Rising sugar prices and US tariffs force Brazil towards ethanol imports

Country imports ethanol for the second time in its history, undermining environmental benefits of biofuel reliance

Brazil's status as one of the world's leading biofuel economies could be under threat, according to reports that the country imported a record level of ethanol in the last quarter due to poor crops and high sugar prices.

Industry estimates from energy and metals analyst firm Platts show that imports of anhydrous ethanol, the variety used for blending fuel, ranged between 80m and 200m litres during the quarter.

This is only the second time that the country has had to import the ethanol, the service said.

Most of the imports came from the US, significantly undermining the environmental savings that would otherwise result from Brazil's reliance on biofuels. Whereas the majority of US ethanol comes from corn, which produces 1.5 times the energy needed to create it, Brazil's ethanol is distilled from sugar, which gives back eight times the energy input.

However, the US places tariffs on foreign ethanol imports, while subsidising its own ethanol blenders with a 45 cent per gallon volumetric ethanol excise tax credit (VEETC), which is due to expire at the end of this year. So Brazil has historically used three-quarters of its domestically produced ethanol, rather than exporting it.

However, sugar prices have risen along with other food prices in recent months, and a poor 2009-10 harvest caused by heavy rains had already put a strain on supplies. Figures from UNICA, the Brazilian sugar cane association, show that ethanol production plateaued in 2009.

UNICA said last month that the sugar harvest, which officially runs until the end of April, was all but over. Only seven plants were still crushing sugar cane in the southern and central part of the country, where most of the sugar is produced. In 2010, 41 mills were still operating in April.

As a result, upward pressure on ethanol prices is expected to continue for the foreseeable future.

In December, the industry body called on the Brazilian government to dispute US tariffs on ethanol and the subsidies for its farmers.

source: businessgreen