December 17, 2012

Sugarcane Producers in Mato Grosso Complain of Gov. Inaction

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

While efforts to build a second corn-based ethanol plant in Mato Grosso are advancing, the sugarcane sector in the state is citing the lack of support from the state and federal government for sugarcane-based ethanol production in the state. The state has ample room for sugarcane expansion but obtaining permits to build a new sugar/ethanol mill in the state remains very difficult.

According to the director of institutional relations for the Mato Grosso Agricultural Federation (Famato) Rogerio Romanini, one of the primary concerns of the industry is the prohibition of sugarcane expansion within the Amazon Biome, the Paraguay River Basin, and the Pantanal Wetlands. Collectively, these three regions encompass a significant portion of the state, yet they are off limits when it comes to new sugarcane production.

An additional concern of the industry is the ongoing effort by the federal government to artificially hold down the price of gasoline in order to partially control inflation. While that may be a noble cause, it has been very detrimental to the ethanol sector be depressing prices and demand.

Owners of flex fuel vehicles can choose to purchase E100 (pure ethanol) or gasoline mixed with ethanol (E20) every time they fill their vehicles. Their choice is based on the relative price of each fuel. If ethanol is priced at 70% or less the price of gasoline, it is more economical to purchase ethanol. If the price of ethanol is 70% or more the price of gasoline, it is better to purchase gasoline.

With the price of gasoline held artificially low, it has depressed the demand for ethanol because gasoline is a better buy. That in turn has driven up the demand for gasoline and cost the federal government billions of reals because they are selling the gasoline below what it costs to import the fuel. Brazil must import gasoline because of inadequate refining capacity within the country.

According to Mr. Romanini, what the sugarcane sector needs are higher gasoline and ethanol prices which would then give incentives for additional investments in the sugarcane sector.

The federal government has promised billions in new investments by offering low interest loans for new sugarcane production, but they are also saying the same thing for numerous other sectors of the economy as well including: massive new investments for the World Cup, for the Rio Olympics, for high speed rail, for railroad expansion, for port expansion, for infrastructure development, for more grain storage, for dozens of new dams in the Amazon River Basin, for drought relief in northeastern Brazil, for development of the oil fields of the southeastern coast of Brazil, for the expansion of numerous social programs, etc., etc., etc.

For port expansion alone, the government is contemplating spending ten times the amount of money over the next three years than what was spent on port improvements during the entire last decade. With the Brazilian economy currently in a slow-down mode, the question is if there will be sufficient financial resources for all of these proposed projects.