Brazil eyes ethanol as fast track to power

Flying over the heart of Brazil, a vast savannah known as the cerrado here, one could be forgiven for mistaking the setting for Iowa, Kansas, or virtually anywhere along the US farm belt.

Neat acres of cotton, corn, and soybean extend into the horizon, and even American farmers have arrived to join a boom that over the past few years has positioned Brazil to overtake the US as the world's agricultural superpower.

Last year, Brazil surpassed the US as the largest exporter of soybeans. That followed its scoring the No. 1 spot in beef exports in 2004. And now, as the high price of oil and concerns over climate change spark global demand for alternative fuels, Brazil is aiming to double its production of sugarcane for ethanol in the next decade. As investors flock to this colossal country with its ideal growing climate, Brazil is hoping ethanol will help speed its sluggish rise as an economic power.

"Brazil has already consolidated its position as the agriculture supplier of the world," says Andre Nassar, general manager of the Institute for International Trade Negotiations (ICONE) in São Paulo, Brazil. "Now I think the Brazilian government sees ethanol as an instrument to make other countries pay attention to us, as a supplier of both food and energy."

Brazil's clout has been on display this week during President Luiz Inacio Lula da Silva's three-day trip to India, where the two countries announced plans to quadruple trade to $10 billion by 2010 and boost India's use of biofuels. The two rising economic powers also aimed to enhance cooperation as a strong voice of the developing world before heading into talks at the Group of Eight (G-8) summit in Germany this week.

Brazil's clout in trade talks

The European Union has invited Brazil, India, and the US to meet in Germany later this month to attempt to hash out a deal on World Trade Organisation (WTO) negotiations. Launched in 2001, the WTO's Doha round of talks aims to break down trade barriers that hinder the economic progress of poor countries.

As Brazil's agribusiness has boomed, it has won important trade cases against the US, including the scrapping of cotton subsidies, and has led a coalition of developing nations against US subsidies in general and European tariffs within the Doha round. "Their cohesiveness arguably may be the one thing that can turn this round of negotiations into something favorable for developing countries," says Sandra Polaski, a senior associate at the Carnegie Endowment for International Peace.

The country's rise as the world's "breadbasket" – a transformation made possible by an abundance of land and sun, decades of money pumped into research, and growing demand from developing countries such as India and China – has implications for the face of world agriculture. Today Brazil is the world's largest exporter of sugar, beef, poultry meat, coffee, orange juice, and tobacco.

In March, Lula signed a proposal with President Bush to promote the ethanol industry in the region.

The prospect for an international ethanol market is still uncertain, but if it does transpire Brazil would most certainly be a central global supplier – even as domestic demand goes up. Its ethanol production is far more efficient than that of the US, which makes ethanol with corn.

"They cannot ignore us anymore, and that has given us power. You can't make decisions without the world's largest producer," says Pedro de Camargo Neto, a former official in the agriculture ministry in Brazil. "The byproduct is it makes us a political leader. Ethanol will help that."

Brazil did its homework ...

Over the past couple of decades, Brazil – in a conscious decision to focus on agriculture instead of just industry – has invested billions of dollars into a premier research institute called Embrapa. It has, among other technological advances, figured out how to grow soy varieties in tropical climates.

Its agricultural exports to China grew by 22 percent between 2005 and 2006, according to Brazil's Agricultural Ministry. Exports of soybean to China alone rose to 11 million tons in 2006 from 7 million tons a year earlier.

"Brazil owes its [position] to long-lasting and continuous research efforts toward technology in growing tropical crops. With ethanol, it is the same," says Decio Zylbersztajn, an agricultural economist at the University of São Paulo.

Their success has irked some in the American farming industry, as Brazil gains market share in traditional American domains, such as soybeans. Perhaps the unease is best exemplified in a presentation by the Iowa Farm Bureau Federation. "Should Brazil Give You Heartburn?" the Power-Point presentation is titled – with 56 slides highlighting Brazil's advantages and then all its drawbacks.

... but its climb won't be easy

Chief among Brazil's challenges is a lack of infrastructure. A report from the Organization for Economic Cooperation and Development (OECD) showed that only 10 percent of the country's roads are paved. That contributes to high transport costs for soybean exports, for example – double what they are in the US, according to the US Department of Agriculture.

And while anxieties abroad abound, they do at home, too – particularly on the environmental front. Much of the deforestation in the past few years has taken place in the Mato Grosso, the heart of soybean production in Brazil. And as sugar production expands and moves to the cerrado, they worry that soy production will get pushed deeper into rainforest areas.

"Brazil needs to decide just how much it's willing to sacrifice of its natural resources to help other countries with their energy needs and with their soybean needs," says Randy Curtis, an expert in Latin America infrastructure at The Nature Conservancy.

Brazil's agribusiness sector accounted for 28 percent of the country's GDP, and employs 37 percent of the labor force, according to the USDA. Still, some wonder if the boom has benefited Brazil, or just big multinationals that swooped in after Brazil's economy opened in the 1990s. Many small, subsistence farmers have been displaced.

"It doesn't help Brazil, it helps the people who own the companies," says Dennis Keeney, a senior fellow with the Institute for Agriculture and Trade Policy. "It doesn't really filter down."

But Mr. Nassar says that while these questions are important, greater prosperity via agriculture will benefit all. "Many of these regions are very underdeveloped. Now there is new employment," he says. That is leveling the field between the wealthier coastal area and inland. "By developing the agriculture sector we are also developing the country."