincided with decreased overall 

gasoline demand, resulting in lower ethanol margins. According to industry participants, this 

low margin environment continued for most of the first half of 2011, prompting some less 

efficient producers to reduce operating rates. Crude oil prices then rose in May and June and 

ethanol prices followed suit, improving ethanol margins.19 As a result, those less efficient 

producers ramped up production to meet increased driving and export demand.20 Despite 

unusually high corn prices (i.e., higher ethanol input costs) over the last year, the high price of 

crude oil relative to ethanol has helped maintain overall industry profitability. If margins stay at 

 

18 See EPA, E15 (a blend of gasoline and ethanol), http://www.epa.gov/otaq/regs/fuels/additive/ 

e15/index.htm (last modified Sept. 16, 2011) (“As of August 11, 2011, E15 is not registered with 

EPA and is therefore not legal for distribution or sale as a transportation fuel ... There are a 

number of additional factors including requirements under other federal, state, and local laws 

that may also affect the distribution of E15.”). According to industry participants, the model 

year restriction on EPA’s E15 waiver means that retailers need separate tanks for E10 and E15 

because they must continue to offer E10 for vehicles older than model year 2001. 

19 See generally Tracking Ethanol Profitability, Agricultural Marketing Resource Center, Iowa 

State University, http://www.extension.iastate.edu/agdm/energy/xls/d1-10ethanolprofitability.xls

(last modified Sept. 12, 1011). 

20 U.S. ethanol exports for the first six months of 2011 have already surpassed total exports for 

2010. See EIA, Monthly U.S. Exports of Fuel Ethanol (last modified Sept. 29, 2011), available 

at http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M_EPOOXE_EEX_NUSZ00_MBBL&f=M. Increased demand in Brazil – one of the world’s largest ethanol producers – 

drove up prices for sugar cane-based Brazilian ethanol. These higher ethanol prices helped 

continue the upward trend in U.S. ethanol exports. 
 7

current levels, industry participants believe that plant construction and improvement projects 

currently underway will begin operations later this year. 

 Although sufficient ethanol production capacity exists to meet the 2011 RFS 

requirements, additional capacity will be necessary to fulfill future RFS mandates set out in the 

Energy Independence and Security Act of 2007, including volume requirements for advanced 

biofuels (defined as cellulosic ethanol and other biofuels derived from feedstocks other than corn 

starch).21 Although there are no commercial-scale cellulosic ethanol production plants in 

operation today, investment continues in the research and development of such facilities. The 

U.S. Department of Agriculture (“USDA”) and the Department of Energy (“DOE”) recently 

offered loan guarantees to support the construction of five commercial-scale cellulosic ethanol 

projects, representing a combined capacity of 121 million gallons per year.22

 

21 See Energy Independence and Security Act of 2007 § 202(a)(2), 42 U.S.C. 

§ 7545(o)(2)(B)(i)(II)-(IV) (2009) (providing specific volume requirements for advanced 

biofuels, including biodiesel and cellulosic biofuel). The advanced biofuels minimums apply 

from 2009 to 2022. The biodiesel requirement started in 2009 with volume minimums specified 

through 2012. The cellulosic requirement took effect in 2010 and extends until 2022. Id. 

However, EPA reduced the cellulosic biofuel standard for 2011, as it did in 2010, because the 

projected volume of cellulosic biofuel production was less than the minimum volume set out by 

statute. See 2011 Renewable Fuel Standards, 75 Fed. Reg. 76790, 76791 (Dec. 9, 2010) (to be 

codified at 40 C.F.R. pt. 80); Changes to Renewable Fuel Standard Program, 75 Fed. Reg. 

14670, 14675 (Mar. 26, 2010) (to be codified at 40 C.F.R. pt. 80). 

22 See Press Release, DOE, DOE Offers Abengoa Bioenergy a Conditional Commitment for a 

$133.9 Million Loan Guarantee (Aug. 19, 2011), available at https://lpo.energy.gov/?p=5121

(describing Loan Programs Office loan guarantee offer for development of a commercial-scale 

cellulosic ethanol plant in Kansas); Press Release, DOE, DOE Offers Conditional Commitment 

for a $105 Million Loan Guarantee For First-of-its-Kind Cellulosic Bio-Refinery (July 7, 2011), 

available at https://lpo.energy.gov/?p=4913 (describing Loan Programs Office loan guarantee 

offer for development of commercial-scale cellulosic ethanol plant in Iowa); Press Release, 

USDA, Agriculture Secretary Vilsack Outlines Progress on Effort to Advance Renewable 

Energy Production in America (Jan. 20, 2011), available at http://usda.gov/wps/portal/ 

usda/usdahome?contentid=2011/01/0020.xml&navid=NEWS_RELEASE&navtype=RT&parent

nav=LATEST_RELEASES&edeployment_action=retrievecontent (identifying cellulosic ethanol 

plant projects in Alabama, Mississippi, and Florida selected to receive a total of $405 million in 
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III. Summary of Market Concentration Trends 

 Actual ethanol production has increased this year even as production capacity has 

remained the same, reflecting greater utilization and more efficient use of existing capacity. 

Domestic ethanol production increased approximately 11 percent between 2010 and 2011, from 

12.3 billion gallons to 13.7 billion gallons.23 Production has increased over 850 percent since 

2000, when domestic ethanol production was 1.6 billion gallons.24 Domestic ethanol production 

capacity, including capacity under construction, remained steady25 at about 15.2 billion 

annualized gallons as of September 2011, after increasing to that level from 14.5 billion 

annualized gallons as of October 2009.26

 The number of firms producing ethanol has increased since last year’s report. As of 

September 2011, 164 firms currently produce ethanol or likely will begin producing ethanol 

within the next 12 to 18 months, as compared to 160 firms in 2010.27 The largest ethanol 

producer’s share of domestic capacity is 11.5 percent, a slight decrease from its 12 percent share 

 

loan guarantees through the Biorefinery Assistance Program, Section 9003 of the 2008 Farm 

Bill). 

23 Production figures for 2011 cited in this report reflect production from July 2010 to June 2011; 

2010 figures reflect production from July 2009 to June 2010. See EIA, Monthly U.S. Oxygenate 

Plant Production of Fuel Ethanol (last modified Sept. 29, 2011), available at 

http://www.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=m_epooxe_yop_nus_1&f=m. 

24 See RFA, Building Bridges to a More Sustainable Future: 2011 Ethanol Industry Outlook 3 

(Feb. 2011), available at http://www.ethanolrfa.org/page/-

/2011%20RFA%20Ethanol%20Industry%20Outlook.pdf.

25 See 2010 Ethanol Report at 6. 

26 See id. Unless indicated otherwise, measures of capacity in this report represent both current 

capacity and capacity under construction. 

27 Id. 
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in 2010.28 Although this figure is slightly higher than the largest producer’s capacity share of 11 

percent in 2008 and 2009, it remains below the largest producer’s capacity shares of 16 percent 

in 2007, 21 percent in 2006, and 26 percent in 2005.29

IV. Analysis30

 Section 1501(a)(2) of the Energy Policy Act of 2005 instructs the Commission to 

measure concentration in U.S. ethanol production using HHIs.31 HHIs can provide a snapshot of 

market concentration32 based upon the number of market participants and their respective sales, 

production, or capacity. The Commission and the U.S. Department of Justice regularly use HHIs 

to measure concentration in a relevant antitrust market as part of their analysis of the likely 

effects of a merger or acquisition on competition in that market.33

 

28 Id. 

29 See id.

30 The background information in this section regarding HHI calculations and their relevance is 

consistent with the background information presented in last year’s Report on Ethanol Market 

Concentration. See id. at 7. 

31 Energy Policy Act of 2005 § 1501(a)(2), supra note 1. A given market’s HHI is the sum of the 

squares of the individual market shares of all market participants. For example, a four-firm 

market with market shares of 30 percent, 30 percent, 20 percent, and 20 percent has an HHI of 

2600 [(30*30) + (30*30) + (20*20) + (20*20) = 2600]. HHIs range from 10,000 in a one-firm 

(pure monopoly) market to a number close to zero in a highly unconcentrated market. 

32 See supra note 8 (discussing the HHI threshold levels for characterizing a market as 

unconcentrated, moderately concentrated, or highly concentrated under the Horizontal Merger 

Guidelines). See also Horizontal Merger Guidelines § 5.3. 

33 In the context of merger review, the difference between the pre-merger HHI and the postmerger HHI is one factor that may affect how the agency might view the competitive 

significance of the merger, all other circumstances remaining equal. See Horizontal Merger 

Guidelines § 5.3. 
 10

 To calculate the HHIs that Section 1501(a)(2) requires, we must assume that U.S. fuel 

ethanol production is a relevant antitrust market.34 This assumption precludes consideration of a 

broader or narrower relevant geographic market than the United States that could provide further 

insight into how ethanol producers compete. This assumption also precludes consideration of a 

broader relevant product market that includes other gasoline blending components that might be 

economically viable and environmentally acceptable substitutes for ethanol. In the event that 

ethanol competes with other blending components, HHIs based on a fuel ethanol market would 

understate the amount of competition in the industry. 

 As in previous years, this report presents six HHIs for the ethanol industry, calculated 

using two different measures of market share and three different methods of allocating those 

market shares. First, FTC staff calculated each producer’s market share based on the producer’s 

domestic ethanol production capacity. FTC staff then performed three separate HHI 

calculations, attributing the producer’s market share: (1) to the producer itself; (2) to the 

producer or to the third-party firm that actually marketed the producer’s ethanol output; and 

(3) to the third-party marketing firm only if that firm marketed the producer’s volumes pursuant 

to a pooling agreement (and, absent such a pooling agreement, to the producer). Second, EIA 

staff calculated market shares derived from its confidential ethanol production data. Using the 

 

34 A relevant antitrust market has both product and geographic aspects. A relevant product 

market is a product or group of products such that a hypothetical profit-maximizing firm that was 

the only seller of those products likely would impose at least a small but significant and 

nontransitory increase in price (“SSNIP”). If such a price increase would not be profitable 

because of the loss of sales to other products, the product or group of products would not be a 

relevant product market. Similarly, a relevant geographic market is a region such that a 

hypothetical profit-maximizing firm that was the only seller of the relevant product in that region 

likely would impose at least a SSNIP above the competitive level. If such a price increase would 

not be profitable because of the loss of sales to sellers outside the region, the region would be too 

narrow to be a relevant geographic market. See Horizontal Merger Guidelines §§ 4.1-4.2. 
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market share allocation methods described above, EIA staff then performed each of the HHI 

calculations and provided the resulting production-based HHIs to FTC staff.35

 Three of the six HHIs calculated for this report are slightly higher than those calculated in 

2010, reflecting a minor increase in concentration. The other three calculations yielded HHIs 

just below those calculated for the 2010 Ethanol Report, indicating a decrease in concentration. 

In all cases, the 2011 HHIs, like the 2010 HHIs, indicate that the domestic ethanol production 

industry remains unconcentrated. 

 A. Concentration with Market Shares Based on Production Capacity

 For each of the HHI calculations described below, staff first calculated producers’ market 

shares based on their fuel ethanol production capacity. Production capacity provides a useful 

and easily confirmable indicator of a producer’s competitive significance.36

 Staff relied on publicly available information and interviews with producers, marketers, 

and other industry participants to determine the production capacity of each ethanol plant (and to 

obtain other information presented in this report). The Renewable Fuels Association provides 

frequently updated data on ethanol plant capacity and capacity expansion plans on its website. 

Capacity information is also available on many individual producers’ websites, some of which 

also provide details of construction and expansion plans. Some marketers publicly announce 

new agreements with producers, providing staff with the information necessary to attribute a 

producer’s market share to the correct marketing firm when appropriate. 

 

35 FTC staff provided EIA staff with the information necessary to attribute market shares to 

marketers where appropriate. EIA staff provided only the aggregated HHI figures to FTC staff 

and did not disclose the underlying confidential data or market shares. 

36 See Horizontal Merger Guidelines § 5.2. In markets for homogeneous products (such as 

ethanol), a firm may derive its competitive significance primarily from its ability and incentive to 

increase production in the event of a competitor’s price increase or output reduction, i.e., its 

available capacity. Id.
 12

 In determining the aggregate capacity of each producer, staff included the capacity of 

existing plants as well as the projected capacity of plants currently under construction and plants 

currently undergoing expansion. Staff included the capacity of these plant construction and 

expansion projects only where the producer had finalized construction plans, received the 

necessary financing for construction, and begun physical construction. According to industry 

participants, once a new plant or expansion project has reached this stage, completion is likely 

within 12 to 18 months. Incorporating capacity from such projects into current market share 

calculations is consistent with the approach set forth in the Horizontal Merger Guidelines.37

 1. Attributing Market Shares to Producers

 Under the simplest approach to market concentration, staff allocated market share to each 

producer based on the producer’s percentage of total production capacity. This method of 

calculation yielded an HHI of 291, unconcentrated under the Horizontal Merger Guidelines.38

This HHI represents a negligible increase from last year’s HHI of 288.39 

 2. Attributing Market Shares to Marketers

 

37 See Horizontal Merger Guidelines § 5.1. The Guidelines include as market participants “rapid 

entrants” – firms that are not current producers but likely would respond rapidly in the event of a 

SSNIP, with a direct competitive impact and without incurring significant sunk costs. Such 

firms have competitive significance even though they do not currently supply the relevant 

market. Rapid entrants can also include firms that produce the relevant product but refrain from 

selling it in the relevant geographic market, as well as firms that clearly possess the necessary 

capacity to supply the relevant market rapidly. This is particularly likely in markets for 

homogeneous goods when that capacity is efficient and available (as is the case with many 

ethanol plants under construction or undergoing expansion). Id.

38 The market shares implicit in these HHI calculations may suggest an analytic precision that 

does not reflect the rate of change in this industry, particularly as producers frequently announce 

capacity additions, new plants, plant sales, and cancellations of plans to build new capacity. 

Staff’s HHI calculations represent staff’s best estimate of the industry’s concentration as of 

September 2011, the cut-off date for our analysis unless otherwise indicated. This approach 

therefore excludes any more recent publicly available information. 

39 2010 Ethanol Report at 11. 
 13

 Staff’s second method of calculating market concentration is also capacity-based but 

attributes each producer’s capacity to the firm marketing its ethanol. Many producers enter into 

marketing agreements with third parties to market their ethanol to blenders and end users, while 

other producers sell their output directly. For those producers that engage in direct sales, staff 

attributed the market shares to the producers themselves.40

 An ethanol marketer may represent and make limited decisions for multiple individual 

producers, essentially aggregating these producers’ capacities under a single entity. For purposes 

of competitive analysis, attributing production capacity to marketers rather than to the actual 

producers provides a measure of industry concentration that captures this aggregation. 

 This approach yields an HHI of 585, unconcentrated under the Horizontal Merger 

Guidelines. This HHI is lower than the corresponding HHI of 606 in 2010.41 

 3. Attributing Market Shares to Marketers with Pooling Agreements

 Staff’s final approach to concentration calculation attributes a producer’s market share to 

its third-party marketer only when the marketer sells the producer’s output under the terms of a 

pooling agreement. Under a pooling agreement, the marketing firm sells its client producers’ 

volumes in common rather than individually, which allows the marketing firm to make more 

significant decisions for its client producers than a traditional marketing agreement. Although 

the specific terms of pool marketing agreements vary, pool marketers generally sell ethanol to 

customers, and assign a client plant or plants to fulfill each sale obligation. Each producer 

receives a prorated share from the common revenue pool based on the volume it contributes. 

 

40 In some instances, staff was unable to determine whether a producer marketed for itself or 

used an outside marketing firm. In these instances, staff attributed market shares to the 

producers. 

41 2010 Ethanol Report at 12. 
 14

The output from each plant generally earns an identical return, sometimes adjusted to reflect the 

cost of transportation from a plant to its output’s destination. Each producer under a pooling 

agreement receives purchase offers only from its marketer, which also represents other 

producers. By contrast, under a non-pooling marketing arrangement, the marketer sells its 

producers’ volumes on a plant-specific basis and can present each producer with offers from 

multiple buyers. 

 Because individual producers within a pooling arrangement do not participate directly in 

negotiating the sale of their output, competition among the members of a given pool is limited if 

present at all. Buyers deal only with the single marketer, which then allocates the production 

capacity within its client portfolio to fulfill its output obligations. Therefore, attributing 

production capacity to marketers only for those producers in pooling arrangements may capture 

more accurately the competitive significance of firms in the ethanol industry. Under this 

allocation approach, production volumes sold under non-pooling marketing arrangements 

contribute to the producer’s market share rather than to the non-pool marketer’s share. Measured 

in this way, the HHI is 342, unconcentrated under the Horizontal Merger Guidelines and 

essentially unchanged from last year’s HHI of 343.42 

B. Concentration with Market Shares Based on Actual Production

 At FTC staff’s request, EIA staff calculated industry concentration using market shares 

based on market participants’ actual production volumes over the past year. Using production 

data is instructive because capacity data have certain limitations, particularly insofar as stated 

capacity does not necessarily represent actual production capabilities. Ethanol plants often can 

 

42 Id. at 13. 
 15

produce as much as 10 to 15 percent more than their stated design capacities43 and tend to 

operate at increasing rates as their owners and operators improve the production process and gain 

expertise in operating their plants. In this respect, actual production may reflect a market 

participant’s competitive significance more accurately than would its plants’ capacities. 

 There are some limitations to the accuracy of HHIs based on actual production, just as 

there are limitations to HHIs based on production capacity. HHIs based on production over a 

given period may overstate or understate actual concentration due to entry and exit of firms, 

construction of new capacity, and variations in capacity utilization rates during the relevant time 

frame. Specifically, the production-based HHIs provided below do not fully reflect the 

deconcentrating impact of new facilities that began production during the last 12 months and 

plant improvements that increased capacity during the last 12 months, nor do they fully reflect 

the concentrating impact of plant closures and idlings during the period. In both cases, these 

facilities will have produced only a fraction of what they otherwise would produce in a full year, 

leading to an understatement (in the case of new facilities) or an overstatement (in the case of 

idled facilities) of their competitive significance in the market. Similarly, the HHIs below do not 

account for the effects on concentration of plant expansion, construction, and capacity-enhancing 

improvement projects that are not yet in operation.44

 EIA provided FTC staff with the final production-based HHIs contained in this report. 

Firms that produce over eight million gallons of oxygenates (such as ethanol) per year must 

report to EIA their monthly production volumes by product. These production data are 

 

43 See id.; 2009 Ethanol Report at 12; 2008 Ethanol Report at 11; 2007 Ethanol Report at 12; 

2006 Ethanol Report at 9; 2005 Ethanol Report at 12. 

44 See 2010 Ethanol Report at 14; 2009 Ethanol Report at 13; 2008 Ethanol Report at 12-13; 

2007 Ethanol Report at 13; 2006 Ethanol Report at 11; 2005 Ethanol Report at 13. 
 16

confidential. Therefore, EIA provided only the aggregated HHIs to FTC staff and did not 

disclose the volumes of ethanol attributable to any individual producer or the market shares 

based on those volumes.45 These production-based HHIs reflect actual production volumes from 

July 2010 through June 2011. 

 Where EIA attributed the actual production market share directly to individual producers, 

the resulting HHI is 284, slightly higher than the 2010 HHI of 244.46 By contrast, the 

production-based HHI calculated by attributing the market share of each producer to the firm that 

markets for that producer results in an HHI of 601, below the 2010 HHI of 671.47 Attributing a 

producer’s market shares to its marketing firm only when the marketing is pursuant to a pooling 

agreement yields an HHI of 328. This HHI is slightly higher than the comparable figure of 304 

in last year’s report.48

 C. Ease of Entry and Imports 

 Today, the U.S. ethanol industry is unconcentrated, suggesting that an attempt to exercise 

market power is unlikely. Should the industry become more concentrated in the future, an 

increase in the price of ethanol resulting from anticompetitive conduct would likely remain 

unsustainable due to both (1) the ease of entry into the ethanol industry and (2) the 

responsiveness of imports to fluctuations in the U.S. ethanol price relative to foreign prices. 

 

45 For producers for which EIA maintains production data, FTC staff provided EIA with the 

identity of those producers’ marketers and whether those producers entered into pooling 

agreements with their marketers. EIA used this information, in conjunction with its own data on 

ethanol production, to calculate the HHIs that attribute market share to marketers. 

46 2010 Ethanol Report at 15. 

47 Id. 

48 Id. 
 17

 The U.S. ethanol production industry currently lacks significant barriers to entry. 

Potential entrants can purchase and re-start existing production facilities that are currently idle as 

a result of recent economic conditions such as insufficient operating capital due to high input 

costs. In addition, construction and expansion projects – including the development of cellulosic 

ethanol plants – continue in the industry today, albeit at a reduced rate. This suggests that entry 

into the ethanol marketplace by means of building new capacity is not currently cost-prohibitive, 

although market participants have indicated that buying existing facilities is less expensive than 

new construction. An increase in supply resulting from new entry likely would make any 

exercise of market power unsustainable. 

 The probable influx of ethanol imports also would likely restrain any potential exercise of 

market power by a domestic firm. Ethanol import levels are responsive to fluctuations in the 

price of U.S. ethanol relative to foreign ethanol prices, particularly prices for sugar cane-based 

ethanol from Brazil. Consistent with this relationship, ethanol exports have continued to 

increase over the past year and import volumes have decreased due to the low price of U.S. 

ethanol relative to prices in other countries. If U.S. ethanol prices were to increase due to the 

exercise of market power by a domestic firm or group of firms,49 currently exported ethanol 

could remain in the domestic market, and imports would likely increase. The likely response of 

ethanol imports to an anticompetitive increase in domestic prices relative to foreign prices would 

render that increase unsustainable. 

 

49 The level of concentration and the large number of market participants in the U.S. ethanol 

production industry suggest that collusion is unlikely among a sufficient number of firms to 

exercise market power. In the event of such collusion (in the form of an export cartel or 

otherwise), imports likely would continue to act as a constraint on the cartel’s exercise of market 

power. 
 18

 Even if domestic ethanol production were more concentrated than it is, the ease with 

which new firms can enter the domestic market and the responsiveness of ethanol imports to 

relative price changes likely would constrain anticompetitive behavior by domestic firms. 

V. Conclusion 

 Ethanol production has remained unconcentrated over the last year. Regardless of the 

particular measure of market share or the market share allocation method used to calculate 

concentration, the low concentration levels that characterize the U.S. ethanol production industry 

have persisted. Although some of the 2011 HHIs reflect a modest increase in concentration from 

2010, the industry remains less concentrated than it was at the time of the first Report on Ethanol 

Market Concentration in 2005. While few firms initiated construction projects in 2011, existing 

plants increased their production capacity, and currently idled plants are likely to begin operation 

in the next 12 to 18 months. Furthermore, potential entry by new firms and the possibility of 

ethanol imports provide additional constraints on the exercise of market power by current 

industry participants. These dynamics make it extremely unlikely that a single ethanol producer 

or marketer or a group of such firms could exercise market power to set prices or coordinate on 

price or output levels.
 19

Figure 1: Domestic Fuel Ethanol Concentration50

Concentration Based on Capacity 2010 HHI 2011 HHI

Shares attributed to each producer 288 291 

Shares attributed to marketers for all marketing agreements 606 585 

Shares attributed to marketers only for pooling agreements 343 342 

Concentration Based on Production 2010 HHI 2011 HHI

Shares attributed to each producer 244 284 

Shares attributed to marketers for all marketing agreements 671 601 

Shares attributed to marketers only for pooling agreements 304 328 

Source: Production HHIs from EIA 

Note: Capacity for 2010 includes the capacity as of September of 2010 and the capacity 

additions under construction and expected to be completed within 12 to 18 months after 

September 2010. Capacity for 2011 includes the current capacity as of September 2011 and the 

capacity additions under construction and expected to be completed within 12 to 18 months after 

September 2011. Production data for 2010 are from July 2009 through June 2010, and 

production data for 2011 are from July 2010 through June 2011. 

 

 

50 As discussed in note 8, supra, the Commission and the Department of Justice characterize 

markets with HHIs below 1500 as unconcentrated. HHIs between 1500 and 2500 indicate 

moderately concentrated markets, and HHIs over 2500 indicate highly concentrated markets that 

are more likely to pose competitive concerns. Horizontal Merger Guidelines § 5.3. 
 20

0

500

1,000

1,500

2,000

2,500

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Herfindahl-Hirschman Index

Capacity (Million Gallons per Year) 

Figure 2: Historical Fuel Ethanol Capacity and HHIs

Capacity (Left Axis) HHI (Right Axis)

Note: Annual figures are for operating capacity and capacity under construction at year-end for 

1998 to 2004, and as of October for 2005 to 2011. The HHI figures shown are capacity-based, 

with market share attributed to the producer.