The accelerated growth in the construction of corn ethanol plants in the country has brought this question to light, due to the fact that both raw materials produce the same fuel and, therefore, are on the side of increasing supply, but that, ultimately, both compete directly with gasoline at the pumps. Therefore, the issue is not one of competition, but of complementarity.

Although the final product is the same, the production systems are very different and follow very different logics in their economic viability. The sugar and alcohol industry is centuries old in the country and the corn ethanol industry is relatively recent, having not reached a decade of consistent growth. What is impressive about the corn ethanol industry is its speed of growth.

We share the same supply chain and the potential demand for ethanol is very large and can accommodate many of the projects announced for corn ethanol. The consumption of Otto cycle fuels in Brazil (passenger vehicles and light commercial vehicles) in 2023 was 62.0 million cubic meters, with 45.9 million cubic meters of regular gasoline and 16.0 million cubic meters of ethanol hydrated. Converting this volume into equivalent gasoline, we have an annual demand of 57.1 million cubic meters.

Today, the Brazilian fleet is made up of 80% flex vehicles, and, in a limit situation, we could have this entire fleet using ethanol, generating a potential demand of 45.7 million cubic meters of gasoline equivalent, which could be transformed into a consumption of 65.2 million cubic meters of hydrated ethanol.

Brazilian ethanol production for the 2023/2024 harvest totaled 35.8 million cubic meters, including anhydrous and hydrated ethanol, from corn and sugarcane. Looking from this angle, we could say that there is room to double current ethanol production, and neither of the two agricultural crops will shadow the other or impede its growth. The central issue is the competitiveness of hydrated ethanol 92% of Brazil's ethanol demand is in the Center-South region, and, within the Center-South region, the States of São Paulo, Paraná, Mato Grosso do Sul, Mato Grosso, Minas Gerais and Goiás account for 93.2% consumption in the region.

What we are seeing is a large concentration of demand in producing states. To expand demand, it is necessary to encourage ethanol consumption where it is not competitive. Refining the calculations presented, the consumption of Otto cycle fuels (passenger vehicles and light commercial vehicles) in 2023 in the Center-South region was 47.7 million cubic meters, with 33.2 million cubic meters of regular gasoline and 14.5 million cubic meters of hydrated ethanol.

Converting this volume into equivalent gasoline, we have an annual demand of 43.3 million cubic meters and, based on the premise that up to 80% of the fleet could use hydrated ethanol, we would have a potential consumption of 34.4 million cubic meters of equivalent gasoline, which could be transformed into a consumption of 49.5 million cubic meters of hydrated ethanol.

Further refining the calculations presented, the consumption of Otto cycle fuels (passenger vehicles and light commercial vehicles) in 2023 in the Producing States, where ethanol is more competitive, was 35.2 million cubic meters, of which 21.7 million of cubic meters of regular gasoline and 13.5 million cubic meters of hydrated ethanol. Converting this volume into equivalent gasoline, we have an annual demand of 31.2 million cubic meters and, based on the premise that up to 80% of the fleet could use hydrated ethanol, we would have a potential consumption of 25.0 million cubic meters of equivalent gasoline, which could be transformed into a consumption of 35.7 million cubic meters of hydrated ethanol.

The current production of hydrated ethanol, in the Center-South region, in the 2023/2024 harvest was 20.5 million cubic meters. Today, consumption of hydrous ethanol in the Center-South region is 16.0 million cubic meters per year. Apparently, there is room to increase production, but convincing 100% of flex vehicle owners to use hydrated ethanol does not seem to be such a trivial task. The current share of hydrous in Otto cycle consumption is 23.5% in the Center-South region, and the average price parity between ethanol and gasoline, in the 2023/2024 harvest, was 64%, extremely favorable to biofuel.

The competitor is called gasoline and that is what the sector should be concerned about. And even despite being a state production model, we have a very modern and competitive oil industry, with enormous investment capacity. Although the decision for fuel today is made at the gas station, several factors still influence the consumer's decision-making, but ultimately it is the relative price of the products that weighs in the balance. At the federal level, public tax differentiation policies are duly adjusted in favor of biofuel. At the state level, there is a uniform tax on gasoline in all states (ad rem rate and single-phase).

For hydrated ethanol, only the producing states (São Paulo, Paraná, Mato Grosso do Sul, Mato Grosso, Minas Gerais and Goiás) have competitive state rates. The other states of the Federation do not have tax policies that encourage the consumption of hydrated ethanol, and the direct consequence is that consumption is mostly met by gasoline, which has a more favorable cost-benefit ratio than ethanol. This is the great barrier for sugarcane and corn. If ethanol production continues to grow without tax adequacy in other states, we will quickly reach saturation of consumption in producing states and the consequence will be a substantial drop in business margins.

The development of the industry is quite complex. On the sugarcane side, we have competition with sugar, with growing demand, in which Brazil is the main protagonist, with a large part of its production aimed at export. The price limitations imposed by oil prices, the exchange rate and, mainly, the price controls practiced by Petrobras make sustainable growth in ethanol supply very difficult. This factor affects both the sugar cane industry and the corn industry. The big difference is that corn ethanol takes advantage of the low raw material prices at the moment.

The price of sugar cane suffers the consequences of high sugar prices and increases ethanol production costs, and, on the other hand, ethanol prices are limited to controlled gasoline prices. In a short-term analysis, there is much more room for growth in the supply of corn ethanol than for an increase in the supply of sugarcane ethanol.

The situation is extremely complex and the investments are extremely high. Unlike the sugar market, the government's presence is very heavy in the ethanol market, whether due to tax policy, determining the level of mixing of anhydrous ethanol in the gasoline mixture, or in the policy for defining Renovabio's targets. Everything interferes and makes it difficult to visualize investment horizons for the corn and sugarcane ethanol industry.