Ethanol to sweeten Americans
Brazilian decision boosts tariff-free fuel imports in hopes that US market opens for Brazilian sugar
Leonardo Motta09/09/19 – 08h00
The shouting of corn growers dissatisfied with President Donald Trump is such that it has even won an informal spokesman. Iowa State producer Randy Miller appears on NBC from the British Financial Times. The complaint is blunt: “Our own country is stabbing us in the back.” Once a Trump voter, the sector feels betrayed by Republican politics. About 40% of US corn is processed into ethanol and much of the market is for refineries that use it in the fuel mix. A Washington measure, however, authorized petrochemicals not to use ethanol, leaving producers without buyers. A Barack Obama management law required companies to use biofuels in the mix to reduce carbon emissions. The fight heated up and the solution came from an unexpected place: Brazil. The stored American ethanol will be spawned here, thanks to a measure from the Bolsonaro government.
Ordinance of the Ministry of Economy, published on Saturday August 31, allows Brazil to import 750 million liters of ethanol for a year duty free. The previous quota was 600 million liters. What exceeds this amount will be charged at 20%. Donald Trump used Twitter to celebrate: “Brazil will allow more US ethanol to enter the country without tariffs, a decision that Brazilian mills are celebrating,” he said, referring to the wider range of buying options that national refineries will have from from now. Here, ethanol is traditionally blended with refined fuel and, according to 2018 data, 99.7% of imports come from the United States.
“It was an important gesture made by Brazil to demonstrate that we want the free market,” says Evandro Gussi, president of the Sugarcane Industry Union (Unica). With Presidents Trump and Bolsonaro approaching, a bilateral free trade agreement has been discussed since July. The Brazilian government’s measure would have been a strategic maneuver for the country to be able to export sugar to the US without surcharges in the future. Sugar is currently priced at $ 339 per ton and the tax-free price is already high: $ 266.
OPTIMISM: Brazilian ethanol is produced mainly from sugarcane and Unica believes it has more to gain than lose with the measure. In ethanol, competition is minimal. There are 150 million liters that could come to more than the United States, while last year, Brazil produced 33 billion liters and imported 1.5 billion.
However, not every producer will compete on an equal footing against US ethanol. Farmers in the northeast can be harmed because the industry is not as competitive as the foreign one. But the general mood is one of optimism. The United States is the second largest Brazilian trading partner and the bilateral agreement is a priority in the federal government. “Even with local losses, it was an important demonstration that Brazil wants to become more US partners,” says Marcos Fava Neves, agribusiness and market expert at the Getulio Vargas Foundation (FGV). “They represent a very important potential market.”
The take there is still a bet that the Brazilian sugar is welcome to the American market. But on the other hand, farmers will not ease attacks on Donald Trump, who wants to be reelected next year and will certainly trade benefits for votes. This may end up holding future negotiations between the United States and Brazil. “The first step has been taken, but any conversation in the future will depend on what the Americans do,” says Unica’s Gussi. “We have given in to the limit so that national production is not compromised. More than that, we will be harmed. ”