The Win-Win Ethanol Alliance

(International Relations and Security Network, 24/04/2007)

 

Brazilian President Luis Inacio "Lula" da Silva on 30 March paid an unprecedented visit to US President George W Bush. For a second time, the two leaders had met in two weeks, with strengthening bilateral ties at the top of the agenda and ethanol as the bond holding the relationship together.

 

After the first meeting, when Bush visited Lula in Brazil, there was little more than formalities and good will. A US tariff on Brazilian ethanol imports and claims that the US’ use of corn as feedstock for ethanol production could raise world food prices raised many doubts. After the second meeting, however, a tangible - if testy - alliance formed to the chagrin of Washington's enemies in South America.

 

Ethanol, it seems, is main ingredient for a new geopolitical relationship that has arguably increased US influence in South America while presenting real possibilities of a global presence for Brazil.

 

Almost immediately after Bush's visit to Brasilia, Venezuelan President Hugo Chavez and Cuban leader Fidel Castro decried the evils of a global ethanol market, claiming it would drive up the price of food around the world. The world's poor would inevitably suffer, they said.

 

This argument, however, was absent from the regional energy conference held on 16 April in Venezuela, just two weeks after Lula visited Bush at Camp David. Rather than use the forum where 12 South American heads of state were present to attack Lula, Chavez offered his support for ethanol as a regional energy effort.

 

Chavez is cautious about losing Brasilia's potential support for other regional endeavors, including a Bank of the South alternative to the International Monetary Fund (IMF). Many agree Chavez will work to undermine the US-Brazil ethanol alliance behind the scenes while publicly supporting the idea of ethanol and criticizing the US approach. But Lula will not be swayed. He has placed Brazil on a path toward the future of a global ethanol market, and the US, not Venezuela, is his choice partner.

 

As Bush and Lula move on to other endeavors, the Inter-American Ethanol Commission drives their relationship forward. Headed by former Florida governor and the US president's younger brother, Jeb Bush, the commission brings to the US-Brazilian ethanol alliance a voice with a direct connection to the White House. The additional participation of the president of the Inter-American Development Bank, Luis Alberto Moreno, and Brazil's former agriculture minister, Roberto Rodrigues, cements a well-connected trio that will focus on driving a global ethanol market, while steadily bringing the US and Brazil closer together.

 

A day after the regional energy summit in Venezuela, Brazil's current agriculture minister, Rienhold Stephanes, said Brazil's ethanol production could be boosted without detriment to Brazil's "socio-economic and environmental conditions," discounting Chavez's claims.

 

Noting that Brazil uses some 50 million hectares (ha) for the production of grain, Stephanes claimed sugar cane planting represented just 10 percent of that figure. He said Brazil contained some 150 million ha of pasture land, and that some of that land, as much as 50 million ha, could be used for the expansion of sugar cane crops.

 

Stephanes also pointed out that Brazil uses sugar cane, not corn to produce ethanol.

 

Increased ethanol production in the US could put pressure on corn producers, who may choose to use their corn harvest for ethanol feedstock, rather than for food stuffs.

 

This practice, according to Chavez, can lead to a rise in the price of corn and other corn-based food on the international market. Chavez will likely use that to drive a wedge between Brazil and the US. He has also focused on the US ethanol tariff, which some argue prevents more Brazilian ethanol from entering US markets.

 

Jeb Bush has also responded to Chavez’s criticisms. Speaking to the Brazilian congress in mid-April, he said he expected the US tariff on Brazilian ethanol would be "slashed or eliminated" in "several years."

 

Opening the US ethanol market to Brazilian ethanol producers would certainly place some pressure on the use of corn as ethanol feedstock. Using sugar cane to produce ethanol is a cheaper process. More importantly, however, is Brazil's current focus on ramping up its sugar-cane ethanol production in preparation for global export beyond US borders.

 

Brazil's largest sugar and ethanol producer, Cosan, announced on 19 April plans to invest US$1.7 billion over the next four years to boost the production of sugar, ethanol and sugar-based electricity production. At the center of this plan is the construction of a sugar cane processing plant in the Brazilian state of Goias, which will have the capacity to mill some 500,000 tonnes by 2009.

 

This mill will contribute sugar cane feedstock to Brazil's 350 ethanol processing plants. Another 50 are under construction, and some 57 projects are currently seeking investment. As these plants come online, they will boost Brazil's ethanol output from current production levels at 17 billion liters a year to some 24 billion liters by 2010.

 

While the US remains behind Brazil as the world's top producer of ethanol, its ethanol consumer market will help spur the creation of a global market - one that can be in large part supplied by Brazil, fulfilling the South American giant's desire to become a global player.

 

The irony of an unlikely alliance between Washington and Brasilia is lost on few. Through Brazil's success as a major supplier of the world's ethanol market, the US can recapture much needed support for the hearts and minds of Latin Americans, something it has struggled to do since Bush came to office.

 

For Brazil, ethanol is very likely the country's ticket onto the world court. And for the US, ethanol could be the ticket back into South America.

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