Brazil Increases Regulation of Domestic Ethanol Market

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Researched by Industrial Info Resources Latin America (Cordoba, Argentina)--On April 28, Brazilian president Dilma Rousseff issued a decree to increase regulation of the domestic ethanol market, after prices reached their highest level in five years. The decree states ethanol, which is currently categorized as an agricultural commodity, will be categorized as a strategic fuel. The Brazilian government only will be able to regulate the quality of the ethanol produced.

Because ethanol is listed as a fuel, the ethanol industry is under the control of the Agencia Nacional do Petroleo, Gas Natural e Biocombustiveis (Oil, Natural Gas and Biofuels National Agency) (ANP). The ANP is responsible for the commercialization, stocking, importing and exporting of ethanol. The goal of this intervention is to guarantee the supply of the fuel and the stability of prices, as well as audit ethanol producing plants.

On the other hand, the decree reduces the minimum percentage of ethanol in the ethanol-gasoline blend by two percentage points. By law, gasoline sold in Brazil has a blend of anhydrous ethanol that can vary between 20 and 25%. Due to the rise in ethanol prices, the alcohol share was reduced to 18%, so as to lower the price of the final blend sold to consumers.

In Brazil, ethanol is made out of sugarcane juice in more than 400 facilities, which also produce sugar and cogenerate electric energy. Brazil is one of the major players in the global sugar trade market. Factory owners have been pushing the production toward sugar due to the increases in the price of this product in the past few years, causing a decrease in ethanol production. It's been said that President Rousseff would consider imposing a tax on sugar exports if the other measures failed to guarantee domestic ethanol supply.

Ethanol peaking prices and shortages also are due to a seasonal phenomenon, which occurs between December and April every year. During this time, the inter-harvest season begins for the sugarcane-processing factories of central and southern Brazil, where about 90% of the country's cane is processed. Due to increased rainfall, plants stop operating and perform their maintenance programs.

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