The Brazil ethanol industry saw record supplies for the 2013/2014 crush season just being wrapped up, and got a welcome boost from auto executives who said ethanol-powered cars are more viable for reducing pollution than electric vehicles.

The Brazilian sugarcane association, UNICA, reported the country is seeing record ethanol supplies in the 2013/2014 crush season that will be sufficient to cover the rapid growth in Brazilian fuel demand for light vehicles. The growth in production in a period when producers are not seeing profits may seem counter-intuitive, but is a reflection of efforts to reduce idle capacity, according to UNICA CEO Elizabeth Farina. "The search for cost reductions and the optimization of existing mills is what explains this season’s significant growth in production," she said.

The auto exec’s comments were made at a forum on economic development in southeast Brazil. The president of Mercedes-Benz in Brazil, Phillipp Scheimer, said the electrical grid in Brazil would not support mass utilization of electric vehicles. The president of Fiat in Brazil, Cledorvino Belini said ethanol is the best fuel alternative for cars in Brazil, and without a doubt flex-fuel engines are better than electric or hybrid cars in terms of efficacy and reduction of environmental impact. A month earlier, UNICA reported that German manufacturer BMW is rolling out flex-fuel vehicles for the Brazil market capable of running on E100. UNICA’s emissions and technology consultant, Alfred Szwarc, reported the BMW is an intelligent system equipped with a two-stage turbo, allowing it to operate efficiently with ethanol or gasoline.

In its monthly production report on the ethanol industry, UNICA technical director Antonio de Padua Rodrigues pointed out that the record growth in ethanol supply brought enormous benefits for the Brazilian light-fuels market: "In addition to meeting the extra demand for light fuels, the re-establishment of the anhydrous ethanol blend rate to 25 percent as of May of this year reduced the demand for pure gasoline and allowed Petrobras to raise its refining capacity by close to 10 percent, significantly reducing the need to import gasoline."

With a number of mills having wrapped up cane processing for the 2013/2014 season, the total crush grew by 60 million tons, UNICA reported. Most of the increase went towards ethanol production. From the start of the season through Dec. 1, ethanol production increased by 18.97 percent, while sugar production rose by just 0.66 percent. The December numbers confirm UNICA’s projections in early October, which pointed to a rise in ethanol production of 3.68 billion liters (970 million gallons) this season, with total production reaching 25.04 billion liters compared to 21.36 billion liters in 2012/2013. In addition to increased production, the ethanol supply for Brazil's domestic market also benefited from reduced exports, which are expected to total around 2.61 billion liters in 2013, or around 850 million liters less than the 3.46 billion liters exported from the South-Central region during the 2012/2013 harvest.

Putting together the rise in production and the drop in exports, the increase in total ethanol supply for the domestic market should reach around 4.53 billion liters this season. This is a record, surpassing increases registered in 2007/2008 (4.45 billion liters) and 2008/2009 (3.62 billion liters), a period during which more than 50 new mills were launched.

Farina said that several factors explain this season’s growth in ethanol production: "Increased demand stemming from the return to a 25 percent blend of anhydrous ethanol in gasoline, the condition of oversupply in the global sugar market, and the potential for hydrous ethanol demand resulting from the huge flex-fuel vehicle fleet in Brazil, especially in states that give differentiated treatment to hydrous ethanol in applying the ICMS (state) tax."

Prices gathered by the University of São Paulo's Center of Advanced Studies in Applied Economics (CEPEA) show that the revenues obtained by mills in São Paulo state from sugar and ethanol sales through November of this year were 9.21 percent lower than during the same period last year. The progressive drop in revenues observed over the last three seasons, together with the financial losses of firms in the sugarcane industry, have produced a worrisome situation, UNICA said. Last year, on average, mills dedicated close to 15 percent of their income to servicing debt.

Farina pointed out that over the course of this year, several government actions eased the situation, including tax reductions for sugar and ethanol, policies for financing ethanol stockpiles and a program to assist cane-field renovation. She added that the growth in production witnessed this season is something that probably will not be repeated in the coming years. "In the current context, returns don't justify the construction of new units," Farina said. "Even if decisions to build new mills were made immediately, at least three years would be needed for the start-up of operations and another two years for them to operate at full capacity."