Brazil faces considerable infrastructure and transportation constraints along its ethanol supply chain. The bulk of ethanol is transported from processing plants to collection centers and then to ports by truck. Adequate and modern road infrastructure is thus critical to maintain competitiveness in the industry. Poor roads impose even higher costs on farmers located in the Center-West frontier, where new distilleries are being established. The average distance from the Center-West region to export ports is over 600 miles.

Large investments in maintenance and expansion of road infrastructure are needed to keep up with the expected growth in demand and to lower delivery times and costs. Brazil’s state-owned oil company, PETROBRAS, plans to start building two ethanol pipelines by 2012—a 715-mile-long pipeline from Goiás to the port of São Sebastião on the southeast coast and a 325-mile-long pipeline from Minas Gerais to the port in Rio de Janeiro. PETROBRAS estimates that the new pipelines, to be completed by 2016, will accommodate about 22 billion liters (doubling current transportation capacity) at about one-third the current cost of shipping ethanol by truck. The Government has allocated $4.6 billion for improvements in port infrastructure by 2016.

Can Brazil’s Ethanol Industry Meet Global Demand?

Several factors favor the ability of Brazilian ethanol producers to increase production of ethanol from sugarcane and fill future global ethanol needs. Brazil has large areas of arable savannas that could be brought into production of sugarcane without risk of deforestation. Brazil’s Ministry of Agriculture, Livestock and Food Supply estimates the scope for cropland expansion in Brazil at 119 million hectares, with 69 million hectares in savannas and 50 million hectares from pastureland conversion. According to USDA long-term projections, an additional 12 million hectares of Brazilian cropland will be brought into crop production over the next decade.

Technological advances to boost sugarcane yields per hectare and efficiency gains in producing ethanol from sugarcane seem assured given the new technologies being generated by the Brazilian Corporation for Agricultural Research. Brazil’s current yields of 90-100 liters of ethanol per ton of sugarcane are projected to increase by an additional 80 percent over the next decade based on new technologies, including the use of crushed sugarcane stalks, or bagasse, for further processing of the sucrose content for ethanol. The Brazilian Economic Development Bank has allocated $22 billion for investments in 2011-14 to double the sector’s production capacity over the next decade. Plans for new investments in the construction of new distilleries will provide an additional 18 billion liters of ethanol production capacity by 2020, according to UNICA (the Brazilian sugarcane industry association).

A number of other conditions will be necessary for Brazil to fulfill a large part of future global ethanol demand. Sugar and crude oil prices will need to remain at levels that will encourage increases in ethanol production beyond gains that can be realized through technological advances. Planned construction of pipelines and mill/port ethanol storage capacity investments must occur. The policy environment in which Brazil’s ethanol industry operates will also have a major influence on future production and investment trends. The Brazilian Government announced in April 2011 that Brazil’s National Petroleum Agency will regulate the chain of production of ethanol, including exports, to treat ethanol as a “strategic fuel” and no longer as an agricultural commodity, in an effort to provide a stable and reliable supply of ethanol. An easing of the government-mandated fuel alcohol content in gasoline would result in increased Brazilian sugar production and exports.