Brazil Advances $2.2bn for Ethanol Production
The Brazilian Development Bank announced last week a
programme to finance low cost loans for farmers of sugarcane and producers of
ethanol. The tropical country is seeking to boost biofuel production in the
wake of ethanol tariffs and subsidies expiring in the US, another leading
producer.
The Prorenova programme of the Development Bank - better
known by its initials, BNDES - is intended to boost total ethanol production in
Brazil by making loans available across the ethanol production chain. The R$4
billion (US$2.2 billion) in financing would be executed indirectly through
intermediaries, with a low overhead added by the bank.
The BNDES expects to increase total ethanol production by
2 to 4 billion litres in 2013/14, a gain of at least 10 percent.
A Brazilian official told that any support provided for
ethanol would be in “accordance with WTO rules.” However, a Geneva-based
official of a trading partner worried that support for ethanol adds to
questions about the country’s “total rate of subsidisation,” especially those
administered through generous credit policies.
The industry provides more than a million jobs and nearly
US$50 billion in economic activity, according to de Sousa. The industry has
gained yet more clout and prominence since the government began seeing it as
energy and not agribusiness.
Production key to regaining exporter status
Traditionally the largest and most efficient producer of
ethanol, Brazil was until recently a major exporter. However, high sugar
prices, a lack of sufficient reinvestment in old sugarcane fields, and the
failure to bring new land into cultivation have led total ethanol production in
Brazil to stall, stemming a long pattern of growth.
Data from UNICA indicates that total output of the
biofuel in 2011 - at close to 20 billion litres - was at levels similar to
those in 2008. Meanwhile, surging incomes in the country have added millions of
ethanol-hungry cars to the roads in the interim, increasing demand.
Although US output has ramped up, the recently expired
blending credit of 45 cents per gallon had allowed companies to add a small
amount of gasoline to ethanol and still receive up to 90 percent of the subsidy
on every gallon exported. This made US ethanol cheaper on international
markets.
Now that this tax credit is no longer in place, observers
expect US exports of the good to fall, potentially leaving room for their
Brazilian counterparts to make a comeback in the long term.