Sugarcane ethanol: o que aconteceu, brasileiro?

Although there's a significant amount of debate as to whether or not the use of food products in biofuels causes a rise in the price of food in general (the so-called "Food vs. Fuel Debate"), when we look at specific markets and feedstocks there are quite a few trends that show the trade-offs between using food sources as fuels. Nowhere is this more apparent these days than in Brazil. The country was once touted as a potential fuel ethanol exporter for the entire world. Its sugarcane fields are vast and it had the mechanization and infrastructure - built in the 1980s, no less - to make ethanol from cane juice. Unlike in corn ethanol, no enzymes are required to liquefy and saccharify (that is, break into digestible sugar monomers) the feedstock; you can almost literally dump raw cane juice into a massive industrial scale fermenter. The only way American corn ethanol got off the ground were stupidly high tariffs on imported ethanol, ostensibly to offset the blending credit but in reality stupidly propping up fuel prices. Let me tell you, trade policy maneuvers like that take some balls; the Bush administration apparently had some to spare.

Ethanol-rich Brazil rode through the era of high gas prices with nary a scratch and blistering economic growth. But this year, Brazil imported ethanol from the United States, and on net terms became a fuel importer. What the hell?

There are a whole lot of factors at work here. I'll go over them one by one:

1. The first and biggest one is that the supply of cane juice has gone down.  New acreage planted in Brazil since 2008 has been low and a major crop failure over the last two years has cut the sugarcane haul by about 10%. That naturally should have fallen on both the sugar market and the ethanol market; however, the tonnage of ethanol dropped precipitously, even more than could be explained by the supply drop.
2. That's due to the second reason, which is that sugar is currently a more profitable product for sugar refineries than ethanol is. Cane sugar and molasses are inherently more productive on a weight basis than fuel ethanol to start with: you don't lose any of the mass contained within to carbon dioxide or biomass growth. Energy to distill really doesn't factor into it, for reasons I'll discuss later. Furthermore, unlike with corn ethanol, the products you get out at the end aren't really suitable for much more than fertilizer. So the cheap cane sugar ($.08 a dry-weight pound) starts to look slightly less favorable for biofuels. However, sugar is also a globally traded commodity that strongly favors local producers because of high transport weight. Current economics are now driving sugar prices high enough for Brazilian producers to be competitive globally. Sugar refineries are, to the extent that they can, diverting all of the cane juice they can to sugar production and away from ethanol.
3. Yet another aspect in this whole mess is the Brazilian economy. The overvalued Real is driving export competitiveness down (though recent currency fluctuations may change that: the last month has seen massive depreciation). In addition, high inflation is driving up wages, increasing costs in the relatively labor-intensive Brazilian economy. This would not be as much of a problem if it weren't for the fact that...
4. Low investment in the sugar refining and harvesting sector is increasing costs as well. Following the crash of 2008, real wages in Brazil have risen but investment in mechanized harvesting, more modern sugar refinery equipment and a more general substitution of capital for labor went out the window. Now that Brazil can no longer depend on the poverty model of export competitiveness (that is, having an army of poor peons to harvest and process), its lack of capital is hampering its ability to cheaply and quickly harvest its stuff.

Although the joke among video gamers is that Brazil takes things that are good and ruins them, it seems like right now the big reversal is mostly being driven by exogenous factors. For the perpetual Brazil bears, then it seems like the joke's on them.

br? huehuehuehuehue