President Bush Talks Ethanol In Brazil

I’m going to Brazil.  What you say.  Yes, I’m going to Brazil.  I don’t know when, but I’m going there.  With President Bush set to touch down there on his Latin American tour, any good agricultural economist should follow his lead.  It would seem President Bush has caught ethanol fever.  In Brazil, I expect him to give a massive stamp of approval to the Brazilian ethanol industry.

For those of you who have read this column over the last 20 years, you know I’m no stranger of the southern hemisphere.  However, I keep turning up in the South Pacific.  I’ve never been to South America, albeit I did have a bit of a scrape once off the coast of Trinidad near some Venezuelan islands.  Getting to Brazil to see their agriculture needs to be a priority.

We shall see.  I’ve often said I’d like to lead a tour to Asia.  Brazil might be in the cards too.  Their ethanol gold rush is dwarfing ours here in Canada.  Understanding why that is and what is their future is key to understanding how ethanol and bio-fuels are changing the face of world agriculture.

In short it all has to do with efficiency.  Our Brazilian friends have a long history of ethanol production.  They also derive ethanol from sugar cane, which is far more efficient than using corn.  Their ethanol production is twice that per hectare than the US.  When you consider the energy (per unit used) used to derive ethanol (from planting to processing) in Brazil versus corn ethanol in the US the Brazilians are about 5 times more efficient.

Brazil got this way because they had the vision early.  In the 1970’s when the world was rocked by the high oil prices the Brazilian government decided to reduce its dependence on foreign oil.  Sugar prices were decreasing.  A reasonable approach at the time was to encourage the production of ethanol to reduce the dependence on foreign oil and take advantage of their comparative advantage as a sugar cane producer.

The rest as they say is history.  Now the US and Brazil produce about 72% of the world’s ethanol.  Brazil adds ethanol to gasoline at 23% of volume.  Of course pure ethanol is used almost everywhere and is universally available.  New automobiles in Brazil can use gasoline, ethanol or a combination of both.  At the present time about $14 billion US is being invested in new sugar and ethanol plants in Brazil.  It makes what’s happening in Canada look like play school.

So along comes President Bush to Brazil.  He likes Brazilian ethanol.  Last year alone the Brazilians exported 430 million gallons to the US, a six-fold increase from 2005.  This happened despite a 54 cents per gallon tariff on every gallon entering the United States.  The Brazilian President wants that gone.

That’s not going to happen.  Any Canadian farmer could tell any Brazilian that.  Our American friends just don’t do that.  The American farmer is just too important in the American political process to throw that ethanol tariff away.  In fact its been extended to 2009 to support American ethanol and the American farmer.

There is another thing going on.  Venezuelan President Hugo Chavez is a thorn in President Bush’s side.  In fact he’s worse than that because he’s oil rich and he’s in the western hemisphere.  He has tremendous influence in South America, which almost by default has an anti-Gringo attitude.  Every barrel of oil ethanol replaces is a tap against Chavez.  Ditto for all the trouble makers in the Middle East.  However, this week President Bush is in Brazil.  Chavez is clearly in his cross hairs.

From a Canadian ethanol perspective watching President Bush and Brazilian President Lula negotiate over ethanol is like a mouse watching two big cats.  We need their ethanol in this country because we don’t produce enough to satisfy our own government regulated bio-fuel requirements.  In Ontario we have a 5% requirement for ethanol in gasoline effective last January 1st.  A 10% requirement has been in the political wind for 2010.  However, so far no political commitment has been made.

Prime Minister Stephen Harper commitment to big oil might be one impediment.  However his green makeover in the run up to a possible spring election might make him do things we’d never expect.  Will there be a 5% federal commitment to bio-fuel, or how about a 10% commitment?  We can only hope.

For corn producers, it is the best of times.  Yes, some of you might be nervous about an American President talking about sugar cane Brazilian ethanol.  But just like agricultural biotechnology of a few years ago, this ethanol cat has been let out of the bag.  It’s going to be pretty hard to stuff it back in.  Whatever happens in Brazil this week will surely come home to roost in farm country.  However, planting corn is still the thing to do in 2007.  I don’t think sugar cane in Canada has much resonance.