Concerned about the inflationary impact of ethanol shortages, Brazil's government is preparing a package of measures to stimulate sugarcane farming and ethanol fuel stocking, local business daily Valor Economico reported Friday.
According to government sources, the Finance Ministry will in August issue a decree offering tax breaks on sugarcane production and subsidized credit to stock ethanol until the post-harvest January to April period, when shortages are most acute.
Brazilian ethanol prices surged in the first quarter of 2011 as producers failed to keep up with soaring demand in this booming economy. Shortages promise to be even more acute next year as sugarcane output is seen falling 4 to 6%.
This potentially hinders the government's fight to control peaking inflation, as ethanol is widely used as an automotive fuel and as a 25% additive in gasoline fuel.
The government has identified lagging sugarcane production as one of the main problems. UNICA, the main sugarcane industry association, forecasts 2011-12 center-south output will come in 48 million metric tons, or 9%, short of demand. That's mainly because rival crops have been offering better returns than sugarcane, which in part is because of government caps on fuel prices.
The government's planned tax breaks, on which sources offered no details, represent an attempt to revert that situation.
No stimulus will be given to increase ethanol-distilling capacity, however, as the country has 150 million metric tons in excess crushing capacity, according to Brasilia.
The creation of ethanol stocks was a key issue for many years before the introduction of the flex-fuel cars, which can run on any mixture of ethanol and gasoline fuel from 2003 onwards.
While a shortage of ethanol no longer means a fuel crisis, it does push fuel prices higher hence the government initiative create stocks.
Brazil is expected to export 1.8 billion liters of ethanol in 2011-12 -- a fact frowned upon in Brasilia.
According to Mines and Energy Minister Edison Lobo, the government decided to hold off on reducing the percentage of ethanol added to gasoline to 18 to 20%, from 25%, following assurances from millers and distillers that they will supply the market, at reasonable prices. The industry has committed to import up to 1 billion liters of ethanol to meet that promise. That means more ethanol imports from the U.S. this season.
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