TRADE-BRAZIL: Fuel Alcohol to Sustain Sugarcane Industry

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jan 10 2002 (IPS) - There is an excess of sugar on the world market and there is a chance that production will increase further in 2002, but a greater demand for sugarcane-based alcohol could stabilise prices. Brazilian industrialists and government authorities are keeping their fingers crossed.

Brazil, as the world’s leading producer and exporter of both sugar and fuel alcohol, has direct influence over the market. The projected 15-percent rise in the country’s sugarcane harvest this year could push sugar prices down, a process that has already begun and is being announced in the international stock markets.

But “the outlook for 2002 is good,” says Cid Jorge Caldas, general manager of operations at the Sugar and Alcohol Department of Brazil’s Agriculture Ministry.

“New markets are opening for fuel alcohol” made from sugarcane to be used as a gasoline additive and to replace products that are greater polluters, Caldas told IPS. Brazil could send more of its sugarcane to the distilleries, halting the expansion of – or even reducing – sugar production, he said.

Petrobrás, the state-run oil giant, has the green light from the Fernando Henrique Cardoso government to negotiate exports of gasoline with cane-based fuel alcohol additives to Japan, reported Caldas.

India has also expressed interest in importing this alternative fuel. Because it is already a major producer of sugarcane, India could become self-sufficient in the future, and would have access to Brazilian technology. But for now will have to rely on imports, said the Brazilian official.

Programmes to replace the petroleum derivatives and lead added to gasoline to improve the fuel’s efficiency are gaining ground in the United States and in Asian and European countries, a process that will help stabilise the sugar supply and prices.

This is a long-held belief of Eduardo Pereira de Carvalho, president of the Sugarcane Agro-Industrial Union (UNICA) of Sao Paulo state, which for years has been attempting to export Brazil’s experience with fuel alcohol to other countries.

His hope, and that of the industry’s executives, is that in 2002 the idea will achieve greater impetus, benefiting the entire sugarcane economy, particularly that of Brazil.

Expectations are running high as a result of the international community’s approval of the Kyoto Protocol for reducing emissions of gases that cause global warming (despite the document’s limitations), the growing power wielded by environmentalists, and the inclusion of agriculture in the new round of multilateral trade talks under the auspices of the World Trade Organisation.

Seminars were held last October and November in Beijing and Tokyo on the use of alcohol as a fuel, which is an important step towards slowing the process of global warming because it would reduce the emission of greenhouse gases.

The Brazilian sugarcane harvest last year totalled 291 million tons, most of which was used in producing some 16 billion litres of alcohol and more than 20 million tons of sugar.

From January to September 2001, Brazil exported 7.31 million tons of sugar, 12.35 percent more than in the same period in 2000. That performance was driven by a recovery of prices, which reached 212.43 dollars per ton, an average of 15.27 percent higher than the previous year’s prices.

To take advantage of the improved prices, the industry earmarked less than the usual 60 percent of its output for sugar production.

One major problem for the sugarcane sector is that both sugar and alcohol are among the most protected commodities in international trade. For example, it is practically impossible to export alcohol to the United States due to that country’s high tariffs, Caldas pointed out.

The global free market for alcohol is limited to approximately 4.0 billion litres per year, of which Brazil holds a relatively small 12-percent share in spite of the fact that this South American giant offers the lowest production costs, at 19 cents on the dollar per litre.

In the United States, where fuel alcohol is based mostly on corn, production costs are nearly double: 33 cents on the dollar for a litre. In Europe, costs reach 55 cents.

The domestic market is thus an important alternative for absorbing the surplus. Alcohol is the only fuel used by approximately three million automobiles circulating in Brazil. The rest – some 15 million vehicles – run on gasoline that has fuel alcohol as an additive.

Alcohol had represented 22 percent of the total volume of the gasoline being pumped at service stations, but Brasilia decided to elevate the portion to 24 percent beginning Jan 1 in a bid to stimulate demand and support the sugarcane economy.

Furthermore, the last two months of 2001 saw renewed interest in alcohol-fuelled vehicles, prompting the automobile industry to step up activity on its assembly lines.

But it is a just a drop in the ocean. There was a time in the 1980s when this type of vehicle represented more than 90 percent of the Brazilian car industry’s output, but today it is just one percent.

From January to October 2001, just 11,590 vehicles that run exclusively on fuel alcohol were manufactured here. The real solution, say analysts, will have to originate in the international market.