United States Department of Agriculture www.ers.usda.gov A Report from the Economic Research ServiceAbstract Brazil is a major supplier oethanol to the world market, the result oits natural advan- tage in producing sugarcane, productivi ty increases, and policies stimulating the supply oeedstock and osugar-based ethanol. Global demand or ethanol and other biobased uels is expected to grow in response to mandates or increased use orenewable uels around the world. Brazil will be well positioned to ll the growing world demand or ethanol. However, Brazil’s ability to supply the export market depends on its domestic ethanol use mandate, world sugar and oil prices, the currency exchange rate, and the inrastructure to move ethanol to ports. Brazil is challenged with sustaining production growth in the ethanol sector so as to meet increasing domestic demand and, at the same time, maintain its position as a major supplier oethanol to world markets that are growing rapidly in response to their own ambitious targets or renewable energy use. Keywords: Brazil, ethanol supply chain, sugarcane, sugar, agricultural policies, subsidized credit allocations, challenges or the ethanol industry , uture perspectiv es, domestic and global ethanol demand Acknowledgments The author thanks all reviewers or comments, eedback, and suggestions, including Mary Anne Normile, Molly Garber, Rip Landes, William Coyle, Erik Dohlman, Kim Hjort, and Fred Gale oUSDA, Economic Research Service (ERS); Alan Hrapsky , Michelle DaPra Wittenberger , and Sergio D.S. Barros oUSDA, Foreign Agricul tural Service (FAS); David Stallings oUSDA, World Agricultural Outlook Board, Oce othe ChieEconomist (OCE); and Hosein Shapouri oUSDA, Oce oEnergy Policy and New Uses, OCE. Special thanks to Joel V elasco and Luciano Rodriguez rom the Brazilian Sugarcane Industry Association or a thorough review and helpul comments, which signicantly improved the study . Thanks also to Chris Dicken oERS or geographic inormation system analysis and cartographic output, Heloisa Burnquist othe C enter or Advanced Studies on Applied Economics or expert comments and sharing odata, and Douglas Newman oU.S. International T rade Commission or sharing ethanol trade data and expert review comments. The author appreciates and acknowledges the editorial and design assistance oJohn W eber and Curtia Tay lor oERS. Some inormation in this report was obtained through activities unded by the Emerging Markets Program oFAS. Constanza Valdes, [email protected]Brazil’s Ethanol Industry: Looking Forward BIO-02 June 2011 Contents Approved by USDA’s World Agricultural Outlook Board Introduction ........................ 2 Ethanol Feedstock, Industrial Processing, and Distribution ............... 4 The Contribution oPolicies to the Development oBrazil’s Ethanol Sector ..... .......... 21 Challenges or the Brazilian Ethanol Industry.......................... 26 Future Perspectives or Brazil’s Ethanol Industry.......................... 30 Conclusions ...................... 36 Reerences........................ 38 Appendix .............. ............ 44