My article in Business Line of today on Brazil

Brazil — the emerging bio-fuel power
R. VISWANATHAN

The pioneer in the use of ethanol as an alternative fuel, Brazil could soon become a bio-fuel power with its ability to grow a variety of vegetables and oilseeds on large tracts of arid land unsuitable for other crops. India, which relies much on imported crude oil, has much to learn from the Brazilian success story and the way it was achieved, through public-private partnership, says R. VISWANATHAN.

Brazil is the pioneer, and world leader, in the use of ethanol as an alternative fuel in automobiles. It introduced ethanol-driven cars in 1975 after the first oil price shock. Today 80 per cent of the two million cars made in Brazil have flexi-fuel engines — introduced since 2003 — which can use either petrol or alcohol or a combination of the two. Besides cars, the Brazilians have started using ethanol in small non-passenger aircraft. A Brazilian air-taxi service company, which operates crop-duster planes, has cut its fuel bill by a third by using ethanol.

With the ethanol fuel programme, Brazil has reduced substantially its requirement of petrol. Instead of paying the high prices in dollars to the crude oil exporting countries, Brazil is paying its own sugarcane farmers, adding to domestic wealth and creating jobs. Equally important is the reduction in pollution by the use of ethanol, which is a cleaner and renewable source unlike the fast depleting petroleum.

Inspiring Example
The success of Brazil has inspired the United States, the European Union, Japan, China, India and many other countries to opt for the ethanol route. The US President, Mr George Bush, has called for a reduction in the consumption of petrol by 20 per cent in the next decade mainly by substituting it with ethanol and other bio-fuels. Seeing this favourable trend, Brazil took the initiative in the launching of an "International Bio-fuel Forum" at New York on March 2, along with the US, the EU, China, South Africa and India. Their objective is to commoditise fuel ethanol in the same way as crude oil is being globally traded.

According to a McKinsey study, global exports of fuel ethanol by 2020 will be a minimum of 50 billion litres with the potential to go even up to 200 billion litres. This has opened a golden opportunity for Brazil, which has many natural advantages to raise production and export of ethanol. Brazilians are aggressively positioning themselves to be a leading supplier and a global player as a "Saudi Arabia of fuel ethanol". Here are the competitive advantages of Brazil to become an ethanol power:

Brazil is the lowest cost producer of fuel ethanol in the world. Its cost of production is 23 cents per litre compared to 39 cents for the ethanol produced from corn in the US and 52 cents for the wheat-based fuel-additive in Europe. Brazilian farmers do not receive any government subsidy unlike their American and European counterparts.

Brazil is the leading exporter of fuel ethanol, accounting for almost 50 per cent of the global exports of 6.5 billion litres in 2006. Brazil exports ethanol to the US, Europe, Japan, Sweden, China and even India. Petrobras, the Brazilian state oil company, is gearing up to export eight billion litres of ethanol by 2010.

Brazil is the world's second largest producer of ethanol after the US. Its production in 2006 was 17 billion litres, of which it consumed 14 billion litres and exported the rest.
Brazil is the world's largest sugarcane producer. The production in 2006 was 460 million tonnes, of which 55 per cent was converted directly into alcohol and the rest for producing sugar. The yield per acre of sugarcane in Brazil is one of the highest in the world, thanks to the cutting-edge research and development by their agro research institute EMBRAPA.
Brazil can increase the sugarcane acreage from the current six million hectares. Brazil uses only 47 million hectares for crops at the moment and can add 100 million hectares easily, without touching the Amazon or affecting the environment. Perhaps no other country has so much unused arable land. Brazil also has the ideal climate for sugarcane and abundant water resources.

Sugarcane is a more efficient source of fermentable carbohydrates than corn. Sugarcane-based ethanol returns four times more energy than the corn-based fuelcounterpart and produces less carbon-dioxide. Ethanol production in Brazil becomes even more cost-effective as many Brazilian ethanol plants are self-sufficient in power with their own captive plants which use bagasse as fuel and get even extra revenue by selling power to the grid.
Over the next five years, Brazilians plan to invest $12 billion to set up 77 ethanol plants and another $2.4 billion to expand the existing 360 units. By 2012, the production capacity will reach 9.5 billion litres. They are also investing in logistics such as pipelines and storage.

Beyond ethanol
Brazil is looking beyond ethanol and is pursuing other options of bio-fuels as well. It has already started producing bio-diesel from soybeans and reduced diesel consumption by 15 per cent. It now mixes diesel with 2 per cent vegetable oil but plans to increase this to 20 per cent by 2020. Again, Brazil has the natural advantage to grow dozens of vegetables and oilseeds for bio-diesel, in the large tracts of arid land unsuitable for other crops.
A Brazilian beef export company is building a plant to make bio-diesel from animal fat. Here also Brazil has an advantage with its large cattle population and competitive meat industry. Brazil is thus well positioned to become a bio-diesel power as well.
India has much to learn from the Brazilian success story and the way it was achieved through public-private partnership as a national priority. India can benefit through intergovernmental cooperation and business alliance with Brazil. Indian sugar companies are exploring opportunities for acquisition of sugarcane acreage and plants for sugar and ethanol production in Brazil. One company has already set up a subsidiary in Brazil and earmarked $500 million for investment.
(The author is with the Ministry of External Affairs. The views are personal. E-mail: viswanathanifs@gmail.com)

Link to the article:
http://www.thehindubusinessline.com/2007/06/02/stories/2007060200730800.htm