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Posted on  

May 30, 2002

Brazil Proposes Sugar Export Tax To Regulate Ethanol Production

Sao Paulo, May 24 (OsterDowJones) - The Brazilian government may ask its sugar and ethanol industry to accept a tax on sugar exports as a condition to reactivating the ethanol -powered car program, a minister said Thursday.

Speaking following a meeting with millers, Development, Trade and Industry Minister Sergio Amaral said the Brazilian government is disposed to reactivate the ethanol -powered car program, known as Proalcool, but added he first needed guarantees there would be no cane ethanol shortages before it takes the plunge.

The government is worried millers will divert cane from ethanol to sugar production when international sugar prices rise.

Amaral told a press conference in Brasilia that one of the easiest ways to prevent this was a tax on sugar exports, imposed when ethanol stocks are seen as precarious.

But Eduardo Pereira de Carvalho, president of the Sao Paulo State Union of Sugar Agro-Industries, or Unica, said the government worries that eventual shortages of ethanol were unfounded and the tax was unnecessary,although the sector would consider the proposal.

"The best guarantee that there will be no shortages is our interest in reactivating this market," he said.

A revival of Proalcool would be a major boost for the local sugar and ethanol industry, the world's biggest.

Despite the fact Brazil is the world's biggest sugar exporter, the industry's main product over the last two decades has been ethanol .

The program enjoyed success following its creation in 1975. In 1989, some 94% of Brazilian vehicles were ethanol -fueled in 1984.

But a sharp decline in ethanol -car sales since the 1980s has led ethanol demand to nosedive over the last five years. This has forced the industry to rely ever more heavily on the volatile international market for revenue.

At the peak of ethanol production in the 1997-98 season (May-April), Brazil produced 15.4 billion liters, which used up 66% of the available sugarcane. But in 2001-02 output fell to around 10.5 billion liters, using just 53% of available cane.

The sector is currently working with the Agriculture Ministry to draw up a financing plan to create strategic ethanol stocks to ensure supply at the end of the Brazilian sugarcane harvest season in March and April.

Meanwhile, Carvalho noted the government can already regulate demand by adjusting the level of anhydrous ethanol used in gasoline fuel -currently set at 24%.

"The export tax proposal is very old-fashioned. We need something more sophisticated to regulate supply," said one Unica official.

But according to a report on the local Agencia Estado newswire, the Development Ministry is not satisfied these instruments are sufficient to guarantee supply, hence the export-tax proposal.

Brazil produces two types of ethanol fuel made from sugarcane, hydrous and anhydrous. Hydrous ethanol is used to power vehicles specially designed to use this type of clean fuel, while anhydrous ethanol is used as a gasoline additive.

WORRIES HARK BACK TO 1989

Many blame the demise of the original Proalcool scheme on regional ethanol shortages in 1989, which led consumers to lose confidence in ethanol cars. The government and the car makers are concerned history will repeat itself if the program is revived.

However, Unica's Carvalho said the blame for the 1989 crisis was at the government's door, as they regulated the sector at the time, and the sector was now much more mature and capable of regulating itself.

The success of Proalcool in the 1980s was based on heavy government subsidies. However, Amaral was emphatic that there would be no subsidy to ethanol production, if the program were resurrected.

In the eighties, the government subsidized ethanol to make it competitive with gasoline. Ethanol is now produced much more cheaply, but equilibrium between prices remains an issue.

To ensure balance, the government proposes using a sliding tax on gasoline.

In addition to promoting ethanol -powered cars, the government is studying the possibility of backing the introduction of "flex fuel"vehicles, which can run on either ethanol or gasoline or a mixture of the two.

The National Auto Manufacturers Association, or Anfavea, supports both the ethanol and flex-fuel car incentive but has demanded the government offer tax incentives for production.

Alastair Stewart, OsterDowJones, 5511 3071 3990
astewart@uol.com.br




 

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