Re: Best Ethanol Plays?

With Big Boost From Sugar Cane, Brazil Is Satisfying Its Fuel Needs

Lalo de Almeida for The New York Times
A man headed to work at a sugar plantation in Orlandia in São Paulo
State, which accounts for 60 percent of the sugar production in Brazil.


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By LARRY ROHTER
Published: April 10, 2006
PIRACICABA, Brazil — At the dawn of the automobile age, Henry Ford
predicted that "ethyl alcohol is the fuel of the future." With
petroleum about $65 a barrel, President Bush has now embraced that
view, too. But Brazil is already there.

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Lalo de Almeida for The New York Times
Ethanol, or alcool, is popular at a São Paulo station and across Brazil
because it costs less than gas.

This country expects to become energy self-sufficient this year,
meeting its growing demand for fuel by increasing production from
petroleum and ethanol. Already the use of ethanol, derived in Brazil
from sugar cane, is so widespread that some gas stations have two sets
of pumps, marked A for alcohol and G for gas.

In his State of the Union address in January, Mr. Bush backed financing
for "cutting-edge methods of producing ethanol, not just from corn but
wood chips and stalks or switch grass" with the goal of making ethanol
competitive in six years.

But Brazil's path has taken 30 years of effort, required several
billion dollars in incentives and involved many missteps. While not
always easy, it provides clues to the real challenges facing the United
States' ambitions.

Brazilian officials and scientists say that, in their country at least,
the main barriers to the broader use of ethanol today come from
outside. Brazil's ethanol yields nearly eight times as much energy as
corn-based options, according to scientific data. Yet heavy import
duties on the Brazilian product have limited its entry into the United
States and Europe.

Brazilian officials and scientists say sugar cane yields are likely to
increase because of recent research.

"Renewable fuel has been a fantastic solution for us," Brazil's
minister of agriculture, Roberto Rodrigues, said in a recent interview
in São Paulo, the capital of São Paulo State, which accounts for 60
percent of sugar production in Brazil. "And it offers a way out of the
fossil fuel trap for others as well."

Here, where Brazil has cultivated sugar cane since the 16th century,
green fields of cane, stalks rippling gently in the tropical breeze,
stretch to the horizon, producing a crop that is destined to be
consumed not just as candy and soft drinks but also in the tanks of
millions of cars.

The use of ethanol in Brazil was greatly accelerated in the last three
years with the introduction of "flex fuel" engines, designed to run on
ethanol, gasoline or any mixture of the two. (The gasoline sold in
Brazil contains about 25 percent alcohol, a practice that has
accelerated Brazil's shift from imported oil.)

But Brazilian officials and business executives say the ethanol
industry would develop even faster if the United States did not levy a
tax of 54 cents a gallon on all imports of Brazilian cane-based
ethanol.

With demand for ethanol soaring in Brazil, sugar producers recognize
that it is unrealistic to think of exports to the United States now.
But Brazilian leaders complain that Washington's restrictions have
inhibited foreign investment, particularly by Americans.

As a result, ethanol development has been led by Brazilian companies
with limited capital. But with oil prices soaring, the four
international giants that control much of the world's agribusiness —
Archer Daniels Midland, Bunge and Born, Cargill and Louis Dreyfuss —
have recently begun showing interest.

Brazil says those and other outsiders are welcome. Aware that the
United States and other industrialized countries are reluctant to trade
their longstanding dependence on oil for a new dependence on renewable
fuels, government and industry officials say they are willing to share
technology with those interested in following Brazil's example.

"We are not interested in becoming the Saudi Arabia of ethanol," said
Eduardo Carvalho, director of the National Sugarcane Agro-Industry
Union, a producer's group. "It's not our strategy because it doesn't
produce results. As a large producer and user, I need to have other big
buyers and sellers in the international market if ethanol is to become
a commodity, which is our real goal."

The ethanol boom in Brazil, which took off at the start of the decade
after a long slump, is not the first. The government introduced its
original "Pro-Alcohol" program in 1975, after the first global energy
crisis, and by the mid-1980's, more than three quarters of the 800,000
cars made in Brazil each year could run on cane-based ethanol.

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