Production and use of fuel ethanol in Brazil - BAFF

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decision. In most commercially available models, finish configurations and optionals
wind up having an impact on the price, in monetary terms, much higher than that
of the differentiated IPI rate. Such differentiation is but an attempt to internalize in
the market price the environmental benefit provided by a vehicle that runs or can
run exclusively on ethanol.
c) Flexibility in sugar and/or ethanol production
There are those who say that producing sugar and ethanol at the same time makes
the Brazilian sugar artificially more competitive, thereby benefiting manufacturers
and sustaining the country’s presence in the international market for the product.
We must bear in mind, however, that what goes on with ethanol in Brazil is not
different than what goes on in all other sugar-cane economies in the world whenever
the sugars contained in the molasses are sold. The only difference is the product in
question. In Brazil, the sugars contained in the molasses are transformed and sold in
the form of ethanol, currently obtaining a variable income, which varies according
to market fluctuations.
Producing sugar and ethanol from the same raw material (sugar-cane) and at the
same time is now exclusively a business option in which the government has no
participation.
In reality, even though ethanol and sugar prices in Brazil’s domestic market are
determined by free market and competition rules, given that the ethanol marketing
cycle time is much shorter than that of sugar (ethanol is produced in six to eight
months, depending on the region and climate, and sold by producer over the twelve
months of the year), the cost of storing ethanol reflects in its market price, in the
form of a price that, on a comparable basis, tends to be (particularly during grinding)
lower than that obtained for sugar.
In practice, when the characteristics of the activity and the reality of the markets are
taken into account, it is the remuneration obtained from the sugar that makes up for
the lower remuneration that is obtained through ethanol sales. Therefore, ethanol
does not generate the alleged surpluses that would supposedly be used to cover
sugar costs; quite the opposite, it is the revenues from sugar sales that compensate
for the losses resulting from the maintenance of stocks of that fuel.
An industry’s diversification is not a practice condemned by the WTO, even if it
leads to cost reductions. The economies of scale arise out of the very size of the
domestic markets for sugar and ethanol in Brazil. Around 60 percent of the total
recoverable sugar produced each crop are consumed locally in the form of sugar
and ethanol.
A. Fuel ethanol: Activities in Brazil and the world context