Brazil sugar group calls for variable US ethanol tariff linked to oil prices

In Brazil, the president of the Brazilian Sugarcane Industry Association proposed that the US establish a variable ethanol tariff linked to the price of oil, if it would not abolish the ethanol tariff altogether. Proponents of the tariff repeal, who range from Sen. Charles Schumer (D-NY) and Sen. Richard Lugar (R-Ind) to Federal Reserve Chairman Ben Bernanke, say that increased Brazilian imports will reduce the overall cost of fuel, relieve pressure on food prices, and reduce US dependence on foreign oil.

Opponents, led by Sen. Charles Grassley (R-IA) said that repealing the tariff would cause US taxpayers to subsidize Brazilian ethanol (as it would qualify for the 51-cent blenders credit), and said that Brazilian ethanol could be imported duty-free so long as it is partially processed in the Caribbean, under the Caribbean Basin initiative. An extension of the tariff to 2010 is contained in the Senate version of the Farm Bill, but the provision is opposed by the Bush Administration on the grounds that it adds a tax provision to a farm bill.

Analyst F.O. Licht projected that Brazilian ethanol exports will increase 15 percent in 2008 to 1.06 billion gallons. The company said that sugarcane production costs have decreased 4 percent while competing feedstock costs, such as corn or wheat, have risen more than 40 percent, creating favorable competitive conditions. The 16 percent rise in gasoline prices would prompt increased exports to Europe.

Petrobras has set an export target of 1.2 billion gallons for 2012, including both first- and second-generation ethanol. The company linked this export target to its plans for an ethanol pipeline connecting both Goias and Minas Gerais states with Sao Paulo state.

November 2007 ethanol exports from Brazil were down 40 percent from 2006, falling from 132 million gallons to 80 million. The fall in US demand, resulting from a production glut in the United States, caused the fall, and resulted in more than 63 percent of shipments to go to Europe.

Recently, the head of energy development for Petrobras blamed EU and US tariffs for a massive shortfall in planned ethanol exports, and said that the effort by Brazilian President Luiz Inácio Lula da Silva to lower the trade barriers has not produced results.

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