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Sunday, May 28, 2006 11:00:10 PM
WARREN BUFFET ON ETHANOL
Question: What is your opinion on the economics of ethanol as a fuel additive, and as a potential investment? Should I be looking at that industry?
WB: Charlie and I don't know enough to answer that latter part. We've been approached many times, but we're trying to figure out the economics of an ethanol plant. It will depend on many factors, such as government policy and a lot of other variables we're not good at predicting. It's also a very hot area for investors right now, and our general experience is that we don't participate in things that are hot and easy to raise money for. I have a son who is head of the Ethanol Board in Nebraska. When he starts making more money than me, I'll reconsider. There's no question that usage will grow, but generally speaking, agricultural processing firms have not earned high ROICs. Look at Cargill, ADM (NYSE: ADM). It has not been a great business. Ethanol could prove to be an exception, but I'm not sure how you gain a significant competitive advantage with any particular ethanol plant.
CM: My attitude is even more hostile than Warren's. I have just enough knowledge of thermodynamics left in me to suspect that it takes more fossil fuel energy than you can get out of ethanol, and that's a very stupid way to solve an energy problem.
WB: I have friends who like ethanol and friends who don't like ethanol, and I want my position to be perfectly clear: I am for my friends. [Laughter]
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