Brazil to Boost Bioethanol Demand Through Higher Blend and Tax Cut

The government of Brazil, the world's largest producer of sugar cane and bioethanol, plans to take two steps to boost demand for biofuel. It seeks to raise the mandatory blend level of anhydrous ethanol to 25 percent from its current level of 20 percent effective May 1 this year, based on an official resolution. The other step being prepared, according to unofficial reports, is the implementation of tax breaks on ethanol which include lower payments and the possibility of converting the amount paid into credit.

Brazil has already implemented the 25 percent blend but in October 2011 this mandate was reduced to 20 percent due to poor cane harvest. With the present recovery of sugarcane production, the main supplier of ethanol feedstock, the blend level is expected to return to 25 percent.

Final announcement on the said tax cut may be made before sugar cane starts getting to mills in April. Tax cuts may make the biofuel more competitive and encourage diversion of more cane into ethanol production. Some industry analysts say that while such tax cut is welcome it may not be enough to stop the current sugarcane surplus and plunging prices of sugar and ethanol. The government, however, seems determined at pursuing measures that may tip the balance in favor of ethanol.