Brazil boosts financing for ethanol industry
Sao Paulo, 27 February (Argus) — The Brazilian government is seeking to reinvigorate the country's ethanol industry by providing around 65bn reals ($38bn) in financing as part of its 2012-15 ethanol expansion plan
The agriculture ministry laid out specific goals, including the return to a 25pc blend of anhydrous ethanol in gasoline and hydrous ethanol holding a 50-55pc share of the gasoline market. Pure hydrous ethanol is sold at retail stations to the country's growing flex-fuel car fleet.
The funds would be disbursed by national development bank Bndes through intermediary financial institutions including Banco do Brasil, which accounts for most of Brazil's agricultural credit market.
The funds include and are mostly an extension of the R10bn in financing announced in the past months for the sector in 2012.
Output of hydrous ethanol fell by nearly 30pc this past season and investments in new ethanol capacity have mostly dried up since the 2008 financial crisis.
If mills and cane growers fully utilise the financing available, it could lead to a more than a 50pc expansion of the roughly 8mn hectares (80,000km²) under cultivation with sugar cane by 2016, according to government estimates.
The financing is directed to four specific areas. First is the expansion and renewal of cane fields to make full use of the roughly 150mn t/yr production capacity surplus of the sugar and ethanol industry. At present, millers have far more capacity to crush and produce than there is cane available on the market. A total of R8.5bn will be allocated to this purpose and could lead to the expansion of cane area by 1.4mn hectares.
Second is the expansion of cane area to meet projected growth in demand for ethanol domestically and overseas. The government is allocating R23bn for this purpose, which could bring an additional 3.8mn hectares into cane cultivation.
A third area, which will receive R29bn in financing through to 2015, is the renewal of older cane fields from which yields have dropped sharply. The funds if utilised would result in the replanting of 6.4mn hectares.
Lastly, the government will put R4.5bn towards building ethanol stockpiles, seen as essential to keep prices from spiking during the inter-harvest period.
The ministry expects the financing to stimulate private-sector investment. Although the sector has applauded the government's longer term commitment to the ethanol sector, production of the biofuel still remains uncertain because of government policy toward gasoline prices and heavier regulation of the ethanol sector.
The government has held domestic gasoline prices below international prices for more than half a decade, while production costs for ethanol have risen steadily, making the biofuel less profitable, especially for hydrous ethanol.
The national monetary council of the finance ministry will need to approve the financial package before it can be made available.
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