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December 7, 2018

Corn-Based Ethanol helps to hold down Gasoline Prices in Brazil

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

One of the recent trends in Brazilian agriculture is corn-based ethanol production. Traditionally, Brazil produced all of its ethanol and sugar from several hundred sugarcane mills located in the southeastern part of the country, but that is slowly changing. Corn-based ethanol production is taking hold in central Brazil where there is an excess of corn and a deficit of ethanol production in addition to high transportation costs to move that corn to export facilities.

Central and northern Brazil are ethanol deficit regions, so it makes more sense to produce the ethanol in central Brazil than it does to truck in the ethanol long distances from southeastern Brazil.

In a recent meeting in the Brazilian Congress sponsored by the Agricultural Commission (CRA), policians and industry representatives debated the benefits of corn-based ethanol production. A representative of the Brazilian Ministry of Mines and Energy (MME), indicated that new investments in corn-based ethanol is very welcomed news for the ethanol sector that has been struggeling in recent years.

Brazil currently imports 10% of its gasoline supplies, but had it not been for biofuel production, Brazil would probably be importing 30% of its gasoline. As a result, ethanol production has helped to hold down the cost of gasoline for Brazilian consumers because a liter of ethanol is cheaper than a liter of imported gasoline.

Much of the progress in biofuel production is being attributed to a program called RenovaBio, which is an organization dedicated to prioritizing biofuel production.

There are a lot of economic advantages for producing ethanol from corn in central Brazil. First and foremost, it is cheaper to produce ethanol from corn in central Brazil due to the overabundance of corn production. Using corn to produce ethanol helps support the local corn price by removing the high cost of transportation to move the corn to livestock producers in southern Brazil or to distant export facilities. It supports thousands of workers and their families and it increased the local tax base.

Consumers save money because it is cheaper to produce ethanol in central Brazil than it is to truck it in from southeastern Brazil. Some of Mato Grosso's ethanol production will be shipped to other states in northern and northeastern Brazil, all of which are ethanol deficit regions.

Corn based ethanol only represents approximately 1% of Brazil's total ethanol production, but it is increasing. The first corn-based ethanol facility in Brazil opened in Mato Grosso in June of 2017. That facility is being expanded, others are in the process of being built and several sugarcane mills have been retrofitted to utilize corn during the time of the year when sugarcane is not available. Everyone involved in corn-based ethanol production in central Brazil indicates that it is profitable and that the production will continue to increase.