Growing Green: Brazil and the US at the Top of the Ethanol Trade

The position Brazil and most of Latin America has been in since their establishment as independent nations has been one of commodity exporters, successful in boom cycles but suffering when the specific commodities they export lost value in the international market. The recent boom in the Brazilian economy still has a lot to do with the rise in oil prices and Brazil’s current reserves as well as new found deposits off the coast of this ever growing BRIC. Agricultural production has also lent to the large growth of modern Brazil with soy products, coffee and sugar being exported worldwide, especially to China, which benefits Brazil by increased demand in a growing Chinese market. Brazil and Latin America have been trying to diversify however to avoid their traditional curse of severe bust cycles since the 1950s but sustained growth in recent times might have given the Brazilian economy enough strength to weather economic downturns while diversifying their economy so it can have long term sustained growth.

Part of this diversification due to recent strong growth, an excess of agricultural products in the Brazilian market and the environmental movement mixing with Brazilian industry leaders was the creation of a new sugar based ethanol industry. Brazil and its neighbours have been fuelling its automobiles and trucks with ethanol based fuels for the last few years in order to take advantage of its natural assets and in turn, they became the largest user and exporter of ethanol based fuels in the world. The end result was that the ethanol solution became hotly debated outside of Latin America, especially in the US and EU that had a mix of environmental concerns and security concerns as much of the world’s oil came from the Middle East where thousands of US soldiers were stationed to keep peace in countries which sold much of their oil to the US. Discussions of a nuclear Iran and renewed conflict in the region also pushed many on all sides of the political spectrum to rethink America’s “addiction to oil” and turn corn that was usually turned into high fructose corn syrup into biofuels for America’s large fuel market.

Brazil’s R+D and investments and innovation to move from a purely agro economy into one which could produce diversified products now placed Brazilian technology and know-how at the forefront of the ethanol market, one that appealed to many in the US and EU for reasons mentioned above. The US started to grow its own corn based ethanol, but to meet demands with the boom in fuel prices and the growth in the ethanol based car market, much of the ethanol was exported from Brazil to the rest of the world. Since 2007 this was the case, but in 2010-2011 it seems that bad weather affecting Brazil’s sugar crop and Brazil’s strong growth has lead to a shortage in ethanol production with increased demand. With the low US dollar, Brazil is now forced to import ethanol from the US in order to keep its economy flowing. This growth in the US ethanol industry has lead many to think that perhaps subsidies to that industry to produce ethanol should be curbed. This might create a more competitive market for US ethanol fuels worldwide, considering a good crop in Brazil in the future might re-shift the balance and put Brazil back on top. What needs to be considered as well is that despite negative news about the US economy, the US will most likely stand to be a large growing economy soon and if Brazil grows at its current pace, both economies will be producing and consuming large amounts of ethanol, who will benefit from that growth will be the ones who can produce enough cars that run on ethanol to feed economic growth in both economies.