July 10, 2006

BRAZIL: Impact of the Ethanol Gold Rush

Biopact Blog has featured a review of a new blog that offers an English language insider's look at Brazil's burgeoning ethanol industry. The author of the blog is Herique Oliveira, a U. of Michigan MBA grad student who grew up in Brazil.

As Laurens Rademakers of Biopact relates, there are numerous interesting articles at Ethablog.

The one that most interested me is one about the impact that world attention to Brazil's ethanol industry has made on that industry and the prices of related commodities and products.



Now it's official: the ethanol gold rush is on in Brazil.

Expect the price of everything in the country related to ethanol to go up substantially in the coming weeks: land, refineries, equipment, and anything else that can be, at least hypothetically, sold to the foreigners who will come streaming into Brazil in search of the fuel the country has been using for over 30 years.

Or so hope many Brazilians, from government officials in Brasilia to farmers in the Brazilian Midwest to businessmen in the city of Sao Paulo. Ever since the June 21st. edition of "Exame" magazine, the Brazilian equivalent of "BusinessWeek", brought a cover story with the headline: "Ethanol - the World Wants It. We Have It", ethanol has been all the rage in the country.

Brazilians have seen ethanol sold at fueling stations ever since the Pro-Alcool program was created by the Federal government in 1975. To a Brazilian, filling up the tank with ethanol is no big deal - many do not see any reason for all the fuss that surrounds the fuel's introduction to markets in the U.S. and the E.U.

But they certainly see the opportunities. They have watched the convergence of factors - 9/11, the Iraq War, political instability in the Middle East, the growing climate crisis - that is associated with escalating oil prices. Now, with the Exame article, they suddenly realize that the rest of the world has no realistic alternative for the coming years but to follow the path they chose to go down 31 years ago.

But the big question I have heard since the article came out is, "Can Brazil really produce enough ethanol for the entire world?" Market insiders know that Brazil has had trouble producing enough ethanol for its own fleet of cars and light trucks, which, at about 15 million, is 23 times smaller than that of the U.S. Can Brazil then serve as energy basket to the world?


To read Henrique's opinion on that question, continue to read the article. There are numerous other interesting articles detailing the production and marketing of ethanol in this enigmatic country (at least for most Americans).

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1 comment:

corndog said...

Very interesting blog. Thanks!