Brazilian ethanol takes a hit!

Brazil, a country, that uses 50% of its gasoline market in the form of ethanol which is primarily extracted from sugarcane is now facing challenges in meeting the demands of ethanol production due to the torrential rain in 2009 as described in the article. Due to the rain, the amount of sugarcane produced (530 million tons of sugarcane) did not meet the expected yield of 580 million tons of sugarcane. Before this loss, Brazil was considered as one of the leading countries in ethanol production from sugarcane and houses advanced industries having dedicated ethanol pipelines, usage of “Flex-Fuel” vehicles, and retail fuel stations with standalone “E85” pumps. As stated in the article, “According to the Brazilian ethanol trade group UNICA, Brazil uses less than half the landmass (7.6 million acres vs. 15.6 million acres) that the U.S. uses for ethanol, translating to 1% of the total available arable land in Brazil.” Moreover, Brazil generates ethanol from sugarcane that has significantly lower emissions as opposed to corn-based ethanol that is mostly generated in the US. Sugarcane-based ethanol has low emissions since sugarcane bagasse can be burned and utilized to produce heat and power. The difference in the carbon emissions is so significant that it is worth mentioning: CO2 emissions generated from a liter of Brazilian ethanol can be as low as 0.2-0.3kg CO2/liter whereas that from a traditional gasoline is 2.8 kg CO2/liter – a 90% reduction in CO2 emissions!

The article also presents a broader concept of the problem created due to less sugarcane production. While the demands are still high for sugarcane-based ethanol, due to less production of sugarcane, prices of sugarcane have gone up and people have therefore started diverting the use of sugarcane for food instead of ethanol production. The government has further reduced the amount of ethanol contributing to the country’s gasoline supply from 25% to 20%. In addition, taxes on gasoline has been reduced which further results in the Brazilian ethanol being less competitive than gasoline. Adding more perspective from the US’s side, the US will need to use lots of corn to meet the demand of corn-based ethanol. However, with increasing population, there will need to be a good balance between the supply and demand and there is a high possibility of the prices of both corn and corn-based ethanol to go up. In this light, the article states that since Brazil will continue to produce more sugarcane since now that its demand is high, eventually, the price of sugarcane will be lower since supplies will be higher.

In this way, the article talks about how the US could make use of the sugarcane-based ethanol generated in Brazil as well as the export conditions in the long run. I found this article to be interesting and diplomatic. It takes into account the many scenarios that might occur when a supply fails to meet the demands in the market. However, Brazil still has a bright future in terms of gasoline market as the article mentioned about the joint venture of Shell with Cosan, a Brazilian conglomerate producer of bioethanol with the investment $1.63B of capital!


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