Brazil, the United States and ethanol

Rodrigo de Almeida
29 March 2007

When President Luiz Inácio Lula da Silva of Brazil visits the American presidential retreat of Camp David on 31 March 2007, his host George W Bush will have a great opportunity to prove that the two countries can create a more credible basis for an independent bilateral relationship. Such a move is critically important for both the United States and Brazil. Beyond such issues as social justice, democracy and Venezuelan president Hugo Chávez, the key topic in their discussions will be ethanol. The fuel may help to strengthen links between the two countries and between the rich north and the poor south.

While Bush's five-country visit to Latin America on 8-14 March began well, it ended without concrete results in terms of Brazil's real interest. The trip was Bush's longest to the region and was designed to correct the impression that the US is too busy battling terrorists to pay much attention to Latin American democracies as they struggle against poverty and drug-fuelled crime (see Ivan Briscoe, "A ship with no anchor: Bush in Latin America", 22 March 2007).

Also by Rodrigo de Almeida in openDemocracy:

"Brazil in the world: principle and practice" (19 January 2007)

Indeed, few people expected anything solid from the US president's visit. Speaking of "social justice", health, education and aid, Bush seemed to offer little beyond words. What was important to the American president was demonstrating that the US has partners and friends in the region - more partners than friends, to be sure - even among left-leaning Latin American governments.

It was good for the White House's purpose, but not necessarily for Brazil's economic plans. To avoid new disappointment for Brazil, Bush should ask the US congress to roll back the strong trade restrictions on US imports of Brazilian ethanol. (Secondary import duty of 54 cents per gallon - 14.27 cents per litre-- is currently are in place until 1 January 2009, and farm-state legislators are fighting for an extension of the tariff.)

The ethanol question

Brazil has the cheapest, most energy-efficient ethanol in the world, as well as the most advanced technology for producing it. The country has been developing ethanol since the mid-1970s, after the first oil shock in 1973. American ethanol is an important resource for the US economy, but it depends on protectionism and subsidies. It would be great for the competitiveness of US producers to face imported ethanol in a free-trade situation. Such competition would benefit both consumers and taxpayers.

Bush has clear interests. He is aware that oil is climate-changing and is controlled in part by ideological enemies such as Chávez. The goal is known: the American government wants to cut future US petrol (gasoline) consumption by 20% within ten years. The question is, by what means? Bush knows that Brazil is already there: 40% of the fuel in Brazilian cars is made from sugar cane. Brazilian drivers learned the lesson long ago: 77% of new cars can run on ethanol. Specialists say that the petrol engine is heading for extinction. Companies around the world are trying to make biofuel out of everything from trees to cooking oil.

To make ethanol from corn or wheat, as Americans and Europeans tend to do, distillers must first convert the starch in those crops into sugars. But Brazilian distillers dispense with this expensive step by using sugar cane. This enables Brazil to produce ethanol for 22 cents a litre, compared with 30 cents a litre for corn-based ethanol, as produced in the US. "That makes it cheaper than petrol," as the The Economist recently noted, "and therefore lucrative for farmers without subsidies."

In Brazil, Bush and Lula agreed to promote ethanol production and use it across the region, and to cooperate on research. By fixing purity standards, they hope to make ethanol a globally tradable commodity. The memorandum of understanding signed by US secretary of state Condoleezza Rice and Brazilian foreign minister Celso Amorim on 9 March 2007 promises to advance research and development of new technology and stimulate private sector investment in other countries, starting in central America and the Caribbean. Brazil would like to see ethanol traded as freely and widely as oil. According to a study by the ministry of science and technology, Brazil could potentially boost exports from the current 3 billion litres to as much as 200 billion litres by 2025.

There are worries about the prospects of this cooperation on bioenergy. In the short term, the first concern is the American refusal to talk about the high tariff that protects US corn farmers, whose ethanol is more costly and carbon-emitting to produce than Brazil's sugar cane-based fuel. In the long term, the most significant concern ought to be safeguarding the Amazon forest from further harm as a result of expanded sugar-cane plantation. Between one issue and the other, Bush and Lula could pledge to narrow their differences in World Trade Organisation negotiations by boosting the global economy and easing poverty among millions of people. But neither seem optimistic that the talks - which have already lasted more than five years - will conclude any time soon.

The emphasis on ethanol has drawn criticism from environmentalists and others - most recently Cuban leader Fidel Castro, an ally of Chávez - who complain that it will create new problems. For instance, the US uses corn to make ethanol, and rising demand for the crop has caused price increases for a number of products, including tortillas, a staple in Mexico. Castro fears the use of crops for fuel could reduce food stocks in developing countries. In Brazil, the risk is an explosion of international demand for ethanol that could provoke a domestic supply crisis. Critics worry that increased production will result in further deforestation of the Amazon. Everything makes sense.

Diplomacy, nothing more

There is an additional, and large, problem: Brazil's suspicion, part of a wider complex of Latin American attitudes towards the powerful northern neighbour. Brazilians' fear of a US interest in internationalising the Amazon, for example, has its roots in past American mistakes. Above all, many Latin Americans have not forgotten US backing for their region's military dictatorships of the 1970s and 1980s.

Although many Latin Americans aspire to migrate to the US in search of opportunity, anti-American attitudes have been hardening. A BBC World Service poll in January 2007 indicated that 64% of Argentines, 57% of Brazilians, 53% of Mexicans and 51% of Chileans had a "mainly negative" view of US influence. Nowadays, Bush's low approval-rating in Latin America has two main causes: the Iraq war and the way in which the US government continues to act as if the cold war has not ended.

This issue should not be avoided at the presidential meeting at Camp David. For Bush, the best way forward will be to work out a mutually beneficial agreement with his Brazilian counterpart. Brazil is not the only country in Latin America which sees great promise in ethanol. But it has the technology, the competence and the most favourable conditions with which to become a US true partner in this challenging task. Dramatic gestures by boy heroes will not be necessary. All that's needed is competent diplomacy.

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