President Donald Trump’s rates are at risk of depriving Brazil from a key market to ethanol abroad. But for the largest economy in Latin America, they are the smallest of two ills.
Avoiding reciprocal taxes would probably require President Luiz Inacio Lula da Silva about American ethanol, opening the doors for US product to flow to his back. This would damage local industry more than losing its captive market in California.
Brazil has embarked about 300 million liters of ethanol for the US last year, with commercial flow depending heavily on incentives paid for low carbon fuels in California. But exports are just a small fraction of the size of the domestic market, where the so -called cars flex-fuel They can rotate with 100% ethanol or a mixture of biofuel and gasoline.
“Bringing American ethanol here would be a disaster,” said president of the Sindalcool-PB producers group , headquartered in the state of Paraíba, in the northeast of the country.
At stake is an industry that has been expanding. Brazil, which historically produces ethanol from sugarcane, has been increasing its ability to produce biofuel from corn to meet the demand of the populous Northeast region. This is exactly where the US product would flow if the tariffs were reduced or suspended.
It is still unclear how the Lula government will react to the threat of US tariffs, but if Brazil gave in and removed its US ethanol tax, the Northeast market would be “flooded” by US supplies, Datagro consultancy said in a February report.
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Without tariffs, it could be cheaper to import US ethanol to supply northeastern states than transport the product of the south-central Brazil, the country’s main producing region. This would endanger a large slice of Brazil’s 32 billion liters ethanol market.
Lower tariffs would come at a time when ethanol domestic demand is about to increase, with the Brazilian government recommending one to 30% of the current level of 27.5%. The new mix will add 1.3 billion liters of ethanol demand annually.
Ethanol imports to the northeast have been decreasing in recent years and should decrease further as new plants come into operation.
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The main supplier of corn ethanol, Inpasa Agroindustrial SA, is opening its first factory in the state of Maranhão and plans a similar investment in Bahia to 2026, said the company’s vice president of the company, Gustavo Mariano, last month. These facilities would be responsible for over 800 million liters, about half of what the region imported in 2017.
Other companies that announced plans for the region include the Pindorama cooperative, based in Alagoas, which recently started production. The Piauí State Government also recently issued a license to another plant.
A zero scenario import taxes in both countries can also harm small local producers, said Guilherme Nolasco, president of the UNEM Industrial Association.
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“There is only one market in the world that demands ethanol in large quantities, and this market is Brazil,” said Nolasco.
