U.S.-Brazil tension, a relatively recent development, resurfaced during the UN World Food Summit in Rome on June 3-5, encouraging the booming Brazilian sugar-based ethanol market to increase its new development projects. This rift represents a de facto counter move against the far less-efficient U.S. model predicated on corn-based ethanol production.
Following the summit, Brazilian officials began a weeklong tour, stopping in Morocco, Algeria and Tunisia, during which they discussed a set of commercial agreements that will boost multilateral cooperation with several African countries. The trade agreements, projected to begin in 2009, include an expansion in ethanol investment, urbanism, air and sea transport, and cooperation in professional training between the two regions.
In a statement that appeared in Brazzil magazine, Brazilian Secretary of Development, Ivan Ramalho, remarked that he hoped the meetings would enhance trade with other countries in order to diminish Brazil’s over-reliance on the U.S. market. Brazil’s recent trade initiatives with other developing countries have emerged largely due to the reluctance of some developed nations to lower trade subsidies. This impedes Brazil’s ability to trade, adding significantly to the current debate over rising food prices.
In an official statement released after the first set of meetings, Michel Alaby, Secretary General of the Arab Brazilian Chamber of Commerce, called for solidarity among countries suffering from rising food prices and demanded that developed countries, especially the U.S. and Europe, eliminate international trade barriers in the agricultural sector (Brazzil Magazine).
With the emerging agreements, Brazilian officials hope to call attention to the U.S.’ highly inefficient corn-based ethanol production at the height of a snowballing food crisis. The government aspires to be a strong actor in the midst of the food crisis and plans to show the rest of the world the benefits of Brazil’s efficient sugar ethanol market, while it professes to be executing projects stalling the destruction of the Amazon rainforest.
US Subsidies and World Hunger
On June 16, following petitions from the Brazilian government, the World Trade Organization (WTO) condemned the U.S. for its agricultural subsidies that unfairly favor domestic producers. The WTO largely blamed Washington’s practices for the world food crisis that may leave an additional 100 million people hungry by the end of 2008.
The WTO criticized U.S. actions as “an attempt to disrespect international commercial regulation with subsidies that drastically reduced domestic prices and could have been seriously damaging for developing nations like Brazil.” (New York Times).
During the Food Summit, which was hosted by the UN Food and Agricultural Organization (FAO), U.S. representatives argued in favor of their protectionist policies, claiming that biofuels are environmentally safer than petroleum, and also benefit farmers, entrepreneurs, and consumers.
Under pressure from formidable agricultural lobby groups, the U.S. Congress recently placed a 54-cent per gallon tariff on sugar-based ethanol, hoping to encourage domestic ethanol production. As a result of the tariff, U.S. ethanol production increased and Brazilian ethanol exports fell significantly in 2007. Efforts to remove the tariffs have faced strong resistance from both corn and sugar lobbyists, impeding any kind of remedial actions on surging grain prices.
As economist C. Ford Runge, a commodity and trade specialist at the Center for International Food and Agricultural Policy, confirms, “If you want to take some of the pressure off the U.S. market, the obvious thing to do is lower that tariff and let some Brazilian ethanol come in.” Supporters of this policy believe that increasing Brazilian ethanol production would push down overall energy costs.
Since the Summit, the UN has called on the international community to increase its assistance to developing countries severely affected by the current food crisis. UN officials have planned visits to several African countries to discuss possible food security solutions. In addition, the FAO published several reports criticizing the U.S. and Europe for unnecessarily subsidizing crops and inadvertently driving up food prices while shifting food production in less-developed countries where small farmers cannot effectively compete.
The Guardian noted from the reports that the U.S. government is currently spending US$ 7 billion annually on subsidies, while the European Union spends around 43 billion euros(US$ 67.5 billion) (BBC News). A striking example can be seen in France, where the average French cow receives more financial support than half the world’s population earns daily.
With rich countries dominating global trade that greatly affects ethanol, FAO General Director Jacques Diouf says that funding for agricultural programs in developing countries increasingly suffers with agricultural aid to poor countries having dropped 56% from 1980 to 2005. “Now more than ever private decisions being made about food production into ethanol are affecting all parts of the globe, with little response from the leaders that could do the most,” Diouf observed.
One main concern over how biofuel policy disrupts the market is the current excessive power that interest groups have in the debate on subsidies in developed nations (Runge). Instead of catering to special interests, U.S. politicians would be well advised to cooperate with other countries. While the UN works diligently to halt the growing food shortage, world leaders refuse to amend restrictions on food exports. This negligence is inexcusable on both economic and humanitarian grounds.
Not All Ethanol is The Same
In defense of sugar-based ethanol, President Lula stated that the U.S. misguidedly produces corn for ethanol instead of other agricultural products, while keeping subsidies high to benefit U.S. multinational companies. Lula argues that this is another case where the U.S. keeps developing countries from playing an influential role in the world economy.
He claimed, “I am sorry to see that many of those who blame ethanol, including from sugarcane, for the high price of food are the same ones who for decades have maintained protectionist policies to the detriment of farmers in poor countries and of consumers in the entire world.”
In comparison with corn-based ethanol, sugar-based ethanol is more efficient, cheaper to produce, and uses less valuable land. According to the World Bank’s, Biofuels: the Promises and the Risks, the U.S. ethanol industry currently uses 10 million hectares, while Brazil only uses 3.6 million of such terrain and produces eight to ten times more energy than that produced from corn.
Brazil does not subsidize sugar, which helps sustain global sugar prices. Whereas corn prices have surged 65% in the last five years, which many argue is the result of U.S. subsidies. Brazilian ethanol also yields 8.3 times more energy than the fossil fuels used to produce it, while corn ethanol yields only 1.5 times the energy it consumes.
Further ethanol controversy surrounds environmentalist concerns that Brazil’s sugar industry is permanently destroying large areas of the Amazon rainforest. The industry has forced small farmers to sell their land at low prices and work for large multinational companies, under poor conditions and scant pay. In addition, Brazil’s ethanol production has pushed soybean cultivation and cattle ranching into the Amazon area, making room for sugarcane production in the southeastern part of the country.
This region, once home to coffee and fruit plantations, was originally part of the Southeastern portion of the Amazon rainforest, of which only 7% remains today. Another environmental concern regarding sugar cane cultivation involves the burning of the old cane to get rid of dry leaves and dispensable biomass. This hazardous practice creates health problems for local populations, and spreads the fires into some of the remaining Amazon rainforests.
President Lula has increasingly displayed support to protect the Amazon from ongoing destruction. On June 19, the government extended its two-year ban on the sale of soy from the deforested land in Amazônia until July 2009. Additionally, officials from the Brazilian Institute of Environment and Renewable Natural Resources have already begun bans on beef and timber from illegal Amazon lands (Mercopress).
This recent commitment could signify the government’s sincerity regarding prevention of deforestation and “its commitment to a policy of environmental registration and licensing for land in Amazônia (Brazzil Magazine).
New policies also present Brazil as environmentally conscious to international groups such as Greenpeace, who have in the past heavily criticized the country’s lack of effort in sustaining the Amazon’s integrity.
Greenpeace director Paulo Adario applauded Lula, stating, “Today’s decision is important because it proves that it’s possible to guarantee food production without cutting down one more hectare of Amazon forest.” Also, in an attempt to speed the recovery of Amazonian pastures and degraded soils, the government will offer soft loans, ample credit for small farmers, and an insurance system designed to reduce the risks of climate change.
With the appointment of strong conservationists such as the Minister of Environment, Carlos Minc, a UN awarded defender of the environment, the Lula administration is taking urgent steps to enhance agricultural production and increase Amazonian protection. If action indeed follows such rhetoric, Brazilian planners could be on the verge of helping the country become a world player in trade while it attempts to keep domestic prices low.
Currently, Brazil produces 5.8 billion gallons of ethanol annually, but exports only 960 million gallons. Yet the energy giant is capable of providing the world with 52 billion gallons a year if, through new foreign investment, the government can put in an additional US$ 9.5 billion for financing pipelines, terminals and new plants, offsetting the international dependence on OPEC (U.S. Energy Information Administration).
As ethanol increasingly becomes a fixture in the global energy debate, these new steps could mark significant progress in fighting the global food crisis, while drawing increasing international scrutiny to the irresponsible, self-interested subsidy initiatives stealthily exhibited by the U.S., Europe, and Japan.
This analysis was prepared by COHA Research Associate Maggie Airriess. The Council on Hemispheric Affairs (COHA) – www.coha.org – is a think tank established in 1975 to discuss and promote inter-American relationship. Email: coha@coha.org.
