News and Politics
Corn v. Sugar Cane and the Unites States v. Brazil
by Fernanda Katz, SUNY Cortland, May 21, 2007
Brazil is betting all its cards on ethanol as the real thing as an oil substitute. So ethanol would be the most probable alternative for oil. For a country like Brazil, if ethanol turns out to be the alternative for oil, it would be like winning the lottery, since Brazil is considered, along with the United States, as one of the bigger ethanol producers.
Recently, ethanol has been moving an obscene amount of money in the international market. Just in 2005 the ethanol market generated around 6 billion dollars in business. In 2006, the numbers jumped to almost 10 billion dollars. And for 2010 the estimated numbers must reach 15 billion dollars in this sector.
Brazil differs from the the Unites States, which gets its ethanol from corn. Brazil gets its ethanol from sugarcane, which is much more cost-efficient. From each sugarcane hectare planted, you can get 6800 liters of alcohol. The liter of talcohol made from sugarcane costs 20 cents. And the machinery producing the alcohol uses electrical energy which is actually produced by the sugarcane. Apart from that, Brazil has perfect territorial extension and water reserves for large-scale production of ethanol and great climate conditions.
Although Brazil’s scenario looks perfect and ready to gain the ethanol market, there are some downsides. Brazil, in order to get and keep the first place in this race, has to invest hard. Currently, the country is lacking investment in science and technology to ensure the success and continuity of the project. Brazil will have to develop new types of sugarcane resistant to other climates and to insect infestation. Also, the infrastructure set up in Brazil is expensive and slow when it comes to delivering the product to the sellers’ hands. Brazil does not have a good train system; everything or almost everything travels through trucks. Thus, it becomes expensive and slow. Another downside is number of ports available that can be used to ship alcohol outside the country, which is really few. For this latter problem, Brazil is coming with a solution that has not been put in practice yet. A possibility is the creation of a alcohol pipeline through which the alcohol can travel from one point to another in the country. The picture looks good for Brazil, but the country cannot stop investing.
The ethanol produced by the United States, on the other hand, generates 3200 liters of alcohol for each hectare planted. The liter costs 47 cents. And, besides all that, the process depends on the energy generated by charcoal, oil or natural gas, which makes it even more expensive. Nonetheless, United States has the money and the resources to invest in new studies and technology developments to improve the profitability of the ethanol process.
Even though Brazil and United States are the bigger ethanol producers in the world, the negotiations between the countries as far as ethanol goes are slow but continuous. The countries don’t have bilateral agreements with each others and the way negotiations are going they will not have one so soon. The United States has a high protective policy of their agriculture products; therefore the Brazilian ethanol getting into the country is taxed very high. The product leaving Brazil is taxed on 54 cents of a dollar, increasing the cost of the product inside the United States making it less marketable.
On the other hand, in order for both countries to achieve a bilateral agreement, Brazil would have to accept certain demands from United States, and Brazil is not willing to do that. So an agreement between the two super powers of ethanol will probably not happen in the near future.
Meanwhile Brazilian companies in the private sector resent the situation and are literally using a short cut. They are establishing themselves in countries of South and Central America that have a bilateral agreement with the United States, producing the product in those countries and enjoying the benefits that those countries have with the United States. The result: their product gets in the United States tax free. Their explanation for the way they are functioning is that since the government doesn’t do anything to improve exporter businesses, they need to do something for themselves, and they are doing.
It is an interesting maneuver and it is working so far, but the main questions still remain: is ethanol the real thing? If it is, what are the consequences, especially for Brazil, if the two most important countries when it comes to ethanol production don’t work something out?
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