It is difficult to separate the ethanol industry from the sugar industry as a whole given its participation in a larger agro industrial matrix that emerges from the sugar cane crop. It is estimated that the whole complex represents 2% of Brazil’s GDP, but ethanol also provides 15.7% of Brazil’s primary energy supply. This results in Brazil having 43.5% of its primary energy needs covered by renewable energies and triple the world average of the use of renewable energies (13.2%). Furthermore, 72% of the light vehicles work with flex engines or completely with ethanol.
Once more, we start a trip into one of the greatest agricultural producers and exporters of the world: Brazil. In the last edition of our weekly magazine, we wanted to briefly reflect on why Brazil is considered a giant among giants in the food supply industry. This time, we will concentrate in the Brazilian bioethanol production, which finds itself not quite related to the grain complex, given that its main ingredient is sugar cane.
Although ethanol has many uses (elaboration of inks, solvents, coatings, etc.), the bulk of its domestic demand comes from its fuel use for transportation. Given that Brazil is the 4th largest consumer of transport related product and top fuel consumer in South America, it is not surprising to find policies that look to incentivize the use politics of alternative energy sources.
In Brazil, ethanol had already been used as an additive for fuel since the 1930’s, but it was not until the launch of the Proalcool program in 1975 that the industry really took off. Its main objective was to promote the production of sugar cane ethanol to be used in automobile transport, diminishing the dependence on fossil fuel imports.
Brazil established a mandatory 4.5% ethanol blend in 1975, which rose progressively. Current legislation contemplates a range 18% - 27.5% blend range, but as of the latest term, in force since 2015, the blend rate sits at 27%.
In an excellent report called “Brazil Biofuels Annual 2010”, prepared by the USDA agricultural analyst Sergio Barros, we can see the different politics implemented by Brazil in order to promote biofuels. Although the initial goal of the government of Brazil was to substitute between 500 and 3,000 million liters of fossil fuel used in transportation for the year 1979, by 1980 the 3,000 million liters of ethanol production target had been exceeded. Between 1979 and 1989, policy focus is shifted towards the production of hydrated ethanol, increasing the industry’s capacity and the sugar cane crop expansion. By 1990, the ethanol production had grown to 12,000 million liters. Since then up to 2001, the ethanol industry went through difficult moments and setbacks due to the fall in oil prices and rising the sugar prices. However, at this point, the foundations of an industry in which ethanol was a key part of the Brazilian economic matrix were firm. In 2003, with the launch of flex-fuel technology (which enables cars to run indistinctly with fuel or ethanol), the private sector jump-started the industry. Presently a high dose of mandates and fiscal incentives persist, but the Brazilian government has started to revise fiscal stimuli while leaving mandates in place.
With the current mandate of a blend of 27%, Brazil produced 29,900 million liters of ethanol in 2015, while in 2016 production declined to 28,700 million liters. This reduction obeys to the impact of the economic recession on the consumption of fuel. According to Sergio Barros, 87% of ethanol demand comes from fuel consumption. CONAB estimates that over the 2017/18 marketing year Brazil will produce less ethanol, about 26,450 million liters vs. 27,810 million liters for the 2015/16 MY. This drop would be related with lower sugar prices, as well as higher prices for hydrated ethanol resulting in more demand for anhydrous ethanol. Readers should be careful not to mistake these production figures with those from the first sentence in this paragraph, which correspond to the calendar year.
The Brazilian government aims to reach a 24% level for biofuels’ share in total demand for transport by 2030, at least according to the Paris Agreement. In order to do so, it would need to increase ethanol supply to around 54,000 million liters (total supply currently hovers around 30,000 million liters).
Beyond this commitment, it is interesting to observe the following chart, which shows how renewable sources of energy represented almost 44% of Brazil’s total primary energy supply in 2015, trebling the world average. Sugarcane, the main raw material used in ethanol production in Brazil, provides by itself 15.7% of total primary energy supply; surpassing gas-based supply, hydroelectric energy, and little less than half than oil and its derivates.
As previously mentioned, sugarcane is the main raw material used in Brazil’s ethanol production. CONAB estimates that sugarcane production for the 2017/18 MY will reach around 647.6 million tons, produced in an 8.84 million hectares surface, which would represent a 1.5% year-to-year drop. The following maps presents the distribution of sugarcane production. 62% of total production comes from the southeast region, and if we add the center-west region, we can find around 82% of total sugarcane area.
As a result of sugar cane processing Brazil obtains 38.7 million tons of sugar and 26.5 million tons of ethanol. However, the following chart shows that 54% of total sugarcane supply is destined to the ethanol industry.
This sugarcane production levels, and their resulting industrial by-products, position Brazil as one of the main producers and exporters of the sugar industry.
Going back to the question posed by the title, we can safely say that the ethanol industry has many objectives, but that energetic self-sufficiency and ecological sustainability are in the forefront. The sugar and ethanol industries represent around 2% of Brazil’s GDP. If we focus our attention to exports, we will appreciate that the sugar and ethanol industry rank third overall, having generated USD 11,340 million in currency inflows in 2016, a 33% year-over-year rise. Part of such increase is related to tightness in the global sugar market, which has resulted in higher sugar prices, and Brazil has seen its market share increase thanks to a weaker real.
- ANP o Agência Nacional do Petróleo, Gás Natural e Biocombustíveis, Superintendência de Defesa da Concorrência, Estudos e Regulação Econômica. http://www.anp.gov.br
- MAPA o Ministério da Agricultura, Pecuária e Abastecimento, Secretaria da Produçáo e Agroenergia, Departamento da Caña-de-Açúcar e Agroenergia. http://www.mapa.gov.br
- “Acompanhamento da Safra Brasileira: Cana-de-açúcar. Safra 2017/18. Primeiro levantamento.”, CONAB (Companhia Nacional de Abastecimento). April 2017.
- “Anuário Estatístico Brasileiro do Petróleo, Gás Natural e Biocombustíveis 2017”, ANP.
- “Seminário de Avaliação do Mercado de Combustíveis 2017 (Ano-Base 2016)” Magda Chambriard, ANP.
- “Cenário Atual do Abastecimento de Combustíveis Automotivos no Brasil” Magda Chambriard.
- “The industry’s response to the Paris Declaration” Décio Oddone, ANP. 22° International Oil Congress. July 2017.
- “Brazil Biofuels Annual Report 2016” (en castellano, Reporte anual sobre biocombustibles en Brasil 2016), Gain Report BR16009. Written by Sergio Barros, USDA analyst. Published in August 2016.
- “Brazil Biofuels Annual Report 2010” Gain Report BR10006. Written by Sergio Barros, USDA analyst. Published in July 2010.