Brazil’s ethanol production capacity rose from 11 billion liters (1 liter = 0.26 gallon) in 2000 to 27 billion liters in 2010, accounting for 26 percent of worldwide ethanol production in that year. Brazil is now the second largest ethanol producer behind the United States. Since 2000, the number of ethanol-producing plants (distilleries and mixed sugar-ethanol processing mills) in Brazil has doubled to 430. Most are located in São Paulo (SP), which accounted for 58 percent of total Brazilian production in 2010.

Growth in ethanol production has been fastest in Brazil’s Center-West region, where production has increased 15 percent yearly since 2001. This region includes the States of Goias (GO), Mato Grosso do Sul (MS), and Mato Grosso (MT), which together accounted for 16 percent of Brazil’s ethanol production and where future ethanol expansion is expected to occur.

At the same time, processors are becoming more efficient in producing ethanol from sugarcane. Ethanol yields at distilleries have grown 4 percent per year since 2000 as plants have adopted more efficient processing technologies.

Brazil’s position as an exporter of ethanol continues to grow in importance: the ratio of exports to production increased from an average of 4 percent in the early 2000s to 19 percent in 2008, before declining to 7 percent in 2010. Until 2008, Brazil was the world’s largest supplier of ethanol, reaching a peak of 5.1 billion liters in 2008 and accounting for over 62 percent of the world ethanol export market. Brazil’s ethanol exports declined in 2009 and 2010 because of strong domestic demand for ethanol and greater diversion of cane to sugar production in response to high global sugar prices and strong demand by India for sugar imports.

Government Policies Promote Brazil’s Ethanol Production and Consumption

The push to promote Brazil’s ethanol industry began in 1975 when the Government implemented the Proálcool program in response to soaring crude oil prices and a crisis in the international sugar market. The program encouraged replacement of imported crude oil with domestically produced ethanol, which was blended with gasoline. Under the program, the Government provided financial support for the construction of distilleries. To ensure a domestic market for ethanol, the Government stimulated demand through mandatory ethanol blending targets, subsidized credit to factories producing cars that use ethanol, and tax exemptions for consumers to buy them. Vehicles that ran only on ethanol were introduced in 1979, and by 2003, flex-fuel vehicles that can be powered by gasoline and ethanol in any proportion up to 100 percent ethanol were available. As in the U.S., support for consumption of ethanol continues through mandatory blending of ethanol with gasoline.
Credit granted by public financial institutions has also been an important factor in development of the sector. Government- subsidized credit allocated to sugarcane cultivation grew from less than $200 million in 2000 to $3.1 billion in 2010, while credit allocations to the ethanol industry expanded 80 percent per year since 2000 to $1.7 billion in 2010. Historically, sugarcane producers in Brazil’s Northeastern region have been given special subsidies (currently R$5 per ton) and protection because of the region’s weak economy and its dependence on sugar.