Apr 09, 2010
Brazilian Government Issuing Subsidies For Ethanol Storage
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Ethanol prices in Brazil generally decline when the sugarcane harvest is in progress (May to December) and they rise in between harvests (January to April), but the price rise in ethanol reached historic levels this past January and February. These record high prices were another wake up call that Brazil needs to expand its storage capacity of ethanol in order to smooth out the supply/demand curve for ethanol.
In that light, Brazil's National Develop Bank in 2009 initiated a program of lower interest loans solely for the purpose of constructing additional storage units for ethanol. A total of R$ 2.3 billion was put into the program with the goal of the program is to have enough storage space to accommodate 150% of Brazil's annual ethanol production. When the additional storage space is built, the supply of ethanol can then be evened out during the entire year and the price volatility will be reduced.
The government also initiated a subsidy program targeting small family farms that grow sugarcane, particularly in northeastern Brazil. Thirty three thousand small farmers were given assistance in the form of minimum prices for their sugarcane in the hope that they will increase their sugarcane production in a part of Brazil that currently does not produce enough ethanol to meet the demand. The goal of the program is two fold. The primary goal is to help small family farmers in traditionally one of the poorest regions of Brazil. The secondary goal is to more widely distribute the production of sugarcane throughout the country. Currently, 90% of Brazil's sugarcane is produced in southeastern Brazil and the ethanol then must be transported to other parts of the country.