Brazil's sugarcane sector : a case of lost opportunity

The Brazilian sugar and ethanol story goes like this: direct market intervention overrides market forces. Markets undergo dramatic change. Intervention establishes vested interests. Rent-seeking blocks adjustment to market change. Economic objectives become blurred behind political objectives. Opportunities go begging. Industry profitability suffers. And national income is forgone. The authors use a simple economic model of the Brazilian sugarcane sector and policy interventions to measure the costs of existing policies and to develop better policies. Brazil is an efficient producer of sugar, but policy intervention has caused: (a) underproduction of sugar cane (too much ethanol, not enough sugar); (b) missed opportunities to market ethanol in high-value uses (as an octane enhancer and clean fuel); (c)missed opportunities to make the world sugar market more competitive. Adopting more market-based policies could be worth billions of additional dollars annually to Brazil.