Brazilian ethanol subsidy plan draws fire from some in U.S. industry

By Sara Wyant

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, February 29, 2012 -Plans by the Brazilian government to provide some $38 billion in subsidies over the next three years to recharge that nation's ethanol production have prompted charges from producers here that the United States “unilaterally disarmed” when Congress allowed the U.S. blenders' tax credit for ethanol to expire Dec. 31.

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The Brazilian government says it's making the money available through banks in hopes of spurring investment in new sugarcane fields. Many fields in the country, which were severely hit by a hurricane last year, are in their sixth year of harvest, a year beyond their optimum production. A resulting 20% reduction in sugarcane, the primary feedstock for ethanol in Brazil, prompted prices to go up and consumers to move back to gasoline, despite the South American nation importing record amounts of U.S. ethanol.

The government hopes that making the money available will encourage millers and producers to invest in new fields and boost production, bringing the price of ethanol back down and allowing the government to maintain its policy of meeting 50-55% of the nation's motor fuel needs with ethanol. Many vehicles in Brazil, the world's leader in the use of ethanol for transportation fuel, run on 100% ethanol. The move by the Brazilian government has been called by some in the U.S. ethanol industry as “a direct assault on the only American-made alternative we have to foreign energy.”

Growth Energy, a coalition of U.S. ethanol manufacturers, noted this week that the ethanol industry here is no longer receiving the federal 45-cents-per-gallon Volumetric Ethanol Excise Tax Credit, or blender's tax credit, nor the benefit of a 54-cent-per-gallon tariff imposed on ethanol imports from Brazil. Both the VEETC and the import tariff expired at the end of 2011.

“The American ethanol industry voluntarily gave up its tax incentives and the import tariff against Brazil, even though Brazil continues to have a tariff on the books and is pumping $38 billion toward propping up their industry,” said Tom Buis, CEO of Growth Energy. “This shows the danger of unilaterally disarming, because it means that American ethanol producers are not competing just against Brazilian ethanol producers, but against the Brazilian government also.”

Buis said the United States “unilaterally disarmed at a time when Brazil is not just continuing to subsidize its industry, but is increasing its investment in a plan to undermine our domestic ethanol industry.”


Original story printed in February 29, 2012 Agri-Pulse Newsletter.

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