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Brazil Sugarcane Industry Applauds Fed Chief for Backing Ethanol Tariff Cut

Bush and Lula meet sugarcane stalks at Petrobras in Brazil Brazil's Sugarcane Industry Association (UNICA) released a note this Thursday, February 28, applauding remarks made by U.S. Federal Reserve Chairman Ben Bernanke in which he favored a reduction in tariffs on Brazilian ethanol to help take pressure off food prices in the United States. 

UNICA called it a positive approach that goes far beyond economics. According to the sugar organization, Bernanke's suggestion favors clean renewable energy, boosts the fight against global warming and defies the logic now in place that taxes biofuels while fossil fuels move unobstructed around the globe, without trade barriers or any other restrictions.

UNICA President and CEO Marcos Jank described it as, "The type of move, if adopted, that would set an example for other countries and regions of the world to commit to using sustainable biofuels, so that the renewable fuel industry can develop worldwide in an orderly and productive manner, with due regard for the necessary balance between producing food and fuel."

Brazil is a pioneer in the large scale production and use of ethanol as a motor vehicle fuel, an option it adopted in the mid-seventies following the first oil crisis.

The country is now the world's second-largest ethanol producer, just behind the United States and flex-fuel cars are a runaway success, accounting for close to 90% of all new car sales in the country.

In mid-February, ethanol surpassed gasoline in terms of volume sold on the Brazilian market. Sugarcane ethanol is also the most cost-effective and energy-efficient biofuel available anywhere in the world – for every unit of fossil fuel used in its production, 9 units of renewable energy are generated with a reduction of about 90% in greenhouse gas emissions when compared with gasoline.

Bernanke told the U.S. Senate Banking Committee that allowing Brazilian sugarcane ethanol to enter the country tariff-free "will reduce costs in the United States."

The remarks were made during an exchange with Senator Wayne Allard, a Republican from Colorado, who asked about benefits of reducing tariffs in order to contain inflation caused by escalating food prices in the United States.

Bernanke admitted it is difficult to say to what extent demand for corn ethanol is boosting food prices in the U.S., but "a significant portion of the corn crop is being diverted to ethanol, which raises corn prices."

He added that some soybean acreage has also moved to corn production, which probably has had some effect on soybean prices as well. By way of comparison, Brazil's entire ethanol production occupies about 1% of the country's arable land.

Most ethanol made in the U.S. comes from corn and domestic production is protected from Brazil's cheaper and more energy-efficient sugarcane ethanol by a steep 54-cent a gallon tariff. U.S. corn producers also benefit from vast government subsidies, while no subsidies exist for Brazilian sugarcane growers.

"The Brazilian Sugarcane Industry is ready to supply ethanol, without need to expand production into sensitive biomes or causing any supply problems for our internal market. Brazil can also provide the technology so that more countries can adopt this clean and obviously viable option. Clearly we would all be better off if 100 countries that grow sugarcane around the world supplied energy to the rest of the world, instead of only 20 countries that control oil supplies," added Jank.

UNICA represents the top producers of sugar and ethanol in the country's South-Central region, especially the state of São Paulo, which accounts for 60% of the country's total production. Along with its 107 member companies, UNICA develops position papers, statistics and specific research in support of Brazil's sugar, ethanol and bioelectricity sectors.

Its membership accounts for about 50% of Brazil's sugarcane harvest. In the 2007/08 harvest, Brazil produced an estimated 487 million metric tons of sugarcane, which yielded 30.6 million tons of sugar and 22 billion liters of ethanol.

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