President Rousseff's Economic Policy Is Devastating Ethanol, Says Industry Union President

04/14/2014 - 09h07

The ethanol industry is undergoing the greatest crisis in its history and the Rouseff administration's economic policy is responsible. That is the warning sent out by Elizabeth Farina, president of Unica (Sugarcane Industry Union).

In the five past harvests, 44 (out of 384) plants have closed. Of the operating plants, 33 are filing for bankruptcy and 12 will not crust cane this year.

"The policies to control the price of gasoline and the reduction of the Cide (Intervention Contribution in the Economic Domain) were a deadly blow to the sector," says Farina.

Folha found that some of the businessmen in the sector, which was a major contributor in past elections, are threatening not to contribute to Rousseff's reelection campaign, as they are unhappy with the measures.

"Lula said that sugarcane millers were heroes, that Brazil was going to be the Opec of ethanol. It was a sign of the central role that ethanol played in the country's economy," says Farina.

But Rousseff "seems to be upset" with the sector, which has an annual income of US$ 48 billion.

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Folha - What is the situation of the sugar-ethanol sector today?

Elizabeth Farina - The sector is undergoing its greatest crisis ever. In the past five harvests alone, 44 plants closed - 25 of them in the state of São Paulo. There are 33 plants filing for bankruptcy. Debts are soaring.

In 20% of the plants, 30% of the income goes to pay debts (interest and amortization). We have lost associates, who stopped paying the association because they are in difficulty. Eighty thousand people were fired.

How did the sector reach such a crisis?

From 2003 to 2009, we had a virtuous cycle of investment. The price of petroleum was rising and it was reflected in domestic prices. There was the Cide of R$ 0.28 per liter of gasoline, which made ethanol more competitive, and a positive sign from the government as a result of the pressure on the auto sector to produce flex cars, with low excise tax. All this encouraged investment and generated 100 new plants in the period. Then the 2008 crisis caught the sector at a moment of high indebtedness. That had a very negative impact.

The government's reaction was to try to ease the crisis in Brazil by encouraging demand. They reduced the excise tax on vehicles and expanded credit for the purchase of automobiles. The sector was pressured from the financial viewpoint and stopped investing in new sugarcane production. Productivity falls as sugarcane fields age. We also had three consecutive harvests with climate problems. It was the perfect storm - lower investment capacity due to financial restrictions and bad weather.

That made ethanol production decline, the price rise, and we lost competivity. In 2010, inflationary pressure began, and that made the government adopt a policy to control the price of gasoline at refineries and reduce the Cide on gasoline. Those policies were a deadly blow to the sector.

Ethanol competes with gasoline at the pump. When the government controls the price of gasoline, it also controls ethanol prices.

What will happen if there aren't any changes in the economic policy for the sector this year?

The price of gasoline is some 20% depressed today. The perspective is that an even greater number of plants will close or file for bankruptcy.

What are the sector's demands?

We want specific programs to increase the efficiency of ethanol-run engines. And we also want incentives for hybrid flex car (electricity and ethanol).

Agriculture Minister Neri Geller announced ongoing negotiations to increase the mixture of anhydrous ethanol in gasoline, from 25% to 27.5%. Would that solve the problem?

It's an emergency measure, but it does help.

Do you feel the lack of greater communication with President Rousseff?

I had few chances to talk with the president. The government as a whole has good communication with the sector - I go to Brasilia every week. But there is a great distance between communication and concrete actions.

Translated by THOMAS MUELLO

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Moacyr Lopes Junior/Folhapress

Farina, president of the Sugarcane Industry Union, says that the ethanol industry is undergoing the greatest crisis in its history