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.