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US & Brazil: The New Ethanol Alliance

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    US & Brazil: The New Ethanol Alliance Via NY Transfer News Collective * All the News that Doesn t Fit IRC Americas Program - Mar 7, 2007
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      US & Brazil: The New Ethanol Alliance

      Via NY Transfer News Collective  *  All the News that Doesn't Fit

      IRC Americas Program - Mar 7, 2007

      IRC Americas Program Policy Report

      United States and Brazil: The New Ethanol Alliance

      by Ra�l Zibechi

      English translation by Laura Carlsen

      George W. Bush's trip to Latin America this month is the most ambitious
      attempt to reposition the United States in the region since the Free Trade
      Agreement of the Americas died in Mar del Plata in November of 2005. The
      trip, which includes Brazil, Uruguay, Mexico, Guatemala, and Colombia has a
      dual purpose: to counteract the growing influence of Venezuelan President
      Hugo Ch�vez in the region and to form a strategic alliance with Brazil for
      the production of ethanol. Although it may not appear on the surface, the
      two objectives are profoundly related.

      "We have 80 million hectares in the Amazon that are going to be converted
      into the Saud� Arabuia of biodiesel," affirmed the Brazilian engineer
      Expedito Parente to the newspaper O Globo. Parente knows what he's talking
      about--he is the owner of the first patent registered in the world for the
      industrial production of biodiesel. In 1977, when he was a professor at the
      University of Cear�, he conceived of his project based on the use of
      oleaginosas such as soybeans and the mamona plant.

      Today Brazil is the number-one producer of ethanol in the world, alongside
      the United States, and the two nations are poised to consolidate an
      alliance that will assure Brazil's position as regional leader and global
      power. In some ways, Bush's visit--preceded by those of Under-Secretary of
      State Nicholas Burns, and head of Western Hemisphere Affairs Thomas
      Shannon--represents a major recognition of Brazil's clout in the region.

      The cost of the alliance can be measured in terms of its environmental and
      social impact. It assumes the destruction of the Amazon and the ruin of
      millions of small farmers.

      But it is also a call to re-route North-South relations in the Americas.
      The second objective of Bush's tour March 8-14 relates to the need to
      control the spreading influence of Hugo Ch�vez. Ch�vez already has strong
      allies in Bolivian President Evo Morales and the Ecuadorian Rafael Correa.
      On what is his most important tour of the region in the past six years,
      Bush will also visit two small countries: Guatemala, where September
      elections could bring to power the indigenous leader Rigoberta Mench�, and
      Uruguay, a country that has shown interest in negotiating a bilateral trade
      agreement with the United States. In Colombia, with his friend Alvaro
      Uribe, Bush will seek to strengthen Plan Colombia given Correa's recent
      announcement that Ecuador will not renew the agreement to allow the U.S.
      military base in Manta--a key piece of the Pentagon's strategy in the

      Both objectives converge on one point: to use Brazil to consolidate a
      strategic alliance that seeks to isolate Venezuela and the countries that
      follow its policies of Latin American unity as a counterbalance to U.S.
      hegemony. This appears to be, for the Bush administration, the best way of
      gaining a new foothold in the region.

      In Search of Energy Autonomy

      When Nicholas Burns visited Brazil in early February, he gave an interview
      to the newspaper O Estado de S�o Paulo that reveals Washington's plans for
      the region. "We are very dependent on oil. So we have to develop
      alternative fuels, we have to decrease our gasoline consumption. We produce
      corn ethanol because we have large cornfields. You (Brazil) produce ethanol
      from sugarcane. We are both world leaders. We control more than 70% of the
      world market. We believe that this is a connection with Brazil, it is an
      area in which we can grow together and we can lead the development of a
      world market with very positive consequences for the environment and for
      the economy. Biofuels will become the biggest and most positive point of
      connection between Brazil and the United States."1

      Burns added that Brazil can play a major role in stimulating ethanol
      production in Central America and the Caribbean, where sugarcane
      plantations cover vast areas in private sector partnerships. He was very
      clear in pointing out that the agreement with Brazil on the development of
      biofuels will contribute to decreasing the dependency of U.S. imports from
      Venezuela and Iran. "We don't want to be dependent on those countries,"
      Burns concluded.

      The same day, the newspaper interviewed Brazilian Foreign Minister Celso
      Amorim, who agreed with Burns: "To resuscitate the FTAA would require too
      great an effort. I find it much better to think in terms of bilateral
      associations. Ethanol, for example, does not depend at all on other

      Obviously the two governments are thinking along the same lines, but it is
      important to clarify what each has to gain.

      Jeb Bush, who left the Florida governorship last January, now directs the
      Inter-American Ethanol Commission, "an organization through which
      Washington seeks to diversify its relations with Latin America," according
      to an article from the ANSA news agency dated Feb. 23.

      The commission was born out of a high-level U.S.-Brazil business alliance.
      On Dec. 18, still-Governor Jeb Bush, president of the Agri-Business Council
      of S�o Paulo and former Brazilian Minister of Agriculture Roberto
      Rodrigues, and president of the Inter-American Development Bank Alberto
      Moreno announced the formation of the commission "that has as its mission
      to promote the use of ethanol in gasoline mixtures throughout the

      A month later in his Jan. 22 State of the Union speech, President Bush
      proposed the promotion of a law to mandate use of a gasoline mixture of 20%
      ethanol over the next ten years. The objective is to reduce the
      vulnerability of the country to actions from hostile states.

      However, this entails an increase of 800% in the consumption of ethanol by
      2017. Even if corn production in the United States grew 30% a year, it
      could not satisfy the demand for biofuels while at the same time providing
      for food demand. Thus the need to seek strategic partners.

      On Jan. 26, in a speech before the World Economic Forum in Davos, Brazilian
      President Luiz Inacio Lula da Silva proposed that the United States
      participate with financing and technology in the installation of ethanol
      plants in nations with emerging economies. In this way it could obtain
      "more economical biofuels and furthermore promote the integration of the
      world economy."4

      The interests of both countries seem to converge, although in reality the
      interests are those of the main business groups of the two most important
      countries in the hemisphere. In effect, the objective of the commission
      presided over by Jeb Bush is to be "the nexus between business leaders of
      the United States and Brazil to develop the market for biofuels made from
      sugarcane and corn."

      Accompanying Bush on his Latin American tour will be Gregory Manuel,
      International Energy Coordinator in the cabinet of Secretary of State
      Condoleezza Rice. The agenda for Bush and company includes meetings with
      the powerful Federation of Industries of S�o Paulo (FIESP) and the
      association of sugarcane producers who produce for the biofuel industry.

      On the table will be the negotiation of a long-term strategic agreement,
      for Brazil to supply the United States with ethanol in the next decades so
      it can carry out "a declaration of energy independence" according to
      Washington's plans. From the point of view of the White House, three
      objectives come into play: to reduce oil dependency, to open up investment
      in Brazil and the continent in a growing sector, and to restore the U.S.'s
      political power in the region.

      The idea is to modify the energy matrix without having to rely on the
      massive consumption of corn ethanol which could cause a run on the price of
      the grain. By using Brazilian ethanol that is 25% cheaper than the U.S.
      kind, the United States saves money, avoids a corn shortage or major price
      fluctuation, and in passing achieves more energy autonomy. But for the
      project to proceed as planned, land dedicated to ethanol production must be
      expanded considerably. That is one of the reasons for associating with
      Brazil, since that country has the whole Amazon region at its disposition.
      Moreover, the Untied States proposes expanding production in other
      countries of the region, with particular emphasis on the Caribbean and
      Central America.

      As the Mercosur News Agency has pointed out, the U.S. government wants to
      align the entire region with its plan "to supply biofuels, or raw
      materials" and therefore seeks to "assure the price of this alternative

      The choice of Brazil and Latin America as supply sources for ethanol has
      several advantages. A report of the Inter-American Development Bank claims
      that Brazilian ethanol is competitive if the price of oil per barrel is
      over US$40. The oil price must be over US$60 a barrel for U.S. ethanol to
      be competitive and US$80 in the case of European ethanol.6 Brazil is five
      times more efficient converting sugarcane into ethanol than U.S. companies
      that use corn as the prime material.

      While biofuels account for just 1% of world fuel consumption for
      transportation and the substitution of oil-based fuels is only 1.8% in the
      United States, in Brazil it reaches 20%. The IDB report cited above
      establishes that Latin America is one of the regions with the most
      potential to offer biofuels given its climatic advantages combined with low
      population density.

      A large part of Brazil's advantages derive from the climate and the
      availability of land, something that the IDB considers "Brazil's
      exceptionalism." The developed countries do not have enough land to cover
      demand for crops to make ethanol. With barely 1.5% of its land sown, Brazil
      could entirely replace gasoline with ethanol. The United States on the
      other hand, would have to convert half of its total corn production to
      ethanol in order to implement a mixture of 10% ethanol to gasoline. That
      would mean dedicating 15% of its agricultural land. To meet the 20%
      benchmark Bush set in his State of the Union address, the nation has to
      look South.

      Good Business

      Biofuels also offer large profits and have whetted the appetite of
      investors. To meet Bush's goal of reducing gasoline consumption by 20%, the
      United States would have to go from its current level of production of
      20,400 million liters of corn ethanol, to 132,400 million is just 10 years.
      This means expanding the area cultivated in corn, soybeans, and sugarcane,
      investing in research to increase productivity, creating genetically
      modified grains for ethanol production, and building infrastructure to
      commercialize including alcohol pipelines with the aim of creating a market
      in energy commodities.

      To meet these objectives, Brazil has to go from the four billion gallons of
      ethanol it currently exports to 35 billion gallons in 2017. It would have
      to build 77 ethanol plants before 2012--some experts have calculated the
      number needed at closer to 100--with an investment of US$2.5 billion. Much
      of the capital would come from the United States. "Until last year, 3.4% of
      the sector was denationalized. In ten years half will no longer be
      Brazilian," predicts Maurilio Biagi. Just last year Biagi sold one of the
      country's largest plants, Cevasa, to the agribusiness multinational company

      Brazilian business also wins in the deal. The Brazilian business sector is
      interested most of all in expanding the use of biofuels in a region in
      which it plays a decisive role. To the degree in which the makers of
      ethanol have difficulties entering the U.S. market--they currently have to
      pay a 54-cent tax per gallon--they seek to expand sales in the region
      following the example of the big Brazilian companies like Petrobras,
      Odebrecht, and Camargo Correa.

      In the coming years, Brazilian businessmen and women will promote the
      extensive planting of ethanol crops in neighboring countries, and the
      construction of plants, pipelines, and transportation networks financed in
      large part by the Brazilian National Bank of Economic and Social
      Development (BNDES).

      Brazilian companies have an additional advantage in the ethanol business. A
      full 82% of cars made in Brazil run on the flex system--a system that burns
      gas, ethanol, or a combination of both. Brazil has already achieved the
      benchmark set out by Bush for 2017 since its legislation mandates the use
      of 20% in gasoline. After three decades investing in biofuels, to the point
      of having positioned itself in the global vanguard, Brazil's businesses are
      ready to take advantage of their head start.

      Many reports indicate that in the next decade important investments will be
      made in biofuels. In its recent report on the issue, the IDB lists the
      reasons for the sudden interest among investors: "Brazil, with the
      accumulated experience of over 20 years is the only country that has
      lowered the costs to a competitive level. One of the most important factors
      has been the development of agricultural technology in sugarcane
      production. Brazil's success has roused the interest of other countries in
      the region and a created a strong demand on the Bank."8

      Part of these investments will come from the large multinational
      corporations, since companies that produce transgenics--Syngenta, Monsanto,
      Dupont, Dow, Bayer, BASF--have investments in crops designed for the
      production of biofuels such as ethanol and biodiesel.9 Some of these
      corporations are preparing to sell genetically modified seed to increase
      productivity of crops sown for ethanol production.

      Regional Domination

      Political objectives also come into play in Washington's move to cement the
      ethanol alliance. A long-term alliance that projects Brazil as a global
      player, which is the objective of the Lula government, would allow the
      United States to recuperate the hegemonic role that it has been losing over
      the past years.

      Washington cannot consolidate its hegemony only through military measures
      like Plan Colombia. It also needs to win over groups of leaders like those
      in the Lula government and important and dynamic business groups like those
      that have flourished in Brazil and especially in S�o Paulo.

      Jeb Bush was very clear about this, stating that biofuels can strengthen
      the relationship between the United States and Latin America "serving as a
      catalyst to remove barriers to free trade within the region." The executive
      director of the Inter-American Ethanol Commission, Brian Dean, went even
      further, stating that ethanol can accomplish what the FTAA failed to do.10

      The strategic accord also foresees the formation of what O Estado de S�o
      Paulo calls the "ethanol OPEC" or the "Green OPEC"--an allusion to the
      Organization of Petroleum Exporting Countries. This explains the reactions
      of other Latin American countries.

      On Feb. 21 presidents N�stor Kirchner and Hugo Ch�vez met in Venezuela.
      They signed a series of economic cooperation pacts, among them the creation
      of the Bank of the South. For now Brazil will not participate and Paraguay
      and Uruguay are expected to join later along with Bolivia and Chile. The
      two countries also agreed to begin joint drilling of a series of wells
      between the state-owned Argentine oil company Enarsa and the Venezuelan
      PDVSA that are programmed to begin production in 2009. The project is
      expected to provide Argentina with 300,000 barrels a day of oil as a way
      out of its energy crisis.

      Under the plan, Argentina supports Venezuela by installing agro-industrial
      plants and Venezuela bought US$800 million in Argentine bonds--it had
      already bought another US$800 million previously--to place on the
      international market. The cooperation in economic issues is crucial for
      both partners.

      Argentina wants to assure fuel supplies since in a few years it could
      switch from being a net exporter to a net importer. Venezuela needs
      Argentine help to develop its agricultural technology for the generation of
      an agro-industrial base that it lacks. In short, they are
      complementary--one needs the other's petroleum, the other needs food.

      But the political pacts are as important as the economic ones. Just when
      Brazil is poised to enter into a strategic alliance with the United States,
      both presidents indicated their disgruntlement with the path followed by

      "Some have said that Lula or I have to stop Ch�vez. They are wrong.
      Absolute error--we are building with our brother, the Bolivarian president
      of this republic, respectful of internal situations, and we say that when
      our peoples express themselves they should be heard," said Kirchner.11

      Ch�vez responded saying that the empire never tires "of sowing animosity
      among us, the presidents of Latin America." In what seemed to be an
      indirect reference to other presidents, he said, "There in Buenos Aires
      some people say that Argentina's relationship with Ch�vez is a mistake. I'm
      sure these are the same ones who sold out to the empire." In this context,
      the two presidents heralded their accords as "geopolitically strategic

      Now both presidents went a step further. On March 9, when Bush visits
      Tabar� V�zquez in the presidential residence near the Uruguayan city of
      Colonia, the two presidents will hold a meeting of heads-of-state with a
      clearly anti-U.S. message just 50 kilometers away, across the river in
      Buenos Aires.

      Clearly, these events indicate a growing contradiction between governments
      that before appeared to be more or less on the same wavelength. The
      political-business alliance between the United States and Brazil around
      ethanol is a blow against regional integration based on oil and gas that
      for several years has been loosely constructed between Venezuela,
      Argentina, Bolivia, and recently Ecuador. For a while, many thought that
      Lula's Brazil shared the same emphasis. But now that the ambitious
      strategic alliance with the United States has been unveiled, all seems to
      indicate that Lula opted for the large S�o Paulo industrialists.

      In line with this choice, Lula told Bolivian President Evo Morales in
      mid-February, after signing a hard-wrought agreement for Brazil to begin to
      pay a more just price for Bolivian gas, "You can be sure, compa�ero Evo,
      that the world will come around in the next 15 years to biofuels."12

      In other words, he was saying that all the countries of the region should
      join in the Brazil-U.S. alliance and admit Brazilian superiority in ethanol
      production. The Latin American institutional "left"--represented mainly by
      the Workers Party in Brazil and the Broad Front in Uruguay--is lending a
      hand to the United States in a delicate moment for world hegemony. Social
      movements maintain that the production of biofuels "is sustained by the
      same principles that caused the oppression of Latin American peoples" as
      Brazil's Landless Movement declared in early March, and that the
      Brazil-U.S. partnership for ethanol aims to weaken the regional integration
      promoted by the oil and gas producing countries, as Via Campesina has
      pointed out.

      Once again, in Uruguay and Brazil, grassroots movements and progressive
      governments find themselves in opposite trenches. The irony is that
      Washington's "backyard," which historically enabled the country to reach
      world power status, could now be what saves it from the energy crisis and
      global decline. And this thanks to the providential hand of progressive
      governments--at the cost of the well-being of significant portions of their
      own populations.

      End Notes

       1. O Estado de S�o Paulo, February 11, 2007.
       2. Idem.
       3. Alberto Albanese, ob. cit.
       4. Idem.
       5. Pablo Ramos, Mercosur News Agency.
       6. Inter-American Development Bank, ob. cit.
       7. O Estado de S�o Paulo, agricultural suplement, February 21, 2007.
       8. Italics by the author.
       9. Silvia Ribeiro, "Biocombustibles y transg�nicos."
      10. Pablo Ramos, Mercosur News Agency.
      11. P�gina 12, February 22, 2007.
      12. Associated Press, Brasilia, February 15, 2007.

      [Ra�l Zibechi is a member of the Editorial Council of the weekly Brecha de
      Montevideo, teacher and researcher of social movements at the Multiversidad
      Franciscana de Am�rica Latina, and adviser to social groups. He is a monthly
      collaborator of the IRC Americas Program.]

      For More Information

      Alejandro Albanese, "Estrategia de biocombustibles para Am�rica Latina y el
      Caribe," Instituto de Planeamiento Estrat�gico, February 7, 2007.

      Inter-American Development Bank Report: "Biocombustibles. �La f�rmula
      m�gica para las econom�as rurales de ALC?" November 2006.

      BBCMundo, "La soluci�n latinoamericana," January 23, 2007.

      Centro de Estudios Estrat�gicos e Internacionales, "Brasil y EEUU: alianza
      entre los dos mayores productores de biocombustibles del mundo," Luis
      Giusti, February 6, 2007.

      O Estado de S�o Paulo, interview with Nicholas Burns, February 11, 2007, at

      O Estado de S�o Paulo, "EUA querem parcer�a com Brasil para lan�ar a Opep
      do etanol," February 25, 2007 at www.estadao.com.br.

      Pablo Ramos, "La trampa de los biocombustibles," Mercosur News Agency
      (Agencia Period�stica del Mercosur), February 27, 2007, at

      Rosendo Fraga, "Iniciativa diplom�tica de EEUU en Am�rica Latina," in

      Silvia Ribeiro, "Biocombustibles y transg�nicos," La Jornada, November 23,

      Related Articles from IRC's Americas Program:

      Biofuels, Biodiversity and Our Energy Future

      Tatiana Roa Avenda�o, "Colombia's Palm Oil Biodiesel Push"

      Spanish version: "Bioediesel del al palmera aceitera en Colombia"

      In Portuguese:

      Gustavo Faleiros, "Plano econ�mico de Lula � insustent�vel "

      Carlos Tautz, "O Brasil nao prioriza a redu�ao das emissoes"

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