US, BRAZIL SEEK TO EXPAND GLOBAL MARKET FOR BIOFUELS

The US and Brazil -- the world's two top ethanol producers -- have announced the creation of an International Biofuels Forum to help develop a global biofuels market. The forum also includes China, India, South Africa and the EU, which all are large potential consumers and producers.

Launched at the Preparatory Committee for the UN Commission for Sustainable Development (CSD) on 2 March, the Forum aims to develop global standards to help turn ethanol into an internationally traded commodity, find ways to open markets, and encourage investment in the industry. Developing technical standards to define quality levels for ethanol is considered a first step to turn it into a commodity that could be traded like oil. According to Brazilian environment minister Antonio Simoes, the International Biofuels Forum is "a mechanism to structure the dialogue among the biggest producers and consumers of biofuels interested in promoting the creation of an international market for those products."

Following the launch of the international forum, US president Bush and Brazilian president Lula da Silva are meeting in Sao Paulo on 9 March, where they are expected to sign a separate agreement to share scientific and technological research on biofuels. Together, the two countries account for a total of more than 70 percent of global ethanol production. While only an estimated 10 percent of global production currently is internationally traded, this trade is expected to expand. Brazil remains the world's top exporter of ethanol, although US ethanol production surpasses that of Brazil. However, Brazil's production of ethanol from sugar cane can be done more efficiently and at a lower cost than US corn-based production.

With domestic demand for ethanol growing both in Brazil and the US, the immediate priority is to satisfy the domestic markets. But Brazilian and US business groups see commercial opportunities in supplying advanced equipment to other countries, such as those in the Caribbean and Central America, as they become larger producers.

The US imposes a tariff of 54 cents a gallon on ethanol imported from countries like Brazil, but allows Caribbean nations and countries part of the Central American Free Trade Agreement to export home-grown ethanol to the US free of duties. In addition, under the Caribbean Basin Initiative -- an initiative established to promote development in the region by providing preferential market access into the US -- Caribbean countries can import partly processed ethanol from third countries including Brazil. They can the process it before re-exportation to the US, in quantities amounting to a maximum of seven percent of US ethanol consumption. It is estimated that in 2006, the US imported about 600 million gallons of ethanol, of which about 200 million gallons came indirectly from Brazil through the Caribbean.

While Brazilian producers are seeking to have the US remove the tariffs on ethanol, the US is expected to oppose such a change due to domestic pressure to limit imports and increase domestic production. In a letter sent to President Bush, Senator Chuck Grassley, an Iowan Republican and a ranking member of the Senate Committee on Finance has questioned the plans for cooperation with Brazil, saying "I appreciate that increased consumption of ethanol in such countries [third countries that would benefit from joint US-Brazilian technical assistance] might eventually benefit the US ethanol industry and US farmers. I fail to understand, however, why the United States would consider spending U.S. taxpayer dollars to encourage new ethanol production in other countries, production that could directly compete with US-produced ethanol."

In his 2007 State of the Union address, President Bush announced a plan to produce 35 billion gallons of ethanol and other alternative fuels a year by 2017 (see BRIDGES Weekly, 31 January 2007).

ICTSD reporting; "Les producteurs de biocarburants jettent les bases d'un marché mondial," LE MONDE, 2 March 2007; "U.S. and Brazil Seek to Promote Ethanol in West," THE NEW YORK TIMES, 3 March 2007; "U.S., Brazil Launch Biofuels Forum," THE ASSOCIATED PRESS, 4 March 2007.