Monday, January 12, 2009
Will The Brazilian Ethanol Machine Challenge US Renewable Fuels Policies?
The corn market, and to an arguable extent, the soybean and wheat markets, have been a function of the demand for ethanol and the US renewable fuels policy. That policy sets annual targets for ethanol production and keeps in place a subsidy for fuel blenders and a tariff that make foreign produced ethanol more expensive when it enters the US market. Next to the US, the world’s biggest ethanol producer is Brazil, which converts sugarcane to fuel, and runs a substantial amount of its motor vehicle traffic on ethanol. But is Brazilian ethanol a real competitive threat to the Midwestern corn grower?Brazil has nearly doubled its ethanol production since 2003, and will produce over 7 billion gallons in its current marketing year, compared to the 9 billion in the US, according to Don Hofstrand, in the January Iowa State Ag Decision Maker. Hofstrand says Brazil initiated a renewable fuels program in the 1970’s during the high oil price era, and kept building it into today’s robust ethanol program.
Brazil’s sugarcane industry is the primary supplier of the feedstock for ethanol. The canes are chopped and crushed to produce sucrose which is converted into ethanol. The remaining fiber is burned to produce the electrical energy needed to refine the sugar into ethanol. Hofstrand says new laws are designed to reduce the smoke that pollutes the air. Also, the sugarcane has traditionally been cut by hand, but manual labor is being replaced by machinery in the harvesting process. He says excess energy from the co-generating plants is used to feed the Brazilian electrical grid.
In comparison to corn, sugarcane is planted only once in six years, with five annual crops before it requires replanting. Sugarcane produces 35 tons of cane per acre, compared to 8.4 tons of 150 bu. corn. An acre of sugarcane produces 560 gallons of ethanol, compared to 420 gallons of ethanol from an acre of 150 bu. corn. The sugar ethanol is cheaper to produce than corn ethanol, both in the cost of crop production and in the cost of refining it into ethanol. Brazil has 9 million acres of sugarcane converted annually into ethanol, which is only 1% of its arable land base, while the US has 28 million acres of corn converted annually into ethanol, equal to nearly 4% of the land base. Current Brazilian governmental policies do not include either subsidies or tariffs comparable to the US renewable fuels policy, however the policy does call for planted acreage to reach 25 million acres by 2012.
Regarding future expansion, Hofstrand says Brazil can greatly expand sugarcane production without an impact on any other crop, while any US expansion of corn production for ethanol will come at the expense of either soybeans or wheat production. He says Brazil has made substantial governmental investments into research that will improve sugarcane production, focused on drought and pest resistance, as well as yield and overall sugar content. He says yields have tripled in the past 30 years.
Research has also been focused on using the entire sugarcane plant for ethanol production, not just the sugar content, which Hofstrand says will allow ethanol production per acre to double. Ethanol production in Brazil is expected to grow from the current 7 billion gallons per year to 10 billion gallons by 2012.
Summary:
While Brazil is currently second behind the US in world ethanol production, its plans for expansion are in nearly lockstep with the US renewable fuels policies. Brazilian ethanol comes from sugar, which produces more ethanol per acre than corn, and is produced at a lower price per gallon. While the US maintains a tariff on imported ethanol, some Brazilian ethanol does enter the US market at competitive prices. Over time, Brazil will have the opportunity to produce even more ethanol at a lower price than the US, which will challenge current US renewable fuels policies.
Posted by Stu Ellis on 01/12 at 01:05 AM | Permalink
Comments
Posted by: George Scott at January 13, 2009 11:11AM
Soon or later U.S. will have to decide:to grow soybeans and wheat to eat or corn to produce ethanol. It will be a dilemma. Sooner,the subterranean water deposits in the middlewest will dry, and then U.S. will have to import food…It will be a catch… Or get elsewhere by the guns…as usual…It will be piracy, crime, not the alleged “free and fair trade”.
Posted by: O.P.GERACI at January 23, 2009 12:12AM
““Current Brazilian governmental policies do not include either subsidies or tariffs comparable to the US renewable fuels policy”“
If you research the ProAlcool Program that started in Brazil in the 1970’s you will find that Brazilian ethanol has been supported by billions of dollars in government money.
Currently there are said to be no direct subsidies but there are still several indirect subsides. One example is through interest subsidies to farmers and sugar mills. Hydrous ethanol E-100 (aprox 95% ethanol and 5% water)also is taxed much lower than thier Gasoline C (25% Ethanol added).