EconPapers    
Economics at your fingertips  
 

The Economics of Brazil’s Ethanol-Sugar Markets, Mandates, and Tax Exemptions

Dusan Drabik (), Harry de Gorter (), David Just and Govinda R. Timilsina

American Journal of Agricultural Economics, 2015, vol. 97, issue 5, 1433-1450

Abstract: Sugarcane in Brazil is processed into sugar and/or ethanol, often in flex plants that can switch between the two products. We develop an economic model of flex plants, export demands, and two domestic fuel demand curves for a blend of ethanol with gasoline consumed by conventional cars, and ethanol consumed only by flex cars. We analyze the market impacts of the following policies: the blend mandate; fixing gasoline prices below world prices; the high gasoline tax; and a higher tax exemption for ethanol blended with gasoline. Because Brazilian and U.S. ethanol prices have become linked, a change in Brazilian ethanol policy or a shock in world sugar markets can now impact U.S. ethanol and corn prices. We show that in theory, each policy analyzed has an ambiguous impact on ethanol and sugar prices. Empirically, however, a low gasoline tax and a high tax exemption for ethanol used in the fuel blend reduce ethanol and sugar prices; this contradicts conventional wisdom. Overall, we find that policy reforms implemented in 2010 offset the ethanol price increase by about 27% due to outward shifts in fuel transportation and sugar export demand curves, and due to a reduced sugarcane supply caused by bad weather. Our model illustrates the importance of Brazil's ethanol policies on world commodity markets; it also provides insight into how the Brazilian government can adjust policies to better control domestic inflation while minimizing impacts on investment.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1093/ajae/aau109 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:97:y:2015:i:5:p:1433-1450.

Access Statistics for this article

American Journal of Agricultural Economics is currently edited by Madhu Khanna, Brian E. Roe, James Vercammen and JunJie Wu

More articles in American Journal of Agricultural Economics from Agricultural and Applied Economics Association Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2020-06-27
Handle: RePEc:oup:ajagec:v:97:y:2015:i:5:p:1433-1450.