The sugar market in NY closed the week at a 0.43-dollar-per pound low for 2015, that is, almost 10 dollars per ton, in line with the announcement made by the Indian government on the extension of the 64-dollar-per-ton subsidy program for 1.4 million tons to be exported by that country until September 2015. There is a lot of sugar being offered for immediate delivery without purchase.
It is no news that most of the problems the sugar-alcohol sector faces today lie on the absence of an energy policy. For a long time, the sector has quietly suffered from the imposed gas price freeze, which has dramatically reduced the participation of renewable fuel in the Brazilian energy matrix. We just have to look at the statistics to realize that the ethanol peak consumption in the country was reached in December 2009, when 54.5% of the vehicles used this fuel against today’s only 42%.
In that year, the average price for imported gas was R$ 0.15 per liter cheaper than the price frozen by the government, which promoted ethanol competitiveness. Am I advocating the subsidy, then? No way. What I intend to show is that every time there is an artificial price on the market, the odds that reality will be distorted and wrong signs will be given to the agents are high. Internal gas price was higher than that on the foreign market, artificially increasing ethanol competitiveness. Of course, no one from the sector would complain about that situation.
However, the same situation turned against the sector in the following years. Gas prices were still frozen (in fact, since September 2005) and with oil recovering on the foreign market there was no price raise on the internal market. That is, over the following four years, from 2011 to 2014, the government via Petrobras would import gas at a much higher price than that the consumer would pay at the pumps. This cost roughly R$32.6 billion over this period. Money that has bled Petrobras and whose bill will be paid for by the taxpayer.
Over these four years, the total consumption of ethanol in Brazil has been 82.62 billion liters, divided between 45.50 billion liters of hydrous and 37.12 billion liters of anhydrous. Were internal gas price to follow the foreign market, ethanol would certainly keep its competitiveness, without the need for artificialities and it could keep its participation in the energy matrix, which it had reached at the end of 2009.
How much did the forced elimination by the government policy cost the sector? Had we kept it during this period, Brazil would have consumed 35.62 additional billion liters of hydrous, with a 5.74-billion-liter reduction of anhydrous and 30 billion liters of gas A which wouldn’t be imported anymore. For the sector only, due to ethanol’s estimated revenue loss using the average price for the four years, R$34.5 billion. Not to mention that to meet the constant demand today, we would have to have at least another 15 mills crushing 5 million tons each, which would have created a US$15 billion investment, generating thousands of direct and indirect jobs.
Petrobras lost R$32.6 billion by selling cheaper gas. The sector lost revenue estimated at R$34.5 billion for having lost market share due to the artificially low gas prices and the country lost investments of at least US$15 billion on the construction of new mills. The total sum of the first two – which are more tangible – is R$67.1 billion, which is a value pretty close to the debt of the sector (today at R$76.96 billion).
Today, the situation has reversed. In order to make money because of the fiscal shortfall, the government has reintroduced old taxes and Brazil has the most expensive gas in the world. The sugar-alcohol sector is moving on thin ice since ethanol competitiveness is based on artificially high price once again. This is the way our government works – no planning whatsoever, just some patches here and there with no long or medium term goals.
Throughout Brazilian history, we have never heard about a government which has wiped out so much health and excelled in mediocrity and arrogance as this current administration has. It will take decades before all this damage caused by Dilma and her troupe of incompetent people can be fixed.
Registrations for the XXIII Intensive Course on Futures, Options and Derivatives – Agricultural Commodities have already started. The course will be held in São Paulo on April 14, 15 and16. For further information contact priscilla@archerconsulting.com.br
Arnaldo Luiz Corrêa
