US Opens Market for Brazilian Ethanol

By Sam Cowie, Contributing Reporter

RIO DE JANEIRO, BRAZIL – As the world’s second largest ethanol producer (after the U.S.), Brazil slipped into a rather enviable position on Friday when U.S. Congress dropped its ethanol import tariffs. According to industry experts, the long awaited move could see Brazilian ethanol exports increase by tenfold over the next decade, due to demand for Brazil’s sugarcane-based ethanol that Brazil claims is cheaper, cleaner and more efficient.

An immediate increase in Brazilian ethanol exports is considered unlikely, as Brazil is currently struggling to cope with its own weighty domestic ethanol demands. Instead, it is believed that the lift on restrictions will signal long term investments and trade for Brazilian ethanol producers.

Brazil lifted its own tariff in 2010 due to shortage of supplies. The move was celebrated by The Brazilian Cane Sugar Association (UNICA), who produces Brazilian sugarcane-based ethanol.

“For the first time in over three decades, the U.S. opened the market for imported ethanol. [The] U.S. and Brazil account for eighty percent of ethanol in the world, and now there is no charge for this fuel. It is an important step towards consolidating ethanol as an International commodity”, said Leticia Phillips, UNICA’s North America representative.

The existing tariff of 54 cents a gallon on ethanol imports will expire on January 1, 2012, as will subsidies of 45 cents a gallon given to U.S. blenders, worth US$6 billion a year.

Brazilian export currently stands at six percent of production. President of UNICA, Marcos Jank, said Friday that the end of the import tariff on Brazilian ethanol will boost sales for the U.S. market, reaching an export volume of 15 billion liters by 2022. Brazil currently exports the equivalent of 1.5 billion liters (sixty percent for the U.S.) and produces a total of 25 billion liters per year.

Brazilian sugarcane-based ethanol is credited with a smaller carbon footprint than U.S. made corn-based ethanol and currently sells at a premium in California. Brazil, however, imports U.S. ethanol because of tight domestic supplies. It’s essential that increased export demand doesn’t drive up domestic prices.

Adriano Pires, Brazilian Center for Infrastructure (CBIE), notes that opening the U.S. market comes at a time that Brazil’s production is failing to meet demand.

“In addition to creating a new pressure on prices, it shows that we are in the wrong direction. While we import ethanol and increased our consumption of gasoline, a dirty fuel, the U.S. go in the opposite direction, encouraging clean fuel”, he said.

Sugarcane ethanol is a major fuel source in Brazil. Approximately half of Brazil’s auto fleet (around 15 million cars) have flex-fuel engines where drivers choose between filling their tanks with hydrous ethanol – a pure alcohol fuel – or gasoline, which contains a government-mandated twenty percent anhydrous ethanol.

Domestic shortages can be pinned to a number of issues including a recent expansion in fuel demands. The sugarcane industry was also battered by the 2008 global financial crisis, with many farmers and processing plants falling into bankruptcy.

Climate problems have damaged harvests, leading to ethanol shortages earlier this year and a corresponding sharp jump in prices and surge in imports. The Brazilian government has since moved to introduce regulations that it hopes will ensure there will be sufficient ethanol supplies in the future.

“The domestic market is still our priority”, said Marcus Jank. “We slowly increase exports of seven percent to ten percent, for example. I’m sure, after the U.S., we have the recognition of European countries and Japan.”