Brazilian Ethanol Producers Forget They Wouldn’t Be Caught Dead with American Corn Growers

On April 3^rd, a mission from the US National Corn Growers Association visited the Sao Paulo offices of Unica, the Brazilian trade organization that represents much of the local sugarcane industry. According to a press release put out by Unica, the purpose of the meeting was “to discuss common ground in the production of ethanol from corn and from sugarcane. Both Brazil and the United States share a common identity as large producers and consumers of ethanol. Further, both countries are certain that ethanol won’t become a globally-traded commodity until there is production and use by a greater number of countries”

Sadly, Brazilian ethanol producers seem to have forgotten much of what was learned from mid-2007 to mid-2008, when runaway prices for food staples like corn gave a bad name to Brazil’s successful 35-year track record with sugarcane ethanol – to this day, and for the foreseeable future, the world’s only commercially-feasible experience with an alternative fuel for cars and light trucks.

As protests broke out around the world over rising corn prices, Brazilian sugarcane ethanol makers suddenly found associations with American producers very uncomfortable. Throughout most of 2007, and until commodity prices collapsed in Q3 2008, Brazilian sugarcane ethanol took a thrashing in the international media, right along with the United States’ government-financed version.

Consumers outside Brazil came to believe that all ethanol was made from corn – a misconception that was allowed to take root and grow by the complacent Brazilian producers, who believed that they really didn’t have to do much: it was inevitable, or so they believed, that a market for ethanol would be simply mandated into existence by the government in the US, as it had been in Brazil. With demand firmly in place, it would be a matter of time before the US tariff against foreign ethanol came down.

But as bitterness, even hostility, towards ethanol built up around the world, Brazilians became concerned over their tactical rapprochement with the Americans. According to a BBC report from May 2008, by then the Brazilian government “already noticed the need to clarify differences between Brazilian ethanol, made from sugarcane, which does not affect the price of food, and that of the United States, made from corn, a grain that forms the food base of several nations”.

Riding on Coattails of US Corn Ethanol Producers Not a Good Strategy

Eduardo Carvalho, president of Unica until July 2007, bet that ethanol mandates in the US would eventually create a vast market for Brazilian ethanol. He said as much at the first edition of the Ethanol Summit, the mega-conference held by Unica in Sao Paulo in June 2007.

“I don’t believe you can implement an ethanol program anywhere without a mandate for blending with gasoline” (quote on page 120, Ethanol Summit transcript, here). At the conference, he also turned to Ken McCauley, then president of the US National Corn Growers Association, and extended an invitation “from Unica to (…) the NCGA” to form an alliance. “We must be allies. The market for gasoline is very large.” (quote on page 121, Ethanol Summit transcript, here).

Brazilian producers and government officials would quickly come to regret such thinking. The same BBC article from May 2008 points out that, as food prices continued to rise in the months after the June 2007 Ethanol Summit, there was a growing sense of alarm as subsidy-free Brazilian ethanol got branded on the global psyche along the same lines as subsidy-rich American ethanol. This is when the Brazilian grand strategy to penetrate the US market began to founder.

For a while, Brazilian producers thought they had it all figured out. They would let American corn ethanol advocates do the heavy lifting of lobbying Washington for blending mandates, while Brazilian producers would just sit back and wait for demand to swamp the US industry’s supply capacity. With demand firmly in place, the US tariff against foreign ethanol would lead to shortages and price spikes, and the doors would eventually have to be thrown open to Brazilian ethanol.

Having allowed Brazilian and American ethanol to be bundled together, however, Brazilians were forced into a defensive position, simply reacting to events spinning out of their control in the wake of escalating grain prices. It wasn’t until September 2007 that Unica opened an office in DC and decided to go on the offense, with a public relations campaign that attempted to draw a distinction between ethanol made from corn and ethanol made from sugarcane (right).

By then it was too late – negative perceptions had already crystallized around Brazilian ethanol. As far as most people were concerned, not only was Brazilian ethanol causing the impending annihilation of the Amazon forest and the imminent return of widespread slavery, it was also jacking up food prices.

It is understandable that American ethanol producers would want to associate themselves with the world’s single successful experience with an alternative fuel for automotive transportation. But Brazilians’ explicit endorsement of corn ethanol, as evidenced by the recent meeting between Unica and the NCGA, will inevitably come back to haunt them, just as it did a few short months ago.