Will the Brazilian sugar industry carry on its sweet dreams?
Biofuels are a card of increasing importance in Brazil’s energy hand. Due to high domestic gasoline prices and a 2-year persistent decline of sugar prices on the global market, a record share of Brazilian sugar production was converted into bioethanol last year. This is in line with government’s goals, as the RenovaBio program – launched under Temer’s presidency – was recently approved by Congress to progressively increase biofuels sales in Brazil. The government expects the demand to rise by 75% in the coming 10 years. Biofuels could allow Brazil to increase its energy supply security at a time of economic recovery and increasing transportation needs, while providing a competitive and low carbon footprint product for exportation.
For a while now, bioethanol has been the main output for Brazilian sugar. Accounting for a good half of production in recent years, the rest of it being typically dedicated to the food industry. However, this share gained 10 percentage points in only one year, reaching 64% of 2018 production (compared to 54% in 2017) (Reuters). This is the consequence of unattractive sugar prices on the global market, which have been almost continuously declining since the 2016 peak (see figure below), combined with increased domestic demand for biofuels as gasoline remains expensive (about 80% of Brazil’s light vehicle fleet are already compatible with bioethanol).
(Source: FAO, Beyond Ratings)
Recent political signals should reinforce the existing trend. Bioethanol became an enticing alternative in case of surplus for Brazilian sugar producers in recent years, and sugar processors are expected to invest in extra ethanol capacity ahead of next season (Reuters). It should be noted that Brazil already possesses the largest fleet of flex-fuel vehicles in the world: about 35 million cars in 2016, a figure that is expected to rise to 43 million within the next 10 years.
Sugar is mainly produced from cane and beet; however, cane sugar production is about 6 times more important globally than beet sugar production (FAO, 2017). For a while, Brazil has been the first sugar cane producer (760 Mt in 2017) ahead of India (306 Mt) and China (105 Mt). However, according to the U.S. Department of Agriculture, Brazil could lose its crown to India for the 2018-2019 season (Reuters). In terms of size, it represents 10.2 million hectares for Brazil (12% of cropland), 4.4 million hectares for India (3% of cropland), and 1.4 million hectares for China (1% of cropland). These figures already give an idea of the specific importance of this crop for the country, as an eighth of Brazilian fields are dedicated to it. Sugar cane production amounted to USD 15.7 billion in 2016, about 9% of total Brazilian agricultural production. The same year, USD 10.4 billion of sugar were exported worldwide, which accounted for 5.6% of Brazil’s total goods export.
Sugar cane cultivation and processing systems in Brazil are rather performant. Economically, cane sugar-based ethanol presents the lowest production costs among biofuels (without subsidies), including US (corn-based) or European (wheat-based) bioethanol. The production is concentrated in the so-called Centre-South Region (in the state of São Paulo in particular, which concentrates 70-80% of the production). Average sugar cane yield currently reaches 74 tonnes per hectare (2017): in comparison, India attains 70 tonnes and China, 76 tonnes (world average yield equals 71 tonnes). With regard to the trend, it seems that Brazilian farmers reached a plateau: the decades-long increasing trend came to an end after the 2000s and has even showed a decline within the last years (see figure below).
(Source: FAO, Beyond Ratings)
From an environmental point of view, sugar cane-based bioethanol presents a number of relative advantages and is regarded as rather sustainable by some authors: mainly, it enables to reduce GHG emissions by 80-90% compared to gasoline, which makes it a worthwhile candidate for replacing it. A question remains regarding the opportunity of biofuels, in particular from an energetical efficiency perspective. Indeed, an energy source may be regarded as opportune from the moment it yields more energy than it requires for the production, and in this respect, biofuels appear among the least efficient energy sources. Moreover, burning these biofuels within internal combustion engines, which have a rather low efficiency ratio (about 30%), may worsen the final assessment. While cheap inputs may temporarily allow the continuation of the production despite an overall low efficiency, the risk of unprofitability is high: physical nonsense sooner or later translates into economic nonsense. Nevertheless, biofuels were included in Brazil’s carbon reduction strategy. RenovaBio is intended to reduce the GHG intensity of Brazilian transportation sector and help to reach the target of 10.1% reduction of carbon emissions from gasoline by 2028. The Program includes a system of tradeable carbon savings credits (CBios) with credits assigned to biofuels producers to sell on to fuel distributors.
Another question remains: could biofuels increase the competition for arable land and lead to more deforestation? According to Walter et al. (2011), expansion of sugar cane mostly occurred at the expense of pastures and other temporary crops, with no deforestation engaged. However, in a context of increasing demand and yield ceiling, an increased deforestation scenario cannot be ruled out. This is particularly the case for Mato Grosso, where the deforestation rate is already high, while it is considered to have a high potential for cultivation.