No Import Tariff, No Worries?

Brazilian ethanol not likely to flood U.S. market soon
By Kris Bevill | July 22, 2011

After years of protesting the 54-cent per gallon ethanol import tariff imposed by the U.S. government, it appears Brazilian producers may soon get the equal market opportunity they’ve been yearning for. Whether the tariff is allowed to expire as scheduled at the end of the year or it is removed earlier by legislation, support to uphold the tariff is waning and it is unlikely that a 54-cent tariff will be in place this time next year. Should American ethanol producers be worried about an immediate influx of sugarcane ethanol into their market? Probably not, according to market analysts. Two years of bad weather and high sugar prices have left Brazil struggling to meet its own demands recently and many believe that even if Brazil’s low-carbon sugarcane ethanol can earn a premium price in the corn-dominated U.S. market, there just simply isn’t enough supply right now for an invasion of foreign ethanol.

The USDA Economic Research Service states in a report released in June that while a growing share of Brazil’s ethanol production is expected to be imported over the next decade, the majority of its ethanol will still be used domestically. Brazil is well-positioned to provide low-cost ethanol to meet the world’s growing demand, but its supply depends on a complex set of issues, including domestic demand, world sugar and oil prices, currency rates and its domestic infrastructure capacity for moving ethanol to ports, the report’s author stated. Analysts at Bloomberg New Energy Finance said that while they do not expect an influx of Brazilian ethanol into the U.S. market in the next year, an expired import tariff combined with increasing blending requirements for advanced biofuels under the renewable fuel standard could provide enough economic incentive for Brazil to produce ethanol instead of sugar to meet U.S. demand in coming years.

In response to growing domestic demand and export opportunities, Brazil has been aggressively working to correct its supply constraints. Petrobras, Brazil’s powerhouse integrated energy firm, has announced plans to ramp up its ethanol production, for example. According to data compiled by the USDA-ARS, if the country’s expansion plans hold up, Brazil’s ethanol capacity could double by 2018.

—Kris Bevill