Brazil sugarcane producers seek government aid

Sugarcane producers are trying to enlist the help of the Brazilian federal government to weather coronavirus headwinds ahead of the start of harvest season.

Reductions in energy demand caused by efforts to stop the spread of the coronavirus have pummeled Brazil's ethanol market, which has seen precipitous drops in consumption and prices. Industry representatives have already started negotiating better conditions for debt financing and spearheading other relief talks, including more benefits for farmers under an expansion of Brazil's biofuels policy RenovaBio. Some in the sector are also seeking to resume discussions on direct mill-to-pump ethanol sales.

Concerns over dwindling sugar and ethanol demand are mounting as the 2020-2021 crop season — which started on 1 April — is expected to see an increase of sugarcane output, from 582.9mn t last season to 596mn t, according to local sugar and ethanol consultancy Datagro. Ethanol mills tend to avoid stockpiling sugarcane as the raw material quickly deteriorates once harvested.

As with hydrous ethanol, a steep decline in E27 gasoline consumption — partially the result of movement restrictions adopted by state governments — is also likely to sink demand for anhydrous. The second half of March saw demand for E27 gasoline down between 30-50pc compared with the first half of the month, according to distributors, traders and fuel brokers polled by Argus, while the final week of the month showed a 50-70pc decline

The drop led distributors Raízen and BR to warn they may adjust volumes of long-term ethanol contracts in response to a demand crisis that is deepening in tandem with the pandemic. Anhydrous ethanol is blended at a rate of 27pc into gasoline.

Producers at risk

Unless the situation improves, the price collapse could push a large number of producers to the brink, industry executives tell Argus. In the first half of March, ethanol sales in the Center-South region averaged 1.07bn l, a 9.7pc year-on-year decrease, according to data from sugar and ethanol industry association Unica.

To stave off a wave of bankruptcies, industry leaders are reaching out to the federal government in the hope of finding solutions to the unprecedented situation.

Feplana says it is looking to the ministers of agriculture, mines and energy and economy for measures to support producers. The group is seeking to extend the maturity date of rural debt to the end of 2022, and also wants the RenovaBio decarbonization credits scheme, the Cbios, expanded to include independent producers.

The association also reiterated the urgent need to lift restrictions on sales from mills to distributors, a top concern among producers in the Northeast region.

"Ethanol is becoming increasingly illiquid and is being left in the tank," Brazilian sugarcane farmers' federation Feplana president Alexandre Andrade Lima told Argus. "Many producers will not be able to settle their debts while the remuneration for sugar content in cropped sugarcane will fall."

At the end of March, Brazil's national agricultural confederation CNA sent a set of proposals to the ministry of agriculture requesting an extension of debt maturity for the parts of the supply chain most affected by the crisis.

CNA is requesting a six-month extension on payments without interest and foreign exchange impacts, emergency flexibility for access and renegotiation of rural credit, and extension for the payment of taxes.

"The ministry maintains a permanent dialogue with entities representing the agriculture and livestock sector, and proposals are being discussed with the government's economic area," the ministry of agriculture told Argus.

By Carolina Guerra