Oct 15, 2009
Brazilian Officials Debating Ways To Reduce Price Of Alcohol
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The price of alcohol in Brazil surged 8.7% last month and Brazilian officials are concerned that if the trend continues alcohol could become overpriced compared to gasoline. Recent heavy rains in southeastern Brazil have disrupted the sugarcane harvest resulting in spot shortages and higher prices. In nine of Brazil's 26 states the price of alcohol is currently overpriced compared to gasoline. In other words, when automobile mileage is taken into consideration, it is more economical to use gasoline in those nine states than it is alcohol.
This is not what the government wants of course and the Brazilian government is discussing several ways to reduce the demand for alcohol and thus reduce the price. The first and most obvious way to reduce demand is to lower the blending percentage of alcohol in gasoline. The blending percentage in Brazil was recently increased from 23% to 25% and there are ongoing discussions about returning it back to 23%. This would reduce demand temporarily and allow time for stocks to rebuild.
The Minister of Agriculture, Reinhold Stephanes, is also offering proposals that would reduce the financing charge for refiners who increase their stocks of alcohol. He fells that these increased stocks are needed to smooth out the ups and downs in the alcohol supply chain.