Ethanol – myths, exaggeration and preconceptions
21 March 2007
Article written by Professor Marcos Sawaya
Jank, published in O Estado de São Paulo on 21 March
2007.
The visit to Brazil by President George W Bush generated an impressive number of articles and other expressions of opinion on the subject of biofuels. There was no lack of reductionism and preconceptions, some examples of which deserve to be highlighted.
Myth One: Great Expectations, No End Product. The idea was circulated that the meeting would produce major results in terms of investment and trade. Because this didn’t happen, the meeting was a failure.
Let’s look at the reality. The United States will double and perhaps even triple the size of its corn ethanol programme over the next six years. Corn prices have already increased 80% as a consequence, affecting soya and beef production. One solution for the US would be to produce ethanol more cheaply using new products and processes, such as biomass hydrolysis (grasses in the US, sugarcane bagasse in Brazil), hence the opportune bilateral cooperation on research and technology. The second solution would be to reduce the tariff of US$0.14 per litre and/or increase the current import quota, which at the moment only benefits the Caribbean. This still isn’t on the table, however, because it’s a matter for the US legislature, and nothing is going to change until 2009. It’s in the interests of both Brazil and the US to discuss this before then, however. Cheaper ethanol imports would also help stabilise US agricultural and of fuel prices. There is huge potential: if 1% of the petrol sold in the US were replaced by ethanol, it would represent 8 billion litres (US$4bn), or half of Brazil’s current ethanol production.
Myth Two: Monoculture. Among various other forms of exaggeration, reputable analysts have asserted that a new cycle of sugarcane monoculture would drag Brazil back to a colonial agricultural model.
Sugarcane currently covers 7 million hectares of our land – 50% for ethanol, 50% for sugar. Sugarcane for ethanol therefore occupies a mere 0.5% of our territory, and less than 1% of our farmable land – seven times less than soya, and 65 times less than pasture. In January, Bush announced the goal of replacing 15% of US petrol consumption (132 billion litres) with renewable, alternative fuels. This isn’t going to be achieved with corn ethanol, as its yield per hectare is 60% lower than that of sugarcane, and it costs twice as much to produce. Let’s imagine the US decided to achieve this goal by using Brazilian ethanol: it would require 20 million hectares of sugarcane, which is so say three times the current area, but this would still only be 7% of Brazil’s total farmable land. And that’s not to mention the possibility of doubling ethanol productivity if we were to use bagasse hydrolysis and the new types of sugarcane that are awaiting authorization from CTNBio [an interministerial biosecurity commission].
Brazil has been replacing the old labour-intensive monocultures with a diversified, capital-intensive system for the production of food, animal fodder, fibres and agroenergy. The monocultures are decreasing, not increasing. The revolution began in the 1970s with the expansion of soya, grasses, meat and milk. The arrival of sugarcane in the Central-West region marks the beginning of a new cycle of the intensification of land use, on a scale similar to that observed in the 70s. The profitability of leasing land for sugarcane production will eliminate the remaining pockets of agricultural inefficiency, both on large and small properties. Landowners whose return on their land used to be 1-2% will start receiving 6-7%. The traditional farmer always had a preference for the profits available from investing resources in the financial system, but now, out in the fields, sugarcane offers comparable gains. Indeed, landowners now see the opportunity cost of not opting for sugarcane in the high standard of living of their neighbours who already have. Soya, corn, cotton and sugarcane will compete for land in accordance with relative prices, logistical issues, and crop-rotation needs, and meat and milk production will inevitably increase as a result.
Myth Three: Brazil As ‘One Big Farm’. Economists and ex-ministers have put forward the preposterous notion that the country is condemned to becoming ‘one big farm’. The expansion of commodities (agricultural, mineral, and now agroenergy) will push up the exchange rate and lead to deindustrialisation, a process in which Brazil would be giving up its industrial ‘future’ for a ‘past’ characterised by dependence on low-technology commodity production. It’s curious to observe this national sport of attacking whoever and whatever is doing well, whether individual entrepreneurs or entire economic sectors. Our idols tend to be artists, musicians or footballers – they are rarely entrepreneurs, and never anyone in government. If a venture seems successful it has to be due to foul play, or because the appearance is better than the reality.
First of all, it’s not the IMF, the Doha Round, the FTAA, or ethanol that is causing our less efficient economic sectors to fail, but instead the lack of solid institutions and public policy reform. Our biggest problems are internal, not external. Second, it’s not a case of agriculture against industry, agribusiness against small farming, or advanced technology in industry and backwardness in commodities. It’s incredible how this endemic nonsense has become so ingrained. Fully 70% of our agribusiness is composed of industries and services that feed off agriculture. Brazil is the world leader in agricultural technology, and has the lowest production costs. Our major competitors in the commodities markets are rich countries that use their natural resources intensively – such as the US, Canada, Australia, Sweden, Finland, Malaysia and Chile. There is nothing wrong with that. There is only one way to cure our illness: before launching their attacks the critics should actually find out about their subject and visit the relevant places. They should list the most dynamic industries in the interior of Brazil, the ones that generate most jobs. They should visit a meat production plant, an ethanol plant, an agricultural show in upstate São Paulo. They should use one of their countless trips to Brasília to become acquainted with the real Central West, reflected in the high standard of living in the agricultural regions of Goiás and Mato Grosso. Fact-finding missions and statistics are a cure for preconceptions and ignorance!
Marcos Sawaya Jank is a professor at the University of São Paulo, and president of Brazil’s Institute for the Study of Trade and International Negotiations.
© O Estado de São Paulo
The visit to Brazil by President George W Bush generated an impressive number of articles and other expressions of opinion on the subject of biofuels. There was no lack of reductionism and preconceptions, some examples of which deserve to be highlighted.
Myth One: Great Expectations, No End Product. The idea was circulated that the meeting would produce major results in terms of investment and trade. Because this didn’t happen, the meeting was a failure.
Let’s look at the reality. The United States will double and perhaps even triple the size of its corn ethanol programme over the next six years. Corn prices have already increased 80% as a consequence, affecting soya and beef production. One solution for the US would be to produce ethanol more cheaply using new products and processes, such as biomass hydrolysis (grasses in the US, sugarcane bagasse in Brazil), hence the opportune bilateral cooperation on research and technology. The second solution would be to reduce the tariff of US$0.14 per litre and/or increase the current import quota, which at the moment only benefits the Caribbean. This still isn’t on the table, however, because it’s a matter for the US legislature, and nothing is going to change until 2009. It’s in the interests of both Brazil and the US to discuss this before then, however. Cheaper ethanol imports would also help stabilise US agricultural and of fuel prices. There is huge potential: if 1% of the petrol sold in the US were replaced by ethanol, it would represent 8 billion litres (US$4bn), or half of Brazil’s current ethanol production.
Myth Two: Monoculture. Among various other forms of exaggeration, reputable analysts have asserted that a new cycle of sugarcane monoculture would drag Brazil back to a colonial agricultural model.
Sugarcane currently covers 7 million hectares of our land – 50% for ethanol, 50% for sugar. Sugarcane for ethanol therefore occupies a mere 0.5% of our territory, and less than 1% of our farmable land – seven times less than soya, and 65 times less than pasture. In January, Bush announced the goal of replacing 15% of US petrol consumption (132 billion litres) with renewable, alternative fuels. This isn’t going to be achieved with corn ethanol, as its yield per hectare is 60% lower than that of sugarcane, and it costs twice as much to produce. Let’s imagine the US decided to achieve this goal by using Brazilian ethanol: it would require 20 million hectares of sugarcane, which is so say three times the current area, but this would still only be 7% of Brazil’s total farmable land. And that’s not to mention the possibility of doubling ethanol productivity if we were to use bagasse hydrolysis and the new types of sugarcane that are awaiting authorization from CTNBio [an interministerial biosecurity commission].
Brazil has been replacing the old labour-intensive monocultures with a diversified, capital-intensive system for the production of food, animal fodder, fibres and agroenergy. The monocultures are decreasing, not increasing. The revolution began in the 1970s with the expansion of soya, grasses, meat and milk. The arrival of sugarcane in the Central-West region marks the beginning of a new cycle of the intensification of land use, on a scale similar to that observed in the 70s. The profitability of leasing land for sugarcane production will eliminate the remaining pockets of agricultural inefficiency, both on large and small properties. Landowners whose return on their land used to be 1-2% will start receiving 6-7%. The traditional farmer always had a preference for the profits available from investing resources in the financial system, but now, out in the fields, sugarcane offers comparable gains. Indeed, landowners now see the opportunity cost of not opting for sugarcane in the high standard of living of their neighbours who already have. Soya, corn, cotton and sugarcane will compete for land in accordance with relative prices, logistical issues, and crop-rotation needs, and meat and milk production will inevitably increase as a result.
Myth Three: Brazil As ‘One Big Farm’. Economists and ex-ministers have put forward the preposterous notion that the country is condemned to becoming ‘one big farm’. The expansion of commodities (agricultural, mineral, and now agroenergy) will push up the exchange rate and lead to deindustrialisation, a process in which Brazil would be giving up its industrial ‘future’ for a ‘past’ characterised by dependence on low-technology commodity production. It’s curious to observe this national sport of attacking whoever and whatever is doing well, whether individual entrepreneurs or entire economic sectors. Our idols tend to be artists, musicians or footballers – they are rarely entrepreneurs, and never anyone in government. If a venture seems successful it has to be due to foul play, or because the appearance is better than the reality.
First of all, it’s not the IMF, the Doha Round, the FTAA, or ethanol that is causing our less efficient economic sectors to fail, but instead the lack of solid institutions and public policy reform. Our biggest problems are internal, not external. Second, it’s not a case of agriculture against industry, agribusiness against small farming, or advanced technology in industry and backwardness in commodities. It’s incredible how this endemic nonsense has become so ingrained. Fully 70% of our agribusiness is composed of industries and services that feed off agriculture. Brazil is the world leader in agricultural technology, and has the lowest production costs. Our major competitors in the commodities markets are rich countries that use their natural resources intensively – such as the US, Canada, Australia, Sweden, Finland, Malaysia and Chile. There is nothing wrong with that. There is only one way to cure our illness: before launching their attacks the critics should actually find out about their subject and visit the relevant places. They should list the most dynamic industries in the interior of Brazil, the ones that generate most jobs. They should visit a meat production plant, an ethanol plant, an agricultural show in upstate São Paulo. They should use one of their countless trips to Brasília to become acquainted with the real Central West, reflected in the high standard of living in the agricultural regions of Goiás and Mato Grosso. Fact-finding missions and statistics are a cure for preconceptions and ignorance!
Marcos Sawaya Jank is a professor at the University of São Paulo, and president of Brazil’s Institute for the Study of Trade and International Negotiations.
© O Estado de São Paulo