Worldwide production and use of ethanol as an alternative to fossil fuel has increased dramatically since 2000. Ethanol demand is being driven by rising world crude oil prices, increased use of ethanol as an environmentally friendly fuel oxygenate, and government incentives in many countries to reduce dependence on fossil fuel by increasing the use of renewable energy sources. Global ethanol use will continue to rise over the next decade if countries fulfill their ethanol use targets.

Brazil is the world’s second largest ethanol producer and exporter (after the United States). Several factors have combined to stimulate the development of Brazil’s ethanol industry: an increased capacity to produce sugarcane as an ethanol feedstock, supportive government policies, and improved efficiency in sugarcane production and ethanol conversion processes. But Brazil will need to sustain production growth in the ethanol sector in order to meet increasing domestic demand and maintain its export share.

Brazil’s Production of Sugarcane-Derived Ethanol Expanded Rapidly

Brazil is now the world’s largest grower of sugarcane at 719 million tons in 2010, accounting for a third of world production. Cultivated sugarcane area has expanded rapidly from 4.3 million hectares (1 hectare = 2.47 acres) in 1990, to over 10 million hectares in 2010. Sugarcane cultivation has been central to Brazilian agricultural development since the 1950s. Sugar was Brazil’s most valuable export crop in the 1950s and 1960s. In the mid-1970s, emphasis switched from sugar to ethanol production to meet domestic fuel needs, and, with the current boom in renewable fuels demand, Brazil has become a large-scale ethanol producer and exporter.

The rapid expansion in Brazil’s sugarcane production is the result of a favorable climate, land availability, abundant labor, a pro-ethanol public policy, and research by public agencies to develop higher yielding cane varieties and new planting techniques to increase efficiency. While much of the expansion has been due to the conversion of former pastureland to sugarcane cultivation, with area increasing annually by 3.2 percent since 1975, productivity increases have also contributed to sugarcane growth. Continual improvements in sugarcane productivity since the 1970s have increased yields by almost 34 tons per hectare to the national average of nearly 80 tons per hectare in 2010, one of the world’s highest. In São Paulo, Brazil’s leading cane-producing State, yields are 20-25 percent above the national average.

In 2010, Brazilian sugarcane used for ethanol production totaled 398 million tons, or 55.4 percent of the sugarcane harvested. Domestic and global growth in ethanol demand has boosted the share of cane used for ethanol since 2006/07. The allocation of sugarcane to production of sugar versus ethanol is set by millers based on expected sugar and ethanol prices and market demand. This marks a significant change from the early years of Proálcool (Brazil’s ethanol program), when the allocation of sugarcane to ethanol production was an administered policy instrument to counter oversupply of sugar and low international sugar prices.