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Economy & Energy
No 34: October - November 2002  
 ISSN 1518-2932

seta.gif (5908 bytes)No 34 Em Português

 

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e&e No 34

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Alcohol Revisited

Potential  of Ethanol Production from Sugarcane

Former Minister Camilo Penna receives the highest decoration

Economic Growth in a Democratic and more Just Society

http://ecen.com

ALCOHOL REVISITED

 Genserico Encarnação Jr.
genserico@ecen.com

 

            Due to the probability of the Pro-Álcool program reactivation at the end of the present Administration or the next one, I have revised and updated an article I have written six years ago.

There is no doubt that the alcohol fuel program can be important for Brazil. I also agree that it should be reactivated. What is arguable is the way how it was originally implemented and developed. Therefore, it is necessary to analyze it in order to prevent the mistakes of the past whenever it returns to the national energy scene.

            In its origin, Pro-Álcool served preferentially the sugarcane growers, the national car industry and the high middle class. It is true that the program generated about one million jobs – most of them underemployment – poorly paid, seasonal and highly hazardous. Concurrently, it has generated a neologism: “bóias-frias”[1]. Among the benefits, it is accountable for a certain improvement of environmental conditions in the large cities when it substituted gasoline.

            The capital sin was that the program never was self-sustaining, namely, it never reached its economic viability. Production cost is still higher than its selling price.

            Being the product of a seasonal and localized culture, the alcohol program could never have had the national amplitude it had, specially taking into consideration the continental size of the country. As it is known, 70% of the alcohol produced in Brazil comes from São Paulo. The rest from the Northeast (20%) and other states.

            Therefore, to supply fuel alcohol to the whole country, including distant non-producing regions was a nightmare. This was possible due to a series of reasons: the existence of authoritarian governments, the catastrophic forecasts (not confirmed) of petroleum price rise, the economic and political power of the São Paulo state and that of the sugarcane growers and alcohol plant owners and the participation of Petrobrás through the availability of its transport logistics (pipes, tanks, terminals, ships, etc.) and distribution and gas station network.

            Another big mistake was to emphasize the hydrated alcohol relative to anhydrous alcohol (with no water or a small water content). In order to be accepted by the consumer, hydrated alcohol was sold at prices compulsorily lower than that of gasoline. The right thing, as it happened later, should be to give priority to anhydrous alcohol as a gasoline additive, substituting tetraethyl lead aiming at improving the gasoline performance and decreasing its polluting emissions.

            When I wrote the previous article I had just participated of a seminary in Brasília sponsored by the sugar-alcohol bloc of the Brazilian Congress, a group of Congressmen larger than any political party. Among the statements I have heard in the mentioned seminar there was one that maintained that Europe produces more food than it needs and therefore it could afford to cut its production and start energy product cultures. In Brazil sugarcane has occupied the best land decreasing or pushing further the space for basic food production. I am not referring to the total agricultural production that has actually increased, such as soybean and citric fruits, aiming particularly at exports. By pushing those cultures, it has increased the food prices. In the Brazilian reality there is no lack of food, what a large part of the Brazilian people lacks is food at accessible prices or the purchase power to get it, namely, employment.

            Another participant, an American woman, has rightly considered that the petroleum industry in the United States is indirectly subsidized if one computes the large sums of money applied in military expenses that guarantee supply, specially petroleum from the Middle East. Therefore, she correctly justified the subsidies that the alcohol industry gets from the government of her country.

            This justifies in a certain way the subsidies that Pro-Álcool gets and could continue to have here. However, what differentiates us from the United States is that over there the help is transparent, coming directly from public money, forcibly for a time period and with goals to be reached. There instead, the subsidies are hidden in price structure of gasoline and diesel oil as well as in the cheap and not-refunded financing.

            From what was described above we could deduce that our alcohol program should be oriented to serve determined producing regions and the hydrated alcohol fleet that circulates in the urban centers. Besides that ,as it already happens, it should be an additive to gasoline that has a price much more attractive than that of hydrated alcohol.

            Considering the possible increase of alcohol acceptance in the international market as one of the oxidizing additives to gasoline aiming at abating emissions, the revisited program should invest also in exports of the product. A front to be considered is that of the vacillating Mercosul as well as the American market (now protected by import tariffs) and the European one. Due to an aberration of the program, we have even imported alcohol and methanol in order to supply national needs.

            The alcohol program could also serve the purposes of the agrarian reform. Many of the sugarcane growers and plant owners who are in debt to the governmental financing institution could pay their debt with land, plantations and, who knows, shares in their business. Settlement in these areas could continue with sugarcane production and if possible with cooperative mini-distilleries. It would be one of the most  achievable form of increasing the income of the settlers relative to that from subsistence production. We are quite aware of the political difficulty to implement this guideline proposal.

            Finally, following the foreign experience, there is no restriction to continue the subsidization of the program as long as it is carried out in a transparent form. The subsidy should come directly from the National Treasury or through fiscal incentives whatever is more convenient. It should not pass through Petrobrás’ accounting that is now competing with other companies. And of course, following a plan having well defined duration and objectives.

            Summarizing:

1)     Pro-Álcool is strategically and environmentally important, it should be rationally reactivated considering mainly the imminence of a war in the Middle East;

2)     The Program should not have a national dimension, it should be restricted to the producing regions or neighboring ones.

3)     Emphasis should be given to anhydrous alcohol and the fixed fleet (public and corporative vehicles, taxis etc.) should use hydrated alcohol;

4)     Subsides should be transparent in what concerns the origin of resources, beneficiaries, duration, objectives to be reached etc;

5)     Seek its full economic viability;

6)     To serve the agrarian reform program with assignment of land and assets of those responsible for debts to governmental financial institutions and settlement of rural workers in these lands, continuing the production of sugarcane and alcohol; and

7)     Seek the export of the product as direct fuel or as oxidizing additive to gasoline.



[1]. "Bóia-fria" means "cold meal". The peasants who travel daily to a rural property, generally to do a task-work, bring their food from their homes, without warming them before eating.

 

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Revised/Revisado:
Tuesday, 11 November 2008
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