Abstract
Through the interviews conducted, we gathered a considerable amount of information regarding the deregulation of the sugarcane ethanol industry in Brazil. We attempted to summarize the main results of our research by theme.
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Notes
- 1.
The production of sugar and ethanol from sugarcane is, to some extent, vertically integrated.
- 2.
Decree-Law no. 3,855 (handed down on November 21, 1941).
- 3.
The CONSECANA-SP model has now been widely adopted in the state of São Paulo.
- 4.
The Proálcool plants were located in the states of Mato Grosso, Mato Grosso do Sul, and Goiás, as well as in the central-western region of the state of São Paulo.
- 5.
According to one sugarcane supplier, interviewed in Sertãozinho in September of 1999, only one of the twenty processing facilities in the region formalized the CONSECANA-SP model through contracts. The rest of the processing facilities, although making payments based on the total recoverable sugar, did not enter into contracts in order to do so. The obstacles to formalizing the negotiations between the parties were put up by the sugarcane suppliers as well as by the producers of sugar and ethanol.
- 6.
It is noteworthy that, even in the Sertãozinho region, which is home to the largest association of sugarcane suppliers in the world and where 35–40 % of the approximately 17 million t of sugarcane processed in the 1998–99 harvest season was obtained from independent suppliers, several issues were also raised in the first year during which the CONSECANA-SP model was used.
- 7.
SILVA, G.M.A. Advisor to the CIMA Technical Subcommittee.Personal Communication, 1999.
- 8.
If the supply is to be consistent with the demand, sugarcane from independent suppliers is needed in order to achieve the required levels of production, and a partnership emerges between the parties so that an adequate supply can be ensured.
- 9.
It should be made clear that that does not necessarily mean adopting the CONSECANA-SP model but rather any type of contract that is amenable to both parties.
- 10.
Source: http://www.udop.com.br.
- 11.
It is of great importance to establish an accurate definition of the market within which a given enterprise operates (i.e., for what market the concentration indices are being calculated). Market concentration indices are used in order to determine the structure and power of a given market. If the market is defined too broadly, so that enterprises are seen not to be truly in competition with each other, the concentration indices will be underestimated, whereas they will be falsely elevated if the market is defined to narrowly, indicating market power that does not really exist.
- 12.
The ORPLANA Newsletter, Year VI, No. 1, January of 1999, p. 1
- 13.
Establishing prices for the inputs of outputs of the sugarcane ethanol production chain, as well as setting production levels for sugarcane suppliers and processing facilities.
- 14.
Among the many examples of such niche markets are that for are organic sugar (produced without pesticides), which is widely accepted in Europe: the São Francisco sugar mill, in the city of Sertãozinho, has sold organic sugar on the European market since 1997 and began selling it on the domestic market in April of 1999; and Univalem Sugar and Ethanol Inc. introduced an organic sugar with the Greenpeace seal of approval. In addition, the União company began to market sugar in cube form, in order to use the weight of its brand to sell products with higher added value; the Nova América company introduced “Dolce” refined sugar in packages of various sizes; two companies (Guarani Sugar and Cargill) developed a mixture of sugar and began to export it to Canada, Japan, and the Middle East; the Albertina company introduced “Sucareto” (sugar in 250-g disposable packages); and the Barra company developed a new type of sugar (“Lowsugar”).
- 15.
In the 2010–2011 harvest season, Brazil was the world’s largest sugar supplier (producing 38.35 million t, which accounted for 23.8 % of the worldwide production), as well as the largest exporter, with 46 % of the world market, exporting 67.3 % of its overall production.
- 16.
Profitability of producing hydrous ethanol continues to be a problem, due to the current Petrobras pricing policy for gasoline in Brazil.
- 17.
Although ethanol-powered engines are more powerful than are gasoline-powered engines (to compensate for the lower calorific value of the biomass-based fuel, ethanol-powered engines have higher compression ratios, which increase power), fuel consumption is also higher. Therefore, the pump price of ethanol has to be lower in order to attract consumers.
- 18.
The Contribution for Intervention in the Economic Domain (an excise tax) was established on December 19, 2001 (http://www.receita.fazenda.gov.br/Legislacao/Leis/2001/lei10336.htm).
- 19.
According to the Brazilian Ethanol Industry Association (1997), there were three types of fuel taxation in the United States at that time: a federal excise tax of US $ 0.184 per gallon; a state tax, ranging from US $ 0.31 to US $ 0.90 per gallon; and certain municipal taxes. However, after the passage of the Clean Air Act in 1990, incentives were given to promote the use of ethanol as a way to improve performance and reduce air pollution: if the gasoline is mixed with 10 % ethanol, the federal excise tax is reduced to US $ 0.13 per gallon, and mixers would be exempt from paying US $ 0.54 per gallon on ethanol imported from Brazil. In some American states, corn growers were granted additional incentives to produce ethanol, which was subsidized, on average, at US $ 0.045 cents per gallon. In England, although the government did not interfere directly in the fuel market (through price fixing or subsidies), a differentiated tax structure directed the fuel market, with reduced taxes on unleaded gasoline, natural gas, and fuels used in public transport. In addition, leaded gasoline was taxed at a higher rate.
- 20.
A process that began in 2000, with the entry of the French groups Louis Dreyfus, Tereos, and Sucden, who purchased ethanol plants unilaterally or through partnerships established with national sources of capital, and continues today.
- 21.
Novaes, W. “Proálcool is not cops and robbers movie”. Gazeta Mercantil (newspaper), March 5, 1996: p. A-3.
- 22.
In 2010, sugarcane cultivation occupied an area of 8.14 million ha, or 2.5 % of all arable land in Brazil. The portion of the sugarcane crop earmarked for ethanol production accounted for 1.5 % of all arable land (4.88 million ha).
- 23.
Rosa, L.P. “Ethanol should be maintained, study reveals”. Folha de São Paulo (newspaper), Financial section, April 6, 1996: p. 2.
- 24.
Brazilian Sugarcane Industry Association Newsletter, year 2, no. 23, August, 1999.
- 25.
There are employer associations and worker unions within all three of the industries analyzed (sugarcane, sugar and ethanol). According to the author, the activities of those associations vary from state to state, the most active being the associations in the state of São Paulo.
- 26.
The energy matrix defines the use of various forms of energy: that provided by the burning of petroleum-based fuels, natural gas, or biomass; and electricity (generated in a variety of ways). The energy matriix can vary from state to state, depending on the regional availability of fuels.
- 27.
The issue of ethanol stocks and their financing is currently a source of concern for ethanol producers, and government policies in this regard seem to fall short of the demands of those producers.
- 28.
As previously mentioned, it is the National Petroleum Agency that is responsible for overseeing the proper functioning of the National Fuel Inventory System and maintaining compliance with the Annual Strategic Fuel Reserves Plan (in accordance with Law no. 9,478, enacted in August of 1997). Provisional Measure no. 1690–1 (passed in June of 1998) established the national fuel supply as a public utility and set administrative sanctions for violators of the rules laid down for activities related to the fuel market. Provisional Measure no. 554 (passed on December 23, 2011) amends Law no. 11,110 (enacted on April 25, 2005) by authorizing the granting of economic support, in the form of equalization of interest rates for the financing of ethanol storage, as well as amending Law no. 10,453 (enacted on May 13, 2002).
- 29.
In 1999, the demand for hydrous ethanol was declining, sales of automobiles that run exclusively on ethanol representing less than 1 % of total car sales. The perception was that the market for hydrous ethanol was going to disappear. That situation was completely reversed after the introduction of flex-fuel vehicles in 2003.
- 30.
In São Paulo, the signing of the “Pact for Full Employment in the Sugarcane Ethanol Industry”, in August of 1999, formalized commitments between the various actors in the chain in order to rescue the credibility of ethanol and strengthen an important economic activity for the state.
- 31.
According to the authors, since the passage of the Clean Air Act in the United States in 1990, which mandated a substantial reduction in the levels of emissions from fuel burning and industrial processes, there was a decrease in the atmospheric levels of total particulate matter and sulfur dioxide, which fell by 13.4 % and 15.7 %, respectively, between 1970 and 1977.
- 32.
According to Sindicom estimates, the taxes collected on hydrous ethanol at that time amounted to R $ 2 billion per year, with a potential increase of R $ 600 million, which was the total value of the uncollected taxes (R $ 222 million in PIS/Cofins and R $ 382 million in ICMS).
- 33.
The fuel distribution market moved more than 5 billion L of fuel (diesel, gasoline, and ethanol) per month and handled approximately US $ 25 billion of product per year. Source: Gazeta Mercantil (newspaper), August 5, 1998: p. C1.
- 34.
The companies that filed the injunctions claimed that the collection of the tax was illegal for two reasons: the replacement of the figure of the tax withholder; and the legal prohibition against such taxes on interstate fuel sales.
- 35.
Beiral (2011) found no evidence that market power was exercised in the ethanol market in the state of São Paulo between 2000 and 2009, neither by ethanol producers (in sales to distributors) nor by fuel distributors (in sales to filling stations).
- 36.
According to Farina et al (1997), industrial policies should allow existing industries to maintain their competitiveness against foreign competitors, considering issues of economies of scale and scope, which can imply acceptance of concentrated sectors of the market and the consequent market powers. The challenge is to lay the groundwork for cooperation between firms while encouraging competition among them.
- 37.
In 1999, there were as yet no flex-fuel automobiles, and the existing fleet of automobiles running exclusively on ethanol required hydrous ethanol. The introduction of flex-fuel vehicles, which can use any proportion of fuel (fuel C or hydrous ethanol), came to solve the supply problem.
- 38.
Both companies petitioned the CADE for authorization to operate for a determined length of time: one year, extendable to two in the case of the BBA; and three years in the case of Brazil Ethanol Inc.
- 39.
The cultivation of sugarcane for the production of sugar was not subsidized by the government. According to CIMA Resolution no. 10, the following states (some in the northeastern region and some in the south-central region) were entitled to support: Mato Grosso, Mato Grosso do Sul, Minas Gerais, Rio de Janeiro, Espírito Santo, and Goiás.
- 40.
Law no. 10,453 (May 13, 2002).
- 41.
The climate of the region causes fruit to ripen quickly, making it difficult to deliver to the market in a timely manner. Therefore, fruit crops would hardly represent a viable replacement for sugarcane.
- 42.
According to Serodio, the cost of sugarcane cultivation in the northeast was the fourth lowest of any region in the world. In 1999, the countries with the lowest sugarcane cultivation costs were Brazil, Australia, and South Africa. Although those costs were lower in the northeastern region than in any other region of Brazil, it should be borne in mind that the industrial yield of sugarcane cultivation, in terms of ethanol/ton of sugarcane, was also lowerin the northeast.
- 43.
According to the interviewee, despite recent intemperate weather in the northeast, productivity had increased by 4.5–5.0 % per year between 1985 and 1999.
- 44.
The authors addressed the loss of well-being resulting from various government policies, such as setting minimum prices, providing economic support for set production levels, setting import levels, and imposing import duties.
- 45.
When analyzing the variations in consumer surplus and producer surplus under the price support regime, one finds that there was a net loss of surplus, known in microeconomics as a “deadweight loss.”
- 46.
For instance, prior to 1999, the ethanol trading desk could not sell ethanol produced in Mato Grosso to market in the north of the country. Therefore, after economic liberalization of the industry, ethanol producers in Mato Grosso would be slow to conquer new markets.
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Ferraz Dias de Moraes, M., Zilberman, D. (2014). Deregulation of the Sugarcane Ethanol Industry in the Late 1990s: The New Role of the Government and More Efficient Ways of Marketing. In: Production of Ethanol from Sugarcane in Brazil. Natural Resource Management and Policy, vol 43. Springer, Cham. https://doi.org/10.1007/978-3-319-03140-8_12
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