Brazil gives big sweetener for sugar biofuel
By Joe Leahy and Samantha Pearson in São Paulo
Brazil’s state development bank has announced billions of dollars in incentives to boost the country’s sugar ethanol industry.
The move comes only days after the US scrapped import tariffs on foreign producers of the biofuel.
The bank, known as BNDES, said it would lend 4bn real ($2.2bn) to the industry in a move that is expected to increase Brazil’s sugar harvest and boost ethanol production by up to 17.5 per cent.
“With the increase in availability of the raw material, the expectation is that production of ethanol will rise by 2 to 4bn litres between 2013 and 2014,” BNDES said on Wednesday.
Moves by the Brazilian government to support its ethanol industry will anger rivals in the US, where budgetary considerations led to policymakers allowing a long-standing system of subsidy and import tariff protection for local producers of the fuel to expire on December 31.
The removal of the US protections was hailed as a great victory in Brazil. But critics point out that Latin America’s largest economy will not be able to take advantage of the changes immediately because it lacks sufficient ethanol to supply its own needs, and was forced to import from the US last year.
Brazil’s sugarcane ethanol is more efficient and environmentally friendly to produce than US corn-based ethanol, and the country has a bountiful supply of land, sunshine and water for its plantations.
“This [US] decision [is a] historic decision for our sector,” said Géraldine Kutas, head of international affairs at Unica, Brazil’s sugarcane industry association.
She said the US move would benefit Brazil only in the medium and long-term when it was able to boost its national harvest sufficiently.
Brazilian production of ethanol declined 17 per cent in the 2011-12 season, for the first time in a decade, to 22.8bn litres. While it still exported 1.64bn litres to the US, Brazil imported 1.66bn litres, mostly from its North American rival.
The drop in Brazilian production was caused by the fallout of the 2008 financial crisis, which led to under-investment in the country’s plantations. Domestic demand also increased on the back of rising car use in Brazil.
Unica calculates that Brazil will need to increase the area of sugarcane plantations from 9m hectares currently to 15m in order to meet domestic demand and its target for exports to the US of 15bn litres by 2020.
The latest BNDES package is aimed at renovating or enlarging up to 1m hectares of plantation. The bank said it believed that the loans would be directed towards ethanol production, given that many distilleries around Brazil were running under capacity because of financing problems.
Brazil’s ethanol policy has already sparked fury in the US, where the Renewable Fuels Association (RFA) has called on the US Chamber of Commerce to denounce what it calls “ethanol trade distorting policies” in the Latin American country.
The RFA pointed to Brazil’s decision late last year to reduce the volume of ethanol that can be blended in petrol from 25 to 20 per cent, saying the move had “no other reasonable justification than to reduce the volume of US exports of ethanol to Brazil”.
Copyright The Financial Times Limited 2012. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web. |
