Brazil Calls Our Bluff
Liberty Corn Maze by smiteme
One of the main arguments that pro-ethanol lobby groups like the Renewable Fuels Association (RFA) and Growth Energy make in defense of the generous Congressional subsidies to U.S. corn ethanol producers is that Brazil unfairly competes by slapping a 20% tariff on imported ethanol, effectively locking out U.S. ethanol exports.
Well, so much for that argument.
Brazil announced this week that it is eliminating the import tariff until the end of 2011 — and potentially forever. Brazilian sugarcane ethanol has several economic advantages compared to U.S.-grown corn ethanol, including the capacity to co-generate electricity by burning the sugarcane bagasse, lower wage workers, and cheaper feedstocks in the form of sucrose (see Brazilian Ethanol Takes a Hit). The economics are sufficiently advantageous that the Brazilians now feel that their ethanol can compete with any imported ethanol.
The Brazilians have essentially called the U.S.’ bluff and are now demanding the end of U.S. subsidies as a measure of reciprocity.
It’ll be interesting to see where this goes. Will we defend our protectionist tariffs that maintain high prices on US produced ethanol? Or will we allow cheaper Brazilian fuel to cross the border, out-competing the domestic companies.
I’m not sure you can even use the term “compete” when the domestic supply is already so heavily subsidized.
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