Why ethanol became the inflation champion in 2021

With the successive increases in the price of oil and the devaluation of the real against the dollar, the price of gasoline has soared throughout 2021 – 49.59% since January, according to the IPCA-15. Without depending on petroleum and with an entirely national production, ethanol could become, in this scenario, an alternative to supply more than 71% of the vehicles of the Brazilian fleet using flex technology. But the sugar cane derivative has accumulated to an even higher level than fossil fuel. Despite a slight drop since November, there have already been 63.28% readjustments since the start of the year.

Of the 367 sub-elements that the Brazilian Institute of Geography and Statistics (IBGE) monitors to compose the official inflation index, ethanol leads with the largest increase. According to data from the weekly survey of the National Petroleum, Natural Gas and Biofuels Agency (ANP), the biofuel was sold at gas stations for an average price of R $ 3,204 during the first week of january. In November, it hit 5.414 BRL, falling to 5.079 BRL in the week ended December 25. In a resale in Torres (RS), it was found at R $ 7,799. And in Bagé, also in Rio Grande do Sul, at R $ 7,797.

A number of factors help to explain the picture. With the novel coronavirus pandemic and the drop in demand, the price of green fuel has shrunk sharply. Between 2020 and 2021, in the wake of the appreciation of the dollar against the real, sugar prices turned out to be more remunerative for the mills, which means that a greater volume of cane was directed towards the production of the product.

“This resulted in a reduction in the supply of ethanol, the effects of which were felt mainly in the off-season with low stocks of biofuels,” explains a report by the Agribusiness Board of Itaú BBA. “This drop in ethanol stocks opened up the space for a sharp rise in biofuel prices at the end of the 2020/21 harvest, which was also influenced by the delay in starting the 2021/22 grind in the Center-Sud region, with a postponement of producers. harvest to obtain sugar cane with greater productivity.

As a result, there was a significant drop in sugar cane production during the 2021/2022 harvest, caused by factors such as drought, frost and fires. “It was one of the longest droughts in the history of the Center-Sud region, followed by severe frosts. And when it’s too dry, it ignites easily. In addition to losing raw materials, this has an additional cost, ”explains Josias Messias, CEO of the consultancy firm Procana.

According to the latest estimate from the National Supply Company (Conab), linked to the Ministry of Agriculture, Livestock and Supply, the harvest for this campaign should be 568 million tonnes, a decrease of 15.1%, or 86 million tonnes less, compared to the last cycle. This explains why, after ethanol, the product that increased the most in 2021 was refined sugar.

“We have reduced the production of sugar and ethanol. THE [etanol] hydrated had to make the sacrifice so that the plants make more anhydrous in order to be able to mix it with gasoline and not run out ”, explains Marcos Fava Neves, professor at the Faculty of Economics, Administration and Accountancy (FEA) of the University of São Paulo (USP).

In addition, with the rise in gasoline prices due to the oil price and the exchange rate, there has been an increase in demand for biofuel. “Whether you like it or not, the usage is the same. The consumer has the last word. If gasoline goes up, there is room for ethanol to go up too, ”says Messias. Although there is a difference, per engine, in the efficiency obtained with each fuel, on average it is calculated that ethanol gives 70% of the equivalent volume of gasoline.

In December, with the end of the harvest phase of the crop, there was a drop in the price of ethanol. “As we already know what is the main volume of ethanol available, which comes from the Center-Sud, it is now a question of stock management, there will be no more or less production”, explains the consultant.

“Every year that adjustment is done that way. If production was lower and stocks low, the price usually increases during the off-season period, which runs from the end of the year to March. This time there was a drop in production, but there was also a reduction in ethanol consumption due to the market correction. “

Encouraging an End to Fossil Fuel Use Should Boost Ethanol Industry

From a pioneer and leader in the production of ethanol in the world, Brazil has gradually put aside the encouragement of the use of biofuels. The revival of the production of alcohol as a fuel appeared in the 1970s, with the Proálcool program, which aimed to reduce the country’s dependence on imported petroleum.

“In the previous government, President Dilma [Rousseff], the sector has taken a big hit with the maintenance of gasoline at unrealistic, subsidized prices. He also stifled ethanol and sugar. The sector lost a lot of money, lacked capital, got into debt, ”explains Marcos Fava Neves of FEA-USP.

“But I think a new moment is coming, because biofuels are fashionable in the world with the environmental question”, he assesses. “We are going to start a new cycle of growth for biofuels. It should also be remembered that the investment in ethanol from corn is increasing a lot to supplement the ethanol from sugar cane. There is room for both.

For Josias Messias of Procana, unlike in the past, it is not up to the government to subsidize this or that fuel in order to encourage its use. “From a greenhouse gas mitigation point of view, we have an extremely modern and pioneering mechanism in the world, which is the CBIO [Crédito de Descarbonização], which was created by the government, but which is managed by the market, sold on B3.

Established by the National Biofuels Policy (RenovaBio) as one of the efforts to make achievable the obligations assumed by Brazil during the United Nations Conference on Climate Change (COP 21) of 2015, the CBIO is issued by producers and importers of biofuels certified by the ANP. Fossil fuel distributors, in turn, must acquire CBIOs to meet their annual decarbonization targets.

“It’s a mechanism that is already working. It does not add significant value to the income of ethanol and biodiesel producers, but it is a stimulus for the market itself, which is expected to grow more and more. The market is still not valuing CBIO as it should; this price tends to improve.

For him, the country still has the possibility of once again becoming a protagonist in the world with a matrix of renewable energies. “Brazil succeeds in reducing greenhouse gases, generating development and income within the country. That’s the whole market today, without government subsidy.

For this, the consultant considers the need to invest in the development of new technologies, alternatives to electric vehicles. He cites bioelectrification as an example, using ethanol-based fuel cells. In this model, there is no combustion of the compost. “It transforms most of the composite carbons into electrical energy. What comes out of the exhaust is simply water.

“This discussion of the sustainability of an electric car is already falling apart, because now we have electric vehicles that are a few years old and we are having issues with disposing of batteries,” he says. “When you compare the whole product cycle, from well to wheel, you can see that countries in Europe, for example, are going to use energy from non-renewable sources to have an electric car at the end. and say it’s sustainable. “

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