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Brazilís Ethanol Diplomacy

Prepared by: Stephanie Hanson
July 9, 2007

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Brazil’s President Luiz Inacio Lula da Silva is an ethanol enthusiast (FT). Who can blame him? Money is flying into Brazil’s ethanol industry (BusinessWeek), and now the U.S. agriculture behemoth Archer-Daniels-Midland Co. (ADM) may be seeking out Brazilian business. The Wall Street Journal reports ADM is considering a bid for Cosan, Brazil’s biggest ethanol producer. A day later, Cosan filed to list on the New York Stock Exchange in a move that could raise the company up to $2 billion in foreign investment (Bloomberg).

These private-sector maneuverings follow similar upheavals in the political realm. Ethanol has become Lula’s best diplomatic lever in Latin America, where regional influence had shifted toward Venezuelan President Hugo Chavez but now seems to be edging back toward Brazil. Chavez inveighed against biofuels throughout the spring, joining Fidel Castro and some agriculture experts who say biofuels could starve the poor (Foreign Affairs). But he backed down in May and agreed to increase Venezuela’s ethanol imports. As this CFR.org Podcast discusses, biofuels could allow Latin American countries to diversify their economies away from commodities. By “winning the biofuel face-off,” writes journalist Ben Whitford in a Guardian blog, Lula has reaffirmed Brazil’s power in the region.

But Lula seems to have yet larger aspirations for Brazilian ethanol. During a visit to India in June, he announced plans to quadruple trade to $10 billion by 2010 and ramp up biofuel exports to India (CSMonitor). Lula first extended an ethanol partnership to India last year, though the India’s Daily News & Analysis reports firms have been reluctant to invest. Lula is also exploring options in East Asia, and a proposed ethanol investment from Japan (AP) announced earlier this year could net Brazil $8 billion.

Brazil has also extended a hand to sub-Saharan Africa (Reuters), signing cooperation agreements with five different countries. Brazil’s national oil company, Petrobras, announced in May it plans to build an ethanol plant in Nigeria’s Niger Delta. The Brazilian government has also opened an agriculture research center in Ghana (Brazzil) to transfer technology to Africa and advise African countries on developing biofuels industries. Many developing countries (Science) can learn from the Brazilian model, writes Jose Goldemberg of the University of Sao Paolo. Biopact, a group that promotes bioenergy partnerships between Europe and Africa, blogs that “Brazil is effectively giving birth to a new development paradigm, based on South-South exchanges, in which access to energy, energy security and social development are key.”

Brazil’s current trajectory is predicated on the establishment of an international market for biofuels. Creating such a market, says Marcos S. Jank of the Brazilian Institute for International Trade Negotiations, necessitates collaboration between Brazil and the United States, the world’s second-largest biofuels producer. The two countries signed a “strategic partnership” in March, but the United States maintains a tariff of fifty-four cents per gallon on Brazilian ethanol. With a handful of other Latin American countries pressing to develop their own biofuels industries, a report from the Inter-American Development Bank questions how long Brazil can dominate the biofuels market. “Brazil’s leadership today is unquestionable,” the report says, “but it leads an industry that is very much in flux—and likely to be revolutionized by new technology soon.” At least for now, though, the country’s influence remains indisputable. As one former official in the agriculture ministry in Brazil told the Christian Science Monitor, “You can't make decisions without the world's largest producer.”

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