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Brazil's ethanol industry examined in USDA study

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Brazil's ethanol industry examined in USDA study
Willmar Minnesota 2208 Trott Ave. SW / P.O. Box 839 56201

WILLMAR -- The Energy Policy Act of 2005 established the first renewable fuel volume mandate in the United States. It required that 7.5 billion gallons of renewable fuel be blended into gasoline by 2012.

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Under the Energy Independence and Security Act of 2007, the original renewable fuel standard was expanded to include diesel fuel. It also increased the volume of renewable fuel required to be blended into transportation fuel to 36 billion gallons by 2022.

To meet those standards, our nation will need to devote significant monetary, scientific and human resources into research and infrastructure improvements. We will also need to develop and expand the use of renewable biomass sources beyond today's two primary sources -- corn and soybeans.

One country that has been a leading producer and supplier of ethanol in the world market is Brazil. However, ethanol produced in Brazil is made from sugarcane, a biomass source that is rarely mentioned here in the United States.

A new in-depth study of Brazil's ethanol industry was recently released by Constanza Valdes, a researcher from the U.S. Department of Agriculture's Economic Research Service. The study provides some rather interesting and perhaps surprising data regarding Brazil's ethanol industry, its transportation system, governmental policies, sugarcane production and the use of sugarcane for biomass.

Ethanol is a fuel produced from agricultural and other organic materials that is considered one of the best alternatives to petroleum for transportation fuel since its use reduces the levels of carbon monoxide and carbon dioxide emissions relative to fossil fuel use.

According to the Environmental Protection Agency, sugarcane ethanol reduces greenhouse gas emissions by 61 percent, when compared with emissions from gasoline. Therefore, in terms of greenhouse emissions, tropical sugarcane is considered the most efficient ethanol feedstock.

But in addition to reduced emissions, researchers have also found that the energy yield ratio of sugarcane-based ethanol is 4 to 6 times greater than the energy yield ratio of corn-based ethanol.

Brazil's ethanol production in 2010 was equivalent to 38 percent of worldwide production, second only to the United States, the world's leading producer since 2006.

Brazil is also the world's second largest ethanol consumer behind the United States. Brazil's ethanol consumption accounts for 31 percent of global ethanol consumption.

In Brazil, two types of ethanol are produced -- anhydrous or pure ethanol, and hydrous. The anhydrous ethanol is typically blended up to 10 percent with gasoline for use in unmodified engines, and up to a maximum of 25 percent for engines with modified calibration systems to detect the higher oxygen of ethanol blends.

Hydrous ethanol, or E-100, is used in 100- percent ethanol-fueled vehicles and the new "flex-fuel" vehicles.

Ethanol accounts for more than 56 percent of the gasoline used in Brazil, compared with 8 percent in the United States.

Brazil's vehicle fleet totals 26 million units or about 10 percent of the fleet size in the United States. Flex-fuel cars account for 60 percent of the total ethanol demand in the country. About 87 percent of new cars and trucks sold in Brazil are flex-fuel; the remainder run on diesel.

Government policies have played an important role in increasing the demand for hydrous ethanol and for increasing Brazil's flex-fuel vehicle fleet. Automobile manufacturers have been given tax breaks to produce cars that run on hydrous ethanol.

Production and use of sugarcane-based fuel in Brazil began in 1975. Until 1999, the country's supply of ethanol feedstock was stimulated by decades of government support provided through controls over producer prices for sugarcane.

To stimulate demand, the Brazil government implemented ethanol legislation that established mandatory blending targets and subsidized continuous advances in the automobile industry for more efficient use of ethanol.

The sugarcane sector is a major component of the Brazilian economy. In 2008, the sector generated 4.4 million jobs -- 1 million directly and 3.4 million indirectly.

Planting of sugarcane in Brazil occurs year-round. The sugarcane area in Brazil has expanded considerably, growing 3.3 percent per year from 1975 to 2010, four times the annual average growth of the total area harvested for all field crops. In terms of area harvested, sugarcane is Brazil's third-leading crop, produced on about 68,000 farms.

Sugarcane harvesting is done by stem cutting, with the first cut made 18 months after planting and then annually for five years, with yields decreasing for each of the cuttings.

The development of higher yielding sugarcane varieties in Brazil has been a principal focus of research aimed at attaining higher sucrose content and higher stalk water content.

Currently, about 55 percent of the sugarcane crushed in Brazil is being distilled into ethanol, with the remainder used for sugar production.

In 2010, Brazil had 430 ethanol producing plants, compared with about 170 ethanol facilities in the United States. The rapid growth of the industry in Brazil is evident by the fact that over the past five years, 138 new ethanol plants have come into production.

Average ethanol production costs in Brazil are estimated to be 58 percent lower than those for corn ethanol produced in the United States, 30 percent lower than those of wheat ethanol, and 28 percent lower than those for beet ethanol produced in the European Union.

Brazil's production costs are lower because of the competitive pricing of sugarcane. In 2009-10, sugarcane feedstock purchases accounted for 60 percent of the total ethanol production costs in Brazil.

The distribution of ethanol in Brazil uses the same crude oil transport network controlled by Brazil's state-owned oil company and its subsidiary company, which operates the transport network.

Prior to 1997, the Brazil government capped ethanol prices at 60 percent of domestic gasoline prices. With deregulation, the government eliminated the cap but continues to intervene in fuel pricing through price controls on gasoline and a preferential tax treatment on anhydrous ethanol.

Brazil provides blenders with a tax exemption on anhydrous alcohol as an incentive to ensure ample supply to meet mandated blend rates, but it taxes hydrous alcohol used in flex-fuel vehicles.

Up until 2008, Brazil was the world's largest supplier of ethanol, accounting for over 62 percent of the ethanol export market each year.

In 2009, a major shift occurred as conditions changed in major markets and the United States became the world's largest ethanol exporter. That year, U.S. ethanol prices followed the downward trend in global oil prices, while Brazilian anhydrous ethanol prices remained high and became uncompetitive in the world market.

To see the entire report regarding Brazil's ethanol industry, visit USDA's Economic Research Service website at www.ers.usda.gov.

Wes Nelson is executive director of the USDA Farm Service Agency in Kandiyohi County.

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