The production of ethanol is largely responsible for the geopolitical relationship that has begun to form between Brazil and the United States. Since mid-March, US President George Bush and Brazilin President Luis Inacio da Silva have formed a working relationship predicated on the world’s increasing demand for ethanol fuels.
However, potential roadblocks remain to slow or possibly terminate the US-Brazil ethanol alliance, primarily the unwillingness of the US to open its markets to Brazil’s sugarcane-based ethanol product. However, US ethanol producers would benefit from closer interaction and competition with their Brazilian counterparts that help pioneered ethanol fuels in the mid-1970s. Finally, increasing demand for ethanol fuels in the US will spur the creation of a global market for biomass fuels, benefiting Brazil’s ethanol industry that already possesses vast refining capabilities.
The Great Corn Debate
Ethanol accounted for approximately 3.5 percent of American fuel consumption in 2006, but production is growing rapidly by 25 percent a year. Ethanol production continues to increase due to government subsidies, incidentally costing taxpayers somewhere between US $5.5 billion and US $7.3 billion a year. Corn-based ethanol is not cheap. Additionally, corn-based ethanol currently requires significant amounts of energy to produce and puts out two-thirds the energy of gas. The amount of fertilizer, additives, and diesel fuel needed to grow, harvest, and refine corn into ethanol is so great that the economic incentive of producing alternative fuel is diminished. However, because of political support, ethanol refineries are appearing increasingly in the Midwest. There are currently 103 ethanol plants nationwide and another 42 in the process of being built, all of which will rely on corn as their principle production staple.
The use of corn to make ethanol to reduce US dependence on foreign oil has already driven up the price of corn, provoking protests in Mexico following the rise in tortilla prices at the end of 2006 (Previous Report). In August 2006, the average price paid to US farmers for a bushel of corn was $2.09, rising to $2.20 in September, $2.54 in October, $2.87 in November, to over $3 in January 2007.
In the US, the USDA predicts that food prices will rise by 3.5 percent in 2007 as farmers mark up output in response to high corn prices. Food price increases have far less of an impact on most Americans, since US families spend approximately 7.3 percent of their consumable income on food, compared to poor or developing countries such as Mexico, where the number is a much more significant, 24.5 percent.
As the possibility of wide-scale production of corn based ethanol raises questions concerning the sustainability, economic benefit, and social implications of fuel sources made from a staple component of the world’s food supply, Brazil has been successfully producing sugarcane ethanol.
Brazil’s Sugar Based Fuel
Since its inception in 1975 in response to the uncertainties of the oil market, the Brazilian Ethanol Program remains to date, the largest commercial application of biomass for energy production and use in the world. The program succeeded in demonstrating the technical feasibility of large-scale ethanol production from sugarcane and its use to fuel car engines. By 2003, 3 billion vehicles were powered by some shared blend of fuel. Statistics indicate over 5 billion liters of ethanol are used annually in a 22-25 percent blend with gasoline. Not only has the Brazilian government saved over $1.8 billion a year by replacing approximately 200,000 barrels of gasoline a day with ethanol, but 720,000 direct jobs and 200,000 indirect jobs have been created.
Ethanol produced from sugarcane can be grown at 30 percent less cost than corn-based ethanol, which makes sugarcane-based ethanol economically efficient even though it produces just two-thirds the energy of gasoline. In reality, sugarcane-based ethanol could be economically rewarding even if oil prices dropped to about US $20 a barrel. Additionally, Latin American countries, as well as the United States have enough land to grow sugarcane without negatively impacting food production or destroying natural habitats.
Developing countries with tropical climates, such as India, the Philippines, Venezuela and Cuba, could prosper by producing sugar-based ethanol and selling it to foreign markets.
If Cuba, or other Latin American countries, followed Brazil’s example and recapitalized its sugarcane industry, they too could begin producing enough ethanol not only to reduce petroleum usage in their own country, but also to develop a new and profitable export.
