Since the decision was made to foster the production and consumption of ethanol produced from biomass, on a large scale, in Brazil, with the introduction of government initiatives to create initial conditions for its development, the production of ethanol grew from 0.56 to 27.37 billion liters, between 1975 and 2010. Ethanol production multiplied 48 times, whereas in the same period the production of sugar increased only 5.4 times, from 5.9 to 38 million tons.

The crushing of sugarcane for industrial use – except cane used as forage and destined for producing brandy – grew 8 times, increasing from 68 to 620 million tons, while the production of Total Reducing Sugar (ATR) increased 11 times, from 7.1 to 86.9 million tons, the result of attained productivity gains during the period.

The last major leap in scale occurred after the market was totally freed and government intervention reduced to minimum levels, beginning in 1999, when sugarcane crushing was still at 307 million tons. However, it was in the difficult years of the 80’s and 90’s that, under very adverse circumstances, conditions arose for the enjoyment of the benefits of the diversification of the traditional sugarcane industry in its trend towards ethanol.

Adverse circumstances, mainly due to the intervention of the government in setting prices of sugarcane, sugar, and ethanol, which for many years forced producers into selling their production at prices 30% to 40% below average production costs, which costs were actually measured by the government itself, resulted in that the private sector transferred to society much of the income it received in the initial phase of the Proálcool – a Brazilian program for ethanol.

Since the freeing in 1999 of the sugarcane, sugar, and ethanol markets in Brazil, the production of ethanol has developed in line with what happens worldwide. The world production of ethanol is expected to reach 108.42 billion liters in 2011, which amounts to 83.8% of the total production of biofuels (ethanol plus biodiesel).

In 2000, the volume produced was 29.56 billion liters of ethanol, most of which, 88.1%, and equivalent to 95.5 billion liters, will be used as fuel. In 2000, this percentage was only 64.1%. It is quite natural to have been like this, because the energy market, and that of liquid fuel in particular, is much bigger than what markets demand in ethanol for industrial uses.

What is so impressive is that ethanol from biomass is no longer that exotic fuel, irrelevant from a statistical point of view. Considering that the world consumption of gasoline is 1.2 trillion liters per year, the use of ethanol as fuel already represents impressive 8% of the world consumption of fuel used in Otto-cycle engines. 

In Brazil, in 2010, ethanol used as fuel – anhydrous ethanol added to gasoline in the proportion of 25% of the total volume, and hydrated ethanol, used in what is left of the vehicle fleet running solely on ethanol and in the flex-fuel vehicle fleet – represented 44.5% of the consumption of fuel in Otto-cycle engines, in terms of gasoline equivalence.

With the ever increasing use of ethanol from biomass in the gasoline pool in the USA and the European Union, it is only a matter of time for ethanol to be used in almost all countries of the world, at least initially, mixed with gasoline, provided minimal regulation is in place, and there is freedom to produce and/or sell.

Although ethanol still is not considered a commodity, the trend is towards international trade gaining momentum, mainly concerning the prospect of freeing the North American market, and the appearance of opportunities for potential suppliers of ethanol from biomass produced in a decentralized manner in different countries around the globe.

In Brazil, the ethanol market experienced an important benchmark with the introduction, in March of 2003, of flex-fuel vehicles that use gasoline and hydrated ethanol indistinctly. The market definitely became regulated through prices.

Until the end of the current decade, practically the entire light vehicle fleet will consist of flex-fuel vehicles, that will work like “saccharose sponges” ou “sugar sinks”, capable of absorbing significant volumes of saccharose, or sugarcane, in the event that prices should induce consumers to go that route.

Whereas in the 80’s and 90’s it was common to have excess supply, pressuring the domestic and foreign markets through the expansion of the Brazilian production due to the objective of gaining increasing production scale, thereby reducing costs, at least for the foreseeable horizon we should experience latent demand, waiting for the opportunity to materialize, depending on the prices in the market of ethanol, gasoline and sugar.

With conservative assumptions about the participation of Brazil in world markets of sugar and ethanol, and with respect to the development of the use of ethanol in ethanol-chemical applications, DATAGRO predicts that by 2020 demand for cane in Brazil should reach 1.23 billion tons, practically double the volume processed in 2010.

The demand for ethanol would increase to 71.6 billion liters, and the proportion of cane transformed into ethanol would increase from currently 54.1% (total for Brazil in 2010) to 68.5%. Sugar would definitively play a lesser role in the production mix.
Sugarcane crushing, which doubled in the decade 2000-2010, would have to double again between 2010 and 2020.

The big challenges of this process will consist of obtaining the licenses for industrial expansion, convincing a new generation of farmers to invest in agricultural expansion, and of financing the needed investments. The expansion in a magnitude of more than 600 million tons of sugarcane will require investments of 90 billion dollars in the next 7 years.

Considering a relation of own capital to that of third parties, of 40-60, financing of 7.7 billion dollars per year will be needed. The challenge will be to allocate sufficient funds in a responsible and efficient manner during this process. If this should not occur, the latent demand will remain, as will the opportunity at a later point in time in the future.