Civil disturbances fueled by worries over ethanol have greeted President Bush, on his visit to Brazil. Bush is expected to sign an ethanol deal with President Luis Da Silva. The visit has thrown the US tariff position on biofuels and the pressure on the administration over the issue into sharp relief
Hersch quotes the Brazilian Ex-Ambassador to the US, Rubens Barbosa as saying the US needs to reduce its punitive 54 cents/gallon tariff on ethanol:
“The duties that the US imposes on ethanol is nearly equal to the price of production, yet Brazil is so competitive that we are exporting directly to the United States, despite the duty.
“To say in advance that this issue is not on the table shows how this matter is being dealt with by the administration, only in the area that is of US interest.”
Quoting Hersch’s report further, he spoke to Alfred Szwarc of the Sao Paulo sugar grower’s association who says:
“If the Americans are able to substitute 20% of gasoline and have ethanol as the prime option, we are talking about a market of 135bn litres per year, compared with current total global production of 50bn litres,” Mr Szwarc told BBC News.
“So we have to almost triple production to be able to fulfil US market needs. I don’t believe that based on conventional use of corn they will be able to do it by themselves, and this opens fantastic opportunities not just for Brazil, but for Central American countries and the Caribbean.”
My feeling is that Szwarc is broadly right, and this isn’t just about a few wealthy individuals or families which are big in Brazilian Sugar Cane looking out for the main chance. Its about getting sustainable and fairly priced fuel (because it could be internationally traded without the tariff barrier between the US and the rest of the world) into the gas tanks of ordinary Americans.
On the other hand, there’s the US farmers.
Over on The truth about Trade & Technology blog, there’s a clipping of a report of interviews with two senators from farming states who fear an ethanol deal: South Dakota Senator John Thune ($15,000 in funding from farming in 2006) and our old friend Iowa Senator Chuck Grassley ($24500 in funding from farming in 2006). (I have not included their party affiliations, they’re irrelevant here, both are pro protection) The key passages are:
Thune agreed with Grassley, and said any potential efforts to back Brazil’s ethanol industry are premature. “It simply doesn’t make sense for an American president to be promoting the growth of ethanol industry in foreign countries when our ethanol industry here in this country is really just getting off the ground,” Thune said.
“I know Brazil is very interested in having that tariff lifted and I’m sure the president is looking for issues he can work with our friends in Latin America on,” said Thune. “But there are lots of other issues that he and President Lula can work on without selling out our domestic ethanol industry.”
We don’t want to upset the farmers or their friends. They clearly matter a great deal to the Senators than their other electors….