Oct 22, 2009
Sugarcane Producers Criticize Efforts To Reduce Alcohol Prices In Brazil
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Efforts by the Brazilian government to lower domestic alcohol prices are being criticized by the Union of Sugarcane Producers (Uniao do Industria de Cana-de-acucar - Unica). The sugarcane producers point out that the recent heavy rains in Sao Paulo have only resulted in a temporary spot shortage of alcohol because the rains have disrupted harvest activity and lowered sugarcane yields. If the weather improves later this year and into early 2010, the sugarcane yields are expected to return to more normal levels and the shortages should disappear. The sugarcane producers contend that governmental interference is not justified because the imbalance between supply and demand is only temporary.
The government on the other hand is concerned that higher prices for alcohol would encourage greater consumption of gasoline. In fact, it is currently more economical to purchase gasoline than alcohol in eleven of Brazil 26 states. If a consumer has a flex fuel vehicle, it is more economical to use gasoline if the price of alcohol is more than 70% the price of gasoline. The easiest and quickest way to reduce demand for alcohol and thus lower prices would be to reduce the alcohol blend percentage, which is currently set at 25%. The government adjusts the blend percentage whenever it needs to better balance the supply and demand.
Sugarcane producers in Brazil are expecting continued strong demand for both their sugar and alcohol. According to industry sources, in 2009-10 Brazil is expected to produce between 24.9 and 25.5 billion liters of alcohol and 32.9 and 33.7 million tons of sugar. World demand for sugar is expected to outpace Brazil's ability to increase sugar production thus prices are expected to remain supported in 2010.