Rising oil prices, a slowing U.S. economy, the war on terror, and increasing concern about global warming have all converged on the international stage and in the mind of the average U.S. consumer in recent years. Calls for energy independence, clean energy, and cheaper alternatives to oil have made ethanol an ever-increasingly attractive option. Ethanol is a biofuel created from "a variety of feedstock's such as cereals, sugarcane, and cellulosic material" (Elobied 1). In the U.S., the fuel is produced almost exclusively from corn, whereas in Brazil it is produced almost exclusively from sugarcane. In this paper, I hope to investigate the effects of these trade barriers on ethanol production in the United States and in Brazil and what would happen if some or all of those barriers were lifted.
[...] and Brazilian ethanol markets, the research I did and studies I perused helped me to better understand just how much of an impact ethanol prices have not only on the pocketbooks of ordinary Americans, but how much those prices affect other commodities, and how greatly trade distortions inflate the price of U.S. ethanol. Elobeid sums up his own research best: Ethanol is an emerging market, currently driven primarily by regulations and mandates, with Brazil and the U.S. leading the way. [...]
[...] Brazilian exporters, on the other hand, are able to make a great deal of money by exploiting this arrangement because sugar sells in the U.S. for three times the worldwide market price (Schott 10). The U.S. Farm Security and Rural Investment Act, passed by Congress in 2002, also adversely affects Brazilian farmers. The law subsidizes the price of corn, cotton, and soybeans grown by U.S. farmers, allowing them to be sold at below-market prices (Schott 10). While U.S. consumers benefit from being able to buy cheap, high quality food, foreign food producers are not so fortunate. [...]
[...] Oil prices were surging while sugar prices were coincidentally plunging, leading the Brazilian government to launch the Proalcool program to promote the domestic production and consumption of ethanol fuel. Tax credits for individuals buying ethanol burning vehicles and the decision to peg the price of ethanol to the price of gasoline were put in place to encourage a shift from dependence on foreign fuel imports to energy independence (Martines-Filho 93). More recently the introduction of flex-fuel cars, vehicles capable of burning pure gasoline, pure ethanol, or a mixture of both, has boosted Brazil's production of and dependence on ethanol, even as global demand for the commodity is also increasing (Martines-Filho 92). [...]
[...] A major and rather immediate effect would be a marginalization and decrease in standard of living for the sugar farmers of those countries, who are no longer be able to exploit market inefficiencies created by those U.S.- Brazilian trade barriers (Dean). This could lead to a new focus on other industries in those countries, but there is no real evidence to support such a notion. Back to the study, the lower domestic production of ethanol translates into reduced demand for corn in the U.S., resulting in a slight decline in the price of corn. [...]
[...] The Brazilian Sugar and Ethanol Markets As mentioned earlier, Brazilian ethanol is produced via sugarcane, and there exists a tight balance between ethanol and sugar productions. Recent demand for ethanol has shifted the Brazilian sugarcane industry away from sugar production and towards more ethanol production. New mills are being “built as ethanol only, since sugar mills are more expensive and can be added in the future,” and this trend might suggest a tightening of the Brazilian sugar market in years to come (Tokgoz 15). [...]
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