Agribusiness company Cargill Inc CARG.UL is expanding in the corn-based ethanol business despite a sluggish demand outlook for the renewable fuel, the head of the company\'s corn milling group said on Thursday. Alan Willits, president of Cargill Corn Milling, said the company is on track to spend $200 million retrofitting and expanding a corn processing facility in Fort Dodge, Iowa, that will employ 200 and open by the fourth quarter of 2013. \"Biofuels have an important role to play as a fuel source in North America,\" Willits said in an interview at the Reuters Food and Agriculture Summit. \"We want to be a part of that whether it\'s serving our farm customers or our food customers. We don\'t think we can be relevant to them if we don\'t have some skin in the game relative to biofuels. That was one of the motivations to invest in that facility.\" Minneapolis-based Cargill, a global commodities giant with annual sales of $119.5 billion in the year ended May 31, 2011, is one of the top 10 U.S. ethanol producers with about 215 million gallons a year - 180 million produced at its Blair, Nebraska, corn mill and another 35 million at its Eddyville, Iowa, mill. Fort Dodge, with a target of 115 million gallons a year, will provide a substantial boost. The investment comes at a time when ethanol - which has seen a huge boom in recent years to meet a federal government mandate to produce home-grown biofuels - is stalled. Willits pointed to \"a blending wall\" created by a limit on refiners mixing in a maximum 10 percent ethanol to gasoline fuels. \"We\'re not going to be flipping a switch and going right to E-15,\" he said. The industry is waiting for a proposed expansion of that allowable blend to 15 percent, but implementation of the new limit is stuck, awaiting EPA and state regulatory approvals for ethanol\'s use in newer model cars, made in 2001 and later. In addition, EPA has yet to approve E15 use in older automobile models amid concerns about the effect of ethanol on combustion engines - and the liability for damage to them. \"It\'s very economical to blend ethanol today,\" Willits said, with ethanol prices 80 cents to 90 cents a gallon under the cost of wholesale gasoline. \"But the reality is this liability issue that exists around going beyond E-10 is not an easy issue to resolve. It\'s going to be a challenge for the industry.\" U.S. ethanol output was 13.9 billion gallons in 2011, with exports of more than 1 billion gallons also a record. The Renewable Fuels Association (RFA) estimates output will reach 14 billion gallons this year. The 2007 federal Energy bill mandates U.S. corn-based ethanol output must reach 15 billion gallons by 2015, or roughly 10 percent of the fuel burned by cars and light trucks. RFA, the ethanol trade group, says it is optimistic that E15 may be allowed on the market by the summer of 2012. But Willits said Cargill was not counting on E15 being widely available any time soon, given regulatory approvals and other factors, such as shortages of ethanol pumps at rural filling stations. So in effect, the 10 percent blend limit is effectively a ceiling on the amount of ethanol that can currently be consumed in the United States. The end of a \"blender\'s credit\" on January 1 also removed a tax incentive for refiners to blend. \"Unfortunately, the installed capacity is higher than that ceiling,\" he said. \"That\'s why you have ethanol trading at 80-90 cents a gallon discount to wholesale gasoline; to encourage that blending. It\'s also why U.S. based ethanol is the cheapest today in the world. We exported over a billion gallons of ethanol last year outside the United States and we will certainly export a significant amount this year.\" But Willits said Cargill\'s commitment to the industry is long-term and will not be affected by the debate this year. \"Ethanol today is trading at something close to variable costs, so we are seeing some plants slow down or even consider closing. Markets work, that will have an impact over time,\" Willits said of the supply-demand fundamentals in ethanol. The production leader in ethanol is Archer Daniels Midland Co (ADM.N), with about 1.75 billion gallons of annual capacity in the United States, according to the RFA.