Hi jd3,
Overall, the prospects for Brazil in the biofuel industry are encouraging.
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"What are future possibilities for Brazil's Ethanol and BiFuel (e.g.
BioDiesel) economy?"
"After nearly three decades of work, Brazil has succeeded where much
of the industrialized world has failed: It has developed a
cost-effective alternative to gasoline." -- Wall Street Journal (8)
"Flex fuel" cars which can run on both gasoline and any type of
ethanol blend were introduced in Brazil in 2003. Since that time, the
cars have become extremely popular among Brazilians and have taken
two-thirds of the new car market. This bodes well for alternative
fuels and biodiesels. In America, cars can also run on ethanol, but a
high blend of ethanol is only available in Minnesota. Brazil has had a
30-year history of promoting biodiesels from its sugarcane crops, and
that will serve it well in the future. Since the country and its
carmakers are so open to promoting ethanol and other biodiesels, the
future for that kind of industry is great. (1)
Brazil's sugar-based ethanol is cleaner and cheaper to make than other
country's ethanols, which are made from corn or other crops. The
future for ethanol, then, is greater in Brazil than in other
countries.
Brazil's government has long stood behind ethanol, beginning during
the 1970s after surges in oil prices left Brazilians in shock at the
pump. The Brazilian government passed laws and subsidies which
strongly encouraged the development of biofuels. By the 1980s, 90
percent of cars in Brazil could run on ethanol. However, a run on
sugar supplies caused farmers to not be able to meet this demand for
sugar-fueled cars (as they sold their sugar instead on the world sugar
market) and the market for sugar in cars to crash. Sales of
ethanol-powered cars fell to almost zero in 1990-- they were
considered so worthless (as there was not enough sugar being produced
to run them) that one taxi driver even set his ethanol-powered car on
fire outside the Brazilian Congress.
Lessons can be learned from this previous crash in the ethanol market.
If cars are expected to run on ethanol, there must be enough sugar
produced in Brazil to run those cars. As long as farmers can provide
enough supply, there will be demand for their product. If the farmers
can't produce enough sugar this time, as last time, the market will
crash and people will give up on ethanol as they did once before.
In addition, if the government wants to pass laws to encourage
biodiesels' use, that is all the better for the industry. Flex fuel
cars, which can run on any combination of biodiesels or petrol, came
out because of a government decision. Brazilian parts manufacturers
such as Magneti Marelli, owned by the Italian Fiat, convinced the
government to extend the same tax protections to flex-fuel cars as
they had to ethanol-powered ones. While it would seem a possibility
that these companies could export their cars to other countries for
great profit, it doesn't seem likely. There is nothing special about
the Brazilian carmaking process, and if other countries want to make
the cars, they could make them also. They could be made cheaper in
other places, too, such as China.
However, car parts suppliers such as Germany's Bosch, which are based
in Brazil, can export their particular parts involving biodiesel and
might enjoy success at that endeavor. Eventually, it might be more
profitable to even sell the technology to someone else in other
countries and profit off that rather than the parts themselves.
Brazil's greatest success with its technology could be exporting its
sugar-fuel itself. It can make its biofuel out of sugar very cheaply
and efficiently, and the price is very competitive with that of oil.
The European Union has ordered a billion litres of fuel from Brazil
yearly; Brazil could be very competitive in the European Union as the
EU reduces subsidies to its farmers and realizes that it just can't
compete on price with cheaper makers of ethanol. To produce one litre
of ethanol in the EU costs 30 Euro-cents-- to produce the equivalent
in America or Brazil costs 15 Euro-cents.
Brazil will make about 16 billion litres of ethanol this year, as much
as America does. American ethanol, however, is a more expensive
process and costs 50 percent more to make than Brazilian. European
ethanol costs 150 percent more than Brazilian. America has high
tariffs for ethanol importers, but the EU could prove to be a great
market for Brazilian ethanol. According to Brazilian ethanol makers,
their ethanol became competitive with oil at pre-tax prices in 2002.
Since then, the price of oil has skyrocketed and as a result, ethanol
has become even more competitive. (4)
Brazil's largest maker of ethanol is also its state oil company,
Petrobras. Petrobras expects to export eight billion litres of ethanol
by 2010.
Brazil, already the world's leader in sugar and ethanol, could use its
capabilities for philanthropical missions to poorer countries. In
April 2006, while Haiti was being restructured, Brazil sent
representatives to the country to look into how Haiti could benefit
from biofuels. Brazil also wants to spread its technologies to other
countries such as Nigeria.
Other countries are wanting to get in on Brazil's act on their own.
India, the second-largest producer of sugar, is pushing a plan to buy
10,000 hectares from Brazil privately and produce cheap biofuels. (6)
This would be a boost to Brazil's agriculture industry and would
provide India with a cheap and reliable source of ethanol.
Brazil's sugar makers are spending $9 billiion to ramp up the number
of plants available for production in an effort to double exports by
2010. (10)
A future development of the industry, some predict as early as two
years from now, would be cars that run 100 percent on ethanol, thereby
almost completely reducing dependence on gas for automobiles. (7)
==Biodiesels==
Biodiesels, or diesels made from vegetable oils, are becoming more and
more popular in Brazil, also. The country's success with ethanol has
encouraged its efforts in biofuels, and it has replaced up to 15
percent of its diesel with biodiesels made from vegetable oil, from
soybeans.
The president of Brazil, Luiz Inácio Lula da Silva, said last year,
"The truth is that nobody can compete with Brazil. Biodiesel
production is a way of making Brazil less dependent on oil, a fuel
that may eventually come to an end. This is a vital project for
ensuring more independence for Brazil, as we may become a large
biodiesel exporter." (9) He said this while opening a large biodisel
factory in Brazil. No one can compete with Brazil on ethanol, and it
stands to reason that the country is well-placed to convert that
market leadership into success with biodiesels, also.
However, competitors to Brazil's possible biodiesels are leading
campaigns against the fuel, saying that it is more expensive and
dirtier than clean diesels that European carmakers are manufacturing.
"It makes no economic sense outside Brazil," Jean-Martin Folz,
Peugeot's chief executive, told the Guardian. This could be wishful
thinking on Folz's part, but Brazil will surely face opposition to its
fuels from those who don't stand to benefit monetarily from them.
Brazil is able to produce large amounts of biodiesels because it has
the right climate and land to grow dozens of varieties of the
vegetables needed to make the oils on which diesel engines can run.
The country's largest beef exporter is even building a plant to
convert cow tallow into biodiesel. Since it already produces half the
world's output of ethanol, Brazil has much of the infrastructure
already in place to produce and export biodiesels. Brazil now only
provides biodiesel with two percent vegetable oil mixed in, but plans
are for that to increase to 20 percent by 2020. This would also result
in cuts to the $1.1 billion in imports of diesel that Brazil buys
yearly.
So far, scientists from universities in Sao Paulo have produced
biodiesel from 11 different plant types, and even from animal fat.
Trains in Brazil have also announced that they will start using a
diesel that is 20% biodiesel and 80% standard diesel. Brazil can
position itself as a biodiesel power by using land that is unsuitable
for crops to grow seeds for biodiesels.
----------------------------
"What is Brazil's BioTechnology, Bio-Agriculture,
Plant Biology, Synthetic Biology ("AgBio") technology capability?"
Brazil, right now, is undoubtedly the world's leader as far as using ethanol goes.
Right now, ethanol is freely available at Brazilian gas pumps. It is
up to 55 percent cheaper than regular gasoline would be.
In addition, the source of that ethanol, sugarcane, is very
efficiently produced by Brazilian farmers. Right now, it only uses one
percent of the land it has that is suitable for farming for sugarcane,
so it has much more capacity than it's using now. That is only 19
percent of what the United Kingdom uses, yet Brazil is the world's
leading sugarcane producer. Since the cane is produced in two regions
of Brazil: South Central and North Northwest, there are two different
harvest periods and more types of weather and locations for the sugar
to grow in. If a natural disaster befell one of these sugarcane areas,
the other would still be able to produce sugar.
Sugar powers 307 energy powerhouses in Brazil.
An additional interesting point is that unlike in many countries, the
production of sugar in Brazil is not subsidized by the government. In
other countries, most notably the United States, native sugar growers
are given a high government subsidy, and non-native sugar sellers are
given high tariffs. This is why most products in America contain
high-fructose corn syrup, rather than sugar. Sugar is too expensive.
With no subsidies to its sugar farmers, Brazil truly proves that its
sugar industry is highly competitive and can compete on the free
market without handouts from the government to support it. This is
very important-- if the sugar growers needed subsidies to survive,
they wouldn't be able to compete with other sugar growers who didn't.
Flex fuel cars-- The flex-fuel cars which came onto the market in
Brazil in 2003 are truly revolutionary. They incorporate computers
which constantly calculate how much gasoline and how much alchohol is
in the fuel tank, and they can run on either fuel. Other countries
would love to have the technology, and they can be exported to other
countries if infrastructure allows, because they will run on any type
of ethanol. Most of the cars take a 75/25 blend. Scientists are
working right now to get Brazil on a 100 percent ethanol mix.
==Biotechnology==
What is clear is that Brazilian scientists are willing to spend the
time to develop breakthroughs which will allow it to continue to use
these fuels in the best of all ways to maximize output. Researchers
at the Centro de Tecnologia Canavieira worked to develop strains of
sugar which are resistant to droughts, pests and yielded more sugar
per plant. (8) They will continue to come up with new technologies to
support the sugar industry and new ways to make sugar more and more
efficient.
In fact, Brazil has developed technologies in which the remains of the
cane plant are transported to the factories along with the actual
sugar, and the remains (called "bargasse") are used to power the plant
with electricity.
Brazil is spending billions on research and development, helped by a
president and government that encourage spending into scientific
research in order to help biotechnology and thus, Brazil's economy.
Since so much of Brazil's economy is based on agriculture, spending on
biotechnology is put to efficient use, as companies make more money
and people have more jobs as a result. With Brazil's natural
resources-- a climate perfectly suited to hosting a myriad of crops--
and scientific and government backing, Brazil's health and technology
industry is growing. In 2004, a DNA bank was established at the Jardim
Botânico in Rio do Janeiro, to collect all types of DNA of plant life
and study it for possible health benefits. With its location right
next to the rainforest, Brazil is well-placed to benefit from so many
different plants which could hold cures for various diseases.
As an example of Brazil's discoveries, a few years ago the Federal
University of Minas Gerais in Belo Horizonte and the biopharmaceutical
firm Biobrás in São Paulo banded together to develop and patent a form
of recombinant human insulin. Biobrás then became one of only four
companies worldwide which could produce this product. Brazil has the
eighth-highest rate of diabetes in the world, and this is an example
of it taking charge of caring for its own health. Brazil's sequencing
of the genome of the plant pathogen "Xylella fastidiosa" was applauded
worldwide.
A study examining the rates of Brazilian researchers' findings being
published in established medical journals increased greatly from 1991
to 2002 (11).
This is for many reasons. Despite ever-changing governments,
biotechnology has received unerring support from the Brazilian
government, especially the Ministry of Science and Technology.
Brazilian universities are also productive in these matters. The
Oswaldo Cruz Foundation (FIOCRUZ, Rio de Janeiro, Brazil) and the
Institute Butantan (São Paulo, Brazil) are leading players. In
addition to these research institutes, there are 100 universities in
Brazil conducting research and publishing papers. There are also now
354 biotechnology companies in Brazil, greatly expanded from the 75 or
so that existed in 1990. (11)
Overall, what becomes clear upon looking at these figures is the
tremendous capacity Brazil has for exporting its sugar product-- it is
already the largest, most efficient sugarcane producer in the world,
and it has only used one percent of its available farmland to do so.
However, it will not be able to export it to countries such as the
United States due to tariff issues, which I explain in the next
section. More success could be had by selling the technology used to
make its flex-fuel cars.
----------------------------
"What
policies (trade tariffs, export to U.S., etc.) effect, will have an
effect on industry?"
Right now, there is not much of a market for Brazilian cars to be
shipped to the US because the US doesn't have enough biofuels to power
those cars. Only a handful of states require ethanol to be included in
fuels at the pump.
In addition, the United States has a hugely successful farm lobby to
its Congress. It often grants extremely high subsidies to its farmers,
because their product cannot compete on the open market with those of
less expensive countries. Brazil could enjoy a wonderful market for
its sugar ethanol in America, where environmentalists abound; however,
the corn farmers have a powerful lobby and have already gotten many
laws and subsidies into place for their corn ethanol, which is less
efficient, more expensive and less environment-friendly than Brazil's.
It also imposes tariffs on ethanol from other countries, such as
Brazil. It is unlikely that Brazil would be able to export its type of
ethanol to America, considering that most Americans don't even realize
that there is more than one type of ethanol or that their's is not the
most environmentally-friendly. Even if they did realize, the American
government gives out billions of dollars each year to those corn
farmers-- and Brazilians selling on the free market without subsidies
probably would not be able to compete.
It is theoretically possible that Brazil's government could try to
subsidize the Brazilian ethanol industry and try to compete with
America, but even then many states have passed laws requiring the use
of corn ethanol in certain percentages in their gasoline, and that
might be insurmountable. The Brazilian government, in addition, would
probably not be able to provide the billions to its farmers that
Americans do, and it wouldn't be good for the Brazilian economy
anyway. And even after all that, Brazil would still have high tariffs
imposed by the American government on its product.
But one should always learn from the past: in the past, Brazil has
looked into selling its product in America and found that there was a
54 cent-per-gallon tax credit for ethanol in America. It was not
strictly limited to American ethanol suppliers, but before Brazil
could take advantage, a 54 cent-per-gallon tariff on foreign ethanol
was imposed. If Brazil attempted to enter the market again, it would
surely find a similar scene today. Another attempt was made to create
some parts of Brazilian fuel in the Caribbean and bypass the tariffs,
but then Congress passed two specific laws imposing tariffs on that
fuel also. (4)
However, the European Union has ordered one billion litres (800,000
tons) of Brazilian ethanol to be imported in annually, duty-free. This
could be a start of a great trading relationship between the EU and
Brazil. In the future, laws could be made which benefit European
countries over foreign nations (the Germans and French were not too
happy about this acceptance of foreign ethanol by the EU), but since
the EU is a group of countries and not just one, it might find it
easier to import rather than try to decide which of its various
countries' fuel to use. As the European Union expands and if it
becomes more powerful, it could be a great partner with Brazilian
ethanol producers. In addition, the EU is cutting subsidies to its
farmers, which could help the Brazilian business there. (4)
Another factor affecting the ethanol makers' selling of their product
could be the increasing socialism of its neighboring countries in
South America. Following the lead of Venezuela, Bolivia recently
nationalized its oil industry, and is attempting to get Brazil and
Argentina, its two main customers, to pay higher prices. If it is
successful, gas will be even more expensive in Brazil and it could be
assumed that sales of flex-fuel cars, and ethanol, will rise. (5)
The signing of the Kyoto Protocol, an agreement to reduce carbon
emissions, by many countries helps Brazil's economy. Germany signed a
deal with Brazil in which Germany would pay for a subsidy to Brazil's
flex-fuel cars in exchange for credits towards Kyoto. Other countries,
such as Japan and Sweden, export Brazilian biofuel to meet Kyoto
standards.
Japan is thinking of implementing a three percent mandated level of
ethanol in its cars, which would cause Brazil's export demand to go up
by a third if put in effect. Especially since Japan has proven to be
Brazil's best trading partner so far, this would be great for the
Brazilian ethanol industry if it goes into effect. (10) Now, the
ethanol is exported by being sent from plants to the coast in tanker
trucks, which is not as efficient as if a pipeline is in place.
Petrobras has studied the use of a pipeline from its plants to the
coast; if it were built, the pipeline would help Brazil to export more
efficiently.
Sources:
1. The Economist
"A Tankful of Sugar"
September 22, 2005
http://www.economist.com/business/displaystory.cfm?story_id=E1_QQNSGQR
2. Sao Paulo Sugarcane AgroIndustry Union
http://www.unica.com.br/i_pages/agroindustria_alta.asp
3. The Ecomomist
"Life After Subsidies"
February 9, 2006
http://www.economist.com/business/displaystory.cfm?story_id=E1_VVDQDPD
4. The Economist
"Stirrings in the corn fields"
May 12th 2005
http://www.economist.com/business/displaystory.cfm?story_id=E1_PJGDSSV
5. The Economist
"Out of Gas"
Aug 17th 2006 | LA PAZ
http://www.economist.com/world/la/displaystory.cfm?story_id=E1_SSJGQVN
6. The India Times
"Govt red-faced over Jairam's Brazil gaffe"
Sept. 9, 2006
http://timesofindia.indiatimes.com/articleshow/1971455.cms
7. Minneapolis Star-Tribune
"The Future of Ethanol"
by David Morris
April 17, 2005
http://www.commondreams.org/views05/0417-23.htm
8. Wall Street Journal
"As Brazil Fills Up on Ethanol, It Weans Off Energy Imports"
David Luhnow
Geraldo Samor
The Wall Street Journal, 16 January 2006
http://yaleglobal.yale.edu/display.article?id=6817
9. The Guardian
"Sugar Powers a Revolution on Brazil?s Roads"
Tom Phillips
David Gow
The Guardian, 23 November 2005
http://yaleglobal.yale.edu/display.article?id=6555
10. USA Today
"Brazil hopes to build on its ethanol success"
David J. Lynch
http://www.usatoday.com/money/world/2006-03-28-brazil-ethanol-cover_x.htm
11. Nature
"The scientific muscle of Brazil's health biotechnology"
Marcela Ferrer, Halla Thorsteinsdóttir, Uyen Quach, Peter A Singer &
Abdallah S Daar
2004
http://www.nature.com/nbt/journal/v22/n12s/full/nbt1204supp-DC8.html
Search terms:
site:economist.com brazil ethanol
brazil ethanol
brazil biodiesels
brazil biotechnology
brazil bioagriculture
If you need any more help or clarifications, please let me know and
I'll be glad to help.
Cheers,
--keystroke-ga |
