Brazil’s ethanol industry faces tough choice as Trump’s tariffs loom
President Trump’s tariffs on Brazilian ethanol threaten to strip Brazil of a key market, but the alternative—lowering Brazil’s 18% tariff on U.S. ethanol—could hurt the local industry even more. While U.S. ethanol exports are small compared to Brazil’s domestic market, lifting tariffs could flood the northeastern market, harming local producers. Brazil is expanding its ethanol production to meet rising domestic demand.
President Donald Trump’s tariffs risk stripping Brazil of a key market for ethanol abroad. But for Latin America’s biggest economy, they are the lesser of two evils.
Avoiding reciprocal duties would likely require President Luiz Inacio Lula da Silva to lower Brazil’s 18% duty on American ethanol, opening the gates for U.S. product to flow into its shores. That would hurt the local industry more than losing its captive market in California.
Brazil shipped about 300 million liters of ethanol to the U.S. last year, with the trade flow relying heavily on incentives paid for low-carbon fuels in California. But exports are just a tiny fraction of the size of the domestic market, where so-called flex-fuel cars can run either on 100% ethanol or a mixture of the biofuel and gasoline.
“Bringing American ethanol here would be a disaster,” said Edmundo Barbosa, president of producers group Sindalcool-PB, based in the northeastern state of Paraíba.
At stake is an industry that’s been expanding. Brazil, which has historically made ethanol from sugar cane, has been boosting its capacity to produce the biofuel from corn to meet demand in the populous Northeast region. That’s precisely where U.S. product would flow to if tariffs were lowered or lifted.
It’s still unclear how Lula’s government will react to the U.S. tariffs threat, but if Brazil were to give in and remove its duty on U.S. ethanol, the northeastern market would be “flooded” by American supplies, consultancy Datagro said in a February report.
Without tariffs, it could be cheaper to import ethanol from the U.S. to supply states in the Northeast than to transport the product from Brazil’s Center-South, the country’s main producing region. That would put at risk a large slice of Brazil’s 32-billion-liter ethanol market.
Lower tariffs would come just as domestic demand for ethanol is set to rise, with the Brazilian government recommending an increase in the amount of ethanol to be blended into gasoline to 30% from the current level of 27.5%. The new blend will add 1.3 billion liters of ethanol demand annually.
Ethanol imports into the Northeast have been slowing in recent years, and that’s likely to shrink even more as new plants come online.
Top corn ethanol supplier Inpasa Agroindustrial SA is opening its first factory in the state of Maranhão, and plans a similar investment in Bahia for 2026, the company’s vice president of trading Gustavo Mariano said last month. Those facilities would account for over 800 million liters, about half of what the region imported in 2017.
Other companies that have announced plans for the region include Alagoas-based cooperative Pindorama, which recently started production. The government of Piauí state also recently issued a license for another plant.
A scenario of zero importing duties on both countries could also harm small local producers, said Guilherme Nolasco, president at industry group Unem.
“There’s only one market in the world that demands ethanol in large quantities, and that’s Brazil,” Nolasco said.
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Source : Farm Progress
