Ministry of Agriculture, Livestock and Food Supply - Embrapa

Institutional model
Until 1990 the sugar & alcohol industry evolved owing to heavy
governmental intervention, which has been defended since colonial times by
the strategic role played by sugar exports, an argument later strengthened by
the introduction of alcohol in the Brazilian energy matrix.
After the Sugar and Alcohol Institute (IAA) was terminated in 1990, the
sugar & alcohol economy was gradually deregulated until almost total
liberalization. In 1999 the responsibility for coffee, sugarcane, sugar and to a
certain extent alcohol was finally transferred to the Ministry of Agriculture,
Livestock and Supply (Mapa). The ministry's structure was modified to include
a Production and Commercialization Secretariat and a specific department
for sugar and alcohol13 .
Despite the liberalization, the government must have market regulation
mechanisms for the alcohol sector because of the some characteristics of
the fuel alcohol market, as shown below.
Seasonal production. Like other agricultural products, alcohol is
produced during the sugarcane harvest months, although consumed year
round. This requires building up stocks in order to minimize price fluctuations
and the risk of fuel scarcity between harvests.
Strategic product. Because of its strategic nature, the widespread
use of fuel alcohol and the fact that no adequate substitute is available, an
insufficient or excessive alcohol supply could generate fuel market crises
and undermine consumer trust, as was the case in the late 1980s.
No international market. Since there is no significant international
market for the product, it would not be possible to buy or sell large volumes of
fuel alcohol in times of scarce or excessive supply in the domestic market.
Underdeveloped intermediation sector. Until recently more than 90%
of the fuel alcohol production was purchased by fuel distributors, which were
never interested in building up fuel reserves and left that task and resultant
investments to producers. When alcohol becomes a commodity foreign buyers
will probably impose a change of strategy by encouraging, for example, a
futures market. In this case the new strategy could contemplate reducing the
producers' risks and costs associated with keeping fuel alcohol reserves.
Because of its technical and economic characteristics the sugarcane
economy tends to verticalization, which progressively excludes small- and
13 Since February 2005 the ministry's structure has included the Secretariat for Production and
Agroenergy (SPAE) and the Sugarcane and Agroenergy Department.
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