Analyst describes improvements in Brazil ethanol industry

By Susanne Retka Schill | October 27, 2015

Ethanol may be among Brazil’s few stable sectors in upcoming months, according to Luis Ferreira Alvarez, analyst with Stratas Advisors, writing in a guest blog on the Council on Foreign Relations website. 

“The last several years have not been easy for ethanol producers,” he said, pointing to reduced credit lines and droughts in the region where 90 percent of sugarcane is grown. Government policies also undermined the sector, making hydrous ethanol uncompetitive with the resulting shift in fuels by consumers leading to a 10 percent decline in ethanol market share. Many producers invested in anhydrous ethanol or switched back to sugar, “Some forty other ethanol plants folded, he said.

In the wake of the Petrobras scandal, the Brazil government shifted policy, reinstating the infrastructure tax on gasoline and raising gasoline prices in late 2014. Both moves made hydrous ethanol more competitive with gasoline. The government also increased the ethanol blending mandate from 25 percent to 27 percent. “These policy shifts, combined with rain in Brazil’s sugar-producing Center-South region, revitalized the ethanol sector,” he said.