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Brazil Ethanol Has Become too Expensive to Compete with Gasoline

Ethanol and gas in Brazil Brazil’s Única, the sugarcane grower and mill owner association, tells us that over the last five weeks prices paid to its members have fallen an average 16.7%. However, as drivers know, the price drop at the pump has been practically zero. Well, Única says it fell an average 1% during the same period.

“In São Paulo,” says Antonio de Padua Rodrigues, the Única technical director, “producer prices have fallen 24 centavos per liter, while the price in the gas station only fell 2 centavos per liter.”

Rodrigues says the delay in passing the reduction on to the final consumer is harmful to the competitivity of ethanol vis-à-vis gasoline. And he adds that the probable explanation for what is happening is that distributors are making more money as they pass the reduction to their profits column.

Meanwhile, a survey by Agência Brasil has found that based on prices reported by the National Petroleum Agency (ANP) between February 21 and 27, at the moment it is economical to use ethanol in only two states: Goiás and Mato Grosso.

The reason for this is that there is what is known as an “energy density” difference between ethanol and gasoline. In the case of Brazilian sugarcane-based ethanol, the difference is 30% – which means you get 30% less mileage with ethanol than with gasoline.

So, in Brazil the price of ethanol cannot be more than 70% the price of gasoline to be a good buy. And it has not been a good buy since December when ethanol began rising, costing over 80% of the price of gasoline in some locations.

According to Única and the government, the main reason for the spike in ethanol prices at the end of last year was excessive rainfall that caused a harvest shortfall of more than 10%.



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