Skip to main content
SpringerLink
Log in

Economic Analysis of Supplementing Sugarcane with Corn for Ethanol Production in Brazil: A Case Study in Uberaba

  • Published:
BioEnergy Research Aims and scope Submit manuscript

Abstract

This study evaluates the economic viability of using corn to supplement sugarcane for ethanol production in Brazil. Volatility of input and output prices and their correlation due to the transmission of shocks across markets is considered in calculations of Net Present Value. Investment in a flexible mill (i.e. a mill that can process corn during the sugarcane off-season) is dominated by investment in a standard mill based on a second order stochastic dominance criterion. The latter suggests that risk-neutral and risk-averse investors may refrain from investing in a flexible plant. Downside risk associated with a flexible plant may be worsen by the US ethanol blend wall as this weakens the correlation between the price of corn and the price of inputs and outputs of the sugar complex. Reductions in capital import tariffs can offset this effect.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8
Fig. 9
Fig. 10

Similar content being viewed by others

Notes

  1. Available from the authors.

  2. While the term flex-mill suggests a plant switching between sugarcane and corn depending on market conditions, the term is normally used in Brazil in reference to sugarcane mills that can process corn during the sugarcane off-season.

  3. The relative competitiveness of corn and sugarcane ethanol processes was also evaluated by [13]. Technical assumptions used in that study are, however, somewhat dated.

  4. It is worth noting that the fraction of sugarcane allocated to ethanol production may be somewhat sensitive to the price of ethanol relative to sugar. Time series of these variables for the last five years have been plotted in Appendix A. The correlation between both series is 0.3 revealing a link, though not a strong one, between prices.

  5. This figure was obtained by adjusting down estimates from Pontificia Universidad Catolica do Rio do Janeiro (http://www.maxwell.vrac.puc-rio.br/18933/18933_9.PDF). This report estimated such byproduct at 12 liters but engineers from CMAA scaled that down by a third to capture differences in sugar yield.

  6. The coefficient of variation of FX’s NPV decreases by 46 % while the coefficient of variation of SU’s NPV decreases by 38 %.

  7. The triangular specification was evaluated against other alternatives including the Beta, Normal, Log-normal, Frechet, Weibull, LogLogistic, Logistic, Pert, Exponential, Uniform, Gamma, Pareto, and Laplace.

References

  1. Agrolink (2014) Milho/Sugar cane/Sugar. http://www.agrolink.com.br/cotacoes

  2. Anfavea (2013) Anuário da Indústria Automobilística Brasileira. Associação Nacional dos Fabricantes de Veículos Automotores. São Paulo, 154p, il. http://www.anfavea.com.br/anuario.html

  3. Barros S (2013) Brazil: Biofuels Annual. Annual Report 2013. USDA Foreign Agricultural Service—GAIN Report #: BR13005. http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Biofuels%20Annual_Sao%20Paulo%20ATO_Brazil_9-12-2013.pdf

  4. Beling E (2013) Anuário Brasileiro do Milho 2013. Santa Cruz do Sul: Editora Gazeta. Santa Cruz, 2013.140 p. il. ISSN 1808–3420. http://www.grupogaz.com.br/tratadas/eo_edicao/20/2013/08/20130802_1fb664b16/flip/

  5. Conab (2010) Perfil do setor do açúcar e do álcool no Brasil. 80p. http://www.agricultura.gov.br/arq_editor/file/Desenvolvimento_Sustentavel/Agroenergia/estatisticas/producao/Perfil_Sucroalcooleiro_2008_09_versao_publicada.pdf

  6. Soybean & Corn Advisor (2013) Flex-fuel ethanol plant in Brazil uses sugarcane and corn. http://www.soybeansandcorn.com/news/Aug9_13-Flex-Fuel-Ethanol-Plant-in-Brazil-uses-Sugarcane-and-Corn

  7. Crago CL, Khanna M, Barton J, Giuliani E, Amaral W (2010) Competitiveness of Brazilian sugarcane ethanol compared to US corn ethanol. Energy Policy 38(11):7404–7415

    Article  Google Scholar 

  8. Industria Paraguaya de Alcoholes SA (2014) http://inpasa.com.py/?lang=en

  9. Camara de Comercializacao de Energia Eletrica (2014) Average electricity price ($/Mwh). http://www.ccee.org.br/

  10. De Souza W, Goldsmith P, Gomes J, and Rasmussen P (2010) Bionergy efficiency and a flex-mill simulation in Mato Grosso. 48th Congress Soc. Br. Ec. Adm. and Rural Soc. http://www.sober.org.br/palestra/15/1219.pdf

  11. Du X, Yu CL, Hayes DJ (2011) Speculation and volatility spillover in the crude oil and agricultural commodity markets: a Bayesian analysis. Energy Economics 33(3):497–503

    Article  Google Scholar 

  12. Centro de Estudos Avancados em Economia Aplicada (2014) Price indicators. Ethanol. http://cepea.esalq.usp.br/etanol/?page=407#

  13. Gallagher P, Schamel G, Shapouri H, Brubaker H (2006) The international competitiveness of the US corn‐ethanol industry: a comparison with sugar‐ethanol processing in Brazil. Agribusiness 22(1):109–134

    Article  Google Scholar 

  14. Goldsmith P, Rasmussen R, Signorini G, Martines J, and Guimaraes C (2010) The Capital Efficiency Challenge of Bioenergy Models: The Case of Flex Mills in Brazil. In Khanna et al. (eds.), Handbook of Bioenergy Economics and Policy, Natural Resource Management and Policy 33, Springer Science + Business Media, pp 175–192

  15. Hofstrand D (2014) Ethanol profitability. Iowa State University. Extension and Outreach. http://www.extension.iastate.edu/agdm/energy/html/d1-10.html

  16. Meyer D, Mytelka L, Press R, Dall’Oglio EL, de Sousa Jr PT, & Grubler A (2014) Brazilian Ethanol: Unpacking a Success Story of Energy Technology Innovation. Energy Technology Innovation, 275

  17. OECD-FAO (2013) Agricultural Outlook 2013. Biofuels. P 105–262. http://www.fao.org/fileadmin/templates/est/COMM_MARKETS_MONITORING/Oilcrops/Documents/OECD_Reports/OECD_2013_22_biofuels_proj.pdf

  18. Palisade (2013) @Risk: A hands-on tutorial. 37p. http://risk.jifsan.umd.edu/files/2013/07/RISKTutorial_ExpertsCorner.pdf

  19. Pecege (2012) Custos de Produção de cana de açúcar, açúcar e etanol no Brasil. Safra 2011/12. http://canaldoprodutor.com.br/sites/default/files/relatorio_Custos_Prod_Cana_2011_12.pdf

  20. Quintero JA, Montoya MI, Sanchez OJ, Giraldo OH, and Cardona CA (2008) Fuel ethanol production from sugarcane and corn: Comparative analysis for a Colombian case. Energy 33: 385–399. http://biotecnologia.ucaldas.edu.co/publicaciones/Article%20EtOHprdn%20from%20cane%20and%20corn%20-%20compar%20analysis%20for%20Colombian%20case.pdf

  21. Rabobank (2012) The future of ethanol: Brazilian and US perspectives. http://english.unica.com.br/download.asp?mmdCode=792A3E5E-055A-45B2-819A-0D8C504C5B99

  22. Rasmussen L (2010) Asset utilization efficiency and energy asset turns: a new approach for evaluating and comparing renewable energy projects. University of Illinois. Agriculture and Consumer Economics. MSc Thesis. 105p. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.187.7234&rep=rep1&type=pdf

  23. Signorini G, Goldsmith PD, Martines JG, Guimaraes CP and Rasmussen R (2007) “Flex-mill: Integrating corn and sugarcane produced in Mato Grosso,” Working Paper. Department of Agricultural and Consumer Economics, The University of Illinois and the Departamento de Economia, Adminstração e Sociologia, the University of São Paulo

  24. Tyner WE, Viteri D (2010) Policy update: implications of blending limits on the US ethanol and biofuels markets. Biofuels 1(2):251–253

    Article  CAS  Google Scholar 

  25. Walter A, Rosillo-Calle F, Dolzan P, Piacente E, and Borges K (2008) Perspectives on fuel ethanol consumption and trade. Biomass and Bionergy 32:730–748. http://aoatools.aua.gr/pilotec/files/bibliography/Perspectives%20on%20fuel%20ethanol%20consumption%20and%20trade-2587904000/Perspectives%20on%20fuel%20ethanol%20consumption%20and%20trade.pdf.

  26. Xavier MR (2007) The Brazilian sugarcane ethanol experience. Competitive Enterprise Institute. Issue Analysis 3: 14p. http://cei.org/pdf/5774.pdf

Download references

Acknowledgments

This study received support from Purdue University through its “Agricultural Research Program” and received support in the form of data and information from Companhia Mineira de Açúcar e Alcool; Minas Gerais Sugar and Alcohol Company and Syngenta.

Author information

Authors and Affiliations

  1. R&D LATAM, Syngenta, Sao Paulo, Brazil

    Carlos Iglesias

  2. Department of Agricultural Economics, Purdue University, KRAN 591A, West Lafayette, IN, 47907-2056, USA

    Juan P. Sesmero

Authors
  1. Carlos Iglesias
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Juan P. Sesmero
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Juan P. Sesmero.

Appendices

Appendix A. Prices and Fraction of Sugarcane Allocated to Ethanol

The figure below reveals that, in the last 4 years, the fraction of sugarcane dedicated to ethanol production has generally increased jointly with the ratio of ethanol to sugar prices. This is to be expected as an increase in such price ratio is associated with increased profitability of sugarcane relative to ethanol. The fraction of sugarcane to ethanol has fluctuated between 47 and 54 %, while the price ratio has fluctuated between 0.022 and 0.03 in the last 4 years.

Sources: http://www.agricultura.gov.br/arq_editor/file/Desenvolvimento_Sustentavel/Agroenergia/estatisticas (quantities and prices of ethanol and sugar) and http://dfpd.nic.in/fcamin/dirsugar/report-300713.pdf (sugar recovery rate)

Appendix B. Cumulative Distribution Functions of Random Prices

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Iglesias, C., Sesmero, J.P. Economic Analysis of Supplementing Sugarcane with Corn for Ethanol Production in Brazil: A Case Study in Uberaba. Bioenerg. Res. 8, 627–643 (2015). https://doi.org/10.1007/s12155-014-9551-4

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12155-014-9551-4

Keywords

Search

Navigation