Lula's Ambitions to Lead in Sugar-Cane Ethanol (COHA)

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Lula's Ambitions to Lead in Sugar-Cane Ethanol (COHA)

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Council on Hemispheric Affairs - Aug 24, 2007
http://www.coha.org/2007/08/24/aspiring-to-leadership-brazil-president-lula-and-sugar-cane-ethanol/

Aspiring To Leadership:

Brazil, President Lula and Sugar-Cane Ethanol

by Anna Gangadharan and Albert Larcada
COHA Research Associates

The possible elimination of a 54 cents-per-gallon tariff on imports of
Brazilian ethanol to the U.S. has become a vital issue in Brasilia due
to the countrys potential economic, environmental, and social
repercussions. Lifting the tariff would ultimately produce a surge in
demand for Brazils domestic bio-fuels in the U.S., where crude oil
imports currently dominate the domestic energy industry. Not being able
to handle the positive economic impact this move could have in Brazil,
various domestic and overseas environmental organizations have uttered
concerns over threats to the Amazon rainforest, a region that comprises
nearly 60 percent of the nations expanse. They argue that higher
sugar-cane ethanol exports, resulting in enhanced earnings to the
nations economies, could do harm to the Amazon by transforming the
rainforest into a normal agricultural terrain. Currently, Brazil is
home to 336 sugarcane plantations which have enlisted 10.3 million
hectares of land usage. Should the U.S. tariff be lifted, demand for
sugar-cane ethanol will further skyrocket, making it difficult for
Brazils President Lula to convey anything but unqualified support for
such an expansion. The fact is that Brazil now finds itself immured in
the conflictive engagement of attempting to simultaneously expand its
economy while still addressing its poverty, income inequality, and
racial concerns. Most of all, this blueprint does not even begin to lay
siege to the countrys overpowering split between rich and poor " which
makes it a nation of two nations.

Ethanol in the U.S. and Brazil

The United States and Brazil are currently the worlds top producers of
ethanol and bio-fuels, accounting for 70 percent of the global supply.
Brazil alone produces 4.4 billion gallons of ethanol, due in large part
to its ability to rely upon sugarcane methodology for producing ethanol
rather than the corn-base process formed in the U.S. Thanks in no small
part to ethanols demonstrable advantages over petroleum, such as its
minimal adverse impact on the environment; approximately 75 percent of
Brazilian automobiles now possess the capability to run on some
combination of gasoline and ethanol.

The recent triggering of the ethanol boom has gradually further
intertwined the rather erratic economic relationship between the
largest North and South American countries. In 2006, more than half of
Brazils exported ethanol was sold to the U.S., with that figure
expected to rise dramatically in the coming years as Washingtons
interest in ethanol swells. The rise in U.S. demand for Brazilian
ethanol could increase exponentially if the 54 cents"per-gallon tariff
on bio-fuel is lifted.

The burdensome import tax has been challenged in the U.S. Congress on a
number of occasions. The latest attempt to rescind it was on June 20,
when Republican Senator Judd Gregg (R-New Hampshire) led a push to
overturn the tariff, citing the current over-reliance of the U.S. on
Venezuelan oil as his motivation: I would rather buy ethanol from
Brazil than oil from Venezuela. It just makes a lot more geopolitical
sense in how we protect ourselves. Brazils friendly geopolitical
position weighs in favor of its worldwide strategies importance which
inevitably will service the cause of the potential improvement of the
countrys strengthened economy. But at the same time, its ability to
threaten the U.S.-based corn ethanol methodology that would come from
the lifting of the U.S. tariffs can not be ignored.

However, the measure affecting ethanol, known on Capitol Hill as part
of the farm bill, was shot down in the Senate by a vote of 56-36 in
favor of continuing the tariff, thus protecting the price of U.S. corn.
Republican Senator John Thune of South Dakota explained his nay vote:
Eliminating the ethanol tariff would send a mixed signal to producers,
investors and farmers who sell their products to ethanol plants.
Senator Thunes thoughts appear to be the prevailing sentiment within
the U.S. Congress. Lewis Perelman, a senior fellow at the Homeland
Security Policy Institute in Washington, is not very optimistic that
any transformation will be revealed in the short term. During an
interview with COHA, he explained, I dont see the political landscape
changing anytime in the foreseeable future. Politicians and American
citizens alike seem content with the way things are. To date, there
has been no realistic threat to the survival of the ethanol tariff in
the House or the Senate. Most members of Congress believe that
releasing the import tariff would be a disservice to American corn
farmers more than it would abet the welfare of the American public, as
rationalized by the recurring refusal to cancel the ethanol tariff.

Who Is Holding Brazil Back?
President Lula Foresees a Bigger Role in the Global Economy

Lula feels ebulliently confident about his countrys future prospects,
a point he made clear at a May 2007 press conference, when he asserted,
Brazil in 2007 is another country. I do not need to talk about
economic stability, nor investment credibility, nor foreign debt, nor
foreign reserves] All these things are practically resolved. Lula also
has identified Brazil as having the potential to drastically expand its
economy, a goal that appears to sit at the top of his agenda. He aims
to maximize the production of sugar-cane-base ethanol in response to
the high demand for biofuel in the energy market. In March 2007, U.S.
President George W. Bush traveled to Brazil to forge agreements on
sugar-cane ethanol cultivation and exportation. During his visit, Bush
signed an agreement with Lula to broaden development of biofuels such
as ethanol. Prospects for economic growth are appearing rapidly, and
Lula has cagily taken note of Brazils potential to dominate the global
energy market. But the fact is that huge obstables await Lulas
optimism regarding the future of sugar-cane ethanol, and that a block
will be posed by the politics of corn.

Brazils Contradiction: Finding a Balance Between
Banishing Human Rights Abuses and Economic Expansion

Lulas surging support for the expansion of sugar-cane ethanol
production is evident, as demonstrated when he labeled ethanol
producers as national and world heroes. Also, government subsidies
valued at over $2 billion are being provided to sugar-cane producing
mills across Brazil. These affirmations and positive actions provoke at
least some well-merited criticism, as recent revelations have made
public the horrendous conditions workers are subjected to on sugar-cane
plantations.

Tom Phillips of the Guardian Unlimited has reported on these
intolerable realities, illustrating the often neglected treatment of
the workers (called cortadores de cana- sugar cane cutters) when he
describes the plantation town of Palares Paulista as a place where,
lopsided red-brick shacks crowd together, home to hundreds of
impoverished workers who risk life and limb to provide the local
factories with sugar cane. In June 2007, a raid on a plantation in the
Amazon exposed more than 1,000 laborers working 14-hour days under
reprehensible circumstances, according to the Houston Chronicle. Vivian
Sequera of the Associated Press reported that Many of them [workers]
were sick because of spoiled food or unsafe water, slept in cramped
quarters on hammocks and did not have proper sanitation facilities.
Deeply embedded in the appalling conditions of the cortadores de cana
lies another quandary being routinely faced by Brazilian migrants:
Migrants enter onto this kind of work because of their inability to
secure jobs elsewhere.

In tandem, the market for ethanol is escalating, also causing an
elevated requirement for workers who are desperate enough to function
under often such atrocious surroundings, ultimately making it difficult
to lodge human rights cases springing from alleged violations by
management. Lula vowed to find a common denominator to prevent Brazil
from losing the golden opportunity it has with ethanol and biofuel.
Aside from episodically attempting to stage government talks regarding
the deplorable conditions of the cortadores de cana, the Lula
administration has achieved only minimal progress in protecting those
cultivating and processing sugarcane.

Anti-Deforestation Finds Company: The Amazon at Risk

Many environmental organizations are expanding to monitor campaigns of
sugarcane-ethanol production. In addition to the risk of damaging the
Amazon, disputes over the burning of coca leaves have surfaced due to
the toxic pollution it releases into the air. Lula has openly
deprecated the trepidations of environmentalists who believe such fears
are entirely merited. He has remarked with shocking pedestrian
boilerplate rhetoric, The Amazon isnt a place to plant cane] the
cartel of the worlds powerful is trying to prevent Brazil from
developing, trying to prevent Brazil from being transformed into a
great nation. In addition, the production of soybean-based bio-diesel
has massively increased cultivation, positioning the Amazon as a prime
location for potential soybean expansion. Already, upwards of 20
percent of the Amazon rainforest has been destroyed, highlighting
Brazils absolute necessity to address the enormous risks embedded in
increasing sugar-cane ethanol production, notwithstanding Lulas
eternal optimism, and his lapses into often ill-founded fantasy.

Brazil Waits for Answers; Lula Remains Unflappable

As Brazil waits for the momentous decision concerning the fate of the
U.S. tariff on ethanol, President Lula continues his crusade to call
down the spotlight of publicity on Brazils emerging role in the global
energy market, staunchly insisting that its economy will experience
profound growth. Lula now finds himself trapped between the goal of
being a leader in the energy market, and the fundamental need to stamp
out the abuse of labor rights and deal with the environmental
shortcomings that are found in the country. To that end, although the
government is not directly culpable for the abuses now flourishing in
the country, it remains an embarrassing and sensitive situation due to
the profound importance of Brazils reputation at this point in its
history. Furthermore, the fact that Lula himself was able to achieve
prominence by working as an activist for labor rights earlier in his
career provides for a painful irony, considering the negligible
attention his administration has awarded to the human rights abuses
committed by his countrys major sugar-cane ethanol companies.


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