Struggling over sugar
A BRAZILIAN DILEMMA: As that nation's sugar and ethanol production expands, the U.S. faces tough trade decisions.
By DAVID ADAMS
Published November 9, 2005
SAO PAULO, Brazil - When 1,600 of the world's sugar industry elite sat down recently for a black tie dinner, there was plenty to digest.
Besides a five-course meal at Sao Paulo's exclusive Jockey Club, guests were given a glimpse of a brave new sugar-coated world.
As the lights dimmed, a rapid succession of images flashed on a large screen: burning oil wells in Kuwait, the Exxon Valdez oil spill, melting icebergs and traffic-congested cities engulfed in smog. As a late addition, the film-makers threw in footage from New Orleans in the aftermath of Hurricane Katrina.
Before the silent video ended, the screen filled with dawn breaking over green fields of Brazilian sugar cane. The message was clear:
The world needs an alternative, clean-burning source of fuel, and Brazilian sugar farmers are hoping to cash in.
They are in Brazil, where ethanol - made from sugar - is used to run car engines. If the car industry adopts ethanol worldwide, Brazil is poised to become the Saudi Arabia of alternative fuel.
What's preventing this is the world's deeply ambivalent attitude toward free trade.
"It makes absolutely no sense that we tax ethanol from Brazil and we don't tax oil from Saudi Arabia," said Anne Korin, an alternative energy advocate at the Center of Energy Security, a private think tank in Washington D.C. "You can't be for free trade sometimes."
While most governments espouse it, politicians fear that opening the door to cheaper foreign products like Brazilian ethanol will wipe out their farmers. Most of the developed world - the United States, the European Union and Japan - use protective measures (subsidies, import tariffs and quotas) to shield local farmers. The United States imposes a 54 cent per gallon tariff on Brazilian ethanol, making it uneconomic to import.
Even so, the United States remains firmly committed to free trade, arguing, as President Bush did at a summit in Argentina last week, that reducing commercial barriers creates jobs and prosperity.
"Yes, there are sectors that lose. But the gains exceed the losses," said Keith Collins, chief economist with the United States Department of Agriculture. "Economic analysis shows it's a positive sum game."
But it may only be a matter of time before that is put to the test.
The world's largest producer and exporter of both sugar and ethanol, Brazil has ambitious expansion plans that could challenge U.S. farmers, including Florida's $700-million sugar industry, which provides 6,500 jobs. Also at risk are Midwest farmers who produce corn, the raw material used in U.S. ethanol production.
"It's a big market," said Eduardo Carvalho, president of Brazil's largest association of sugar growers (UNICA), stretching his arms wide. "That is what we are grasping for."
Roughly the size of Oregon, Sao Paulo is Brazil's wealthiest state, producing 60 percent of the nation's sugar cane. Modern highways bisect a vast sea of sugar cane.
Brazil boasts 320 sugar mills and 800 distilleries, employing 1-million people, according to the industry. Sugar production has doubled in the past 25 years, while costs are half what they are in the United States.
Exports of sugar and ethanol to countries like Russia and Japan are projected to double again in the next five years.
Critics of Brazilian sugar say it enjoys too many unfair advantages: low land prices, cheap labor and decades of generous government subsidies. But those arguments are beginning to wear thin.
Brazil abandoned its subsidies six years ago. The government says working conditions have dramatically improved as sugar owners have modernized their industry to compete on a global scale.
A pall of smoke hangs over the Costa Pinto sugar mill owned by the family-owned COSAN Group, the world's largest sugar and ethanol exporter.
There is perhaps no harder work in all of agriculture. Despite a hot sun, cutters wear metal grill goggles, heavy gloves and body armor to protect themselves from the tough cane stalks, which are only accessible after setting controlled fires.
Hot ash and cane stalks are sent flying as the teams, armed with machetes, set to work, taking occasional water breaks. Traditionally known as "boias frias" (literally "cold meal" in Portuguese), the slave-like labor conditions of cane cutters were for many years a source of shame.
But times have changed. Workers now earn salaries well above the minimum wage, earning between $270 and $350 a month.
"Our lunches aren't cold anymore," joked Ronaldo Visentim, 24, showing off a plate-sized Thermos containing his company-provided hot lunch of meat, rice and macaroni.
Analysts can't help but be impressed by Brazil's achievements. But competition from Brazilian sugar could undermine well-paying jobs in the domestic U.S. sugar and ethanol industries, some say.
"We have to make a decision about whether it's worth protecting our own ethanol producers," said Ben Lilliston of the Institute for Agriculture and Trade Policy in Minneapolis, who supports the ethanol tariff.
The U.S. ethanol industry is growing fast and some 147,000 jobs are at stake, worth a whopping $4.4-billion in household income, according to the Renewable Fuels Association, which represents ethanol producers. Though the United States is the second largest ethanol producer after Brazil, corn is a far less efficient raw material than sugar, making it harder for the United States to compete.
U.S. sugar growers do not produce ethanol (though they are thinking about starting), and say they would not object to lifting the tariff.
They are more concerned by the prospect of imported Brazilian sugar, which sells for less than half the price of American.
Even so, Florida sugar growers say they can survive.
"We are confident we can compete in a true world market if we are all playing by the same rules," said Gaston Cantens, spokesman for Florida Crystals Corp., one of the state's main sugar firms.
Ethanol producers warn that lifting the tariff would be counterproductive in terms of energy independence, one of the pillars of domestic production.
The United States would potentially become dependent on another foreign source of fuel: Brazil.
"I believe in free trade to a certain extent," said Bradley Krohn, president of Envirofuels, which plans to build two ethanol plants in the Tampa area, the first in Florida. "But I believe more importantly that this country needs to improve its energy security. We need an American homegrown fuel."
The future may not be so bleak. As ethanol use catches on, some experts predict demand will satisfy producers in the United States and Brazil. Brazil projects ethanol exports to double in the next five years to 1.3-billion gallons, only a drop in the bucket of U.S. needs.
The 2005 Energy Bill set a U.S. ethanol production goal of 7.5-billion gallons. Buying from our neighbors to the south also makes good political sense at a time of strained relations with South America.
Free trade faces an uphill battle, but there are signs Brazil is winning.
Brazil recently challenged European sugar subsidies - and won. Last month the World Trade Organization gave the European Union - the world's second largest sugar exporter - six months to end its illegal subsidies or face retaliatory sanctions.
Brazil could soon turn its sights on the United States.
U.S. sugar policy is government regulated. While U.S. sugar producers receive no direct subsidies, they are protected by an import quota system on foreign sugar.
In his meeting Sunday with Brazilian President Luiz Inacio Lula da Silva, Bush reiterated his desire to end subsidies. He pledged a "renewed commitment" with Brazil to help eliminate poverty through trade solutions that were fair to both countries.
"Only an ambitious reform agenda in agriculture and manufactured goods and services can ensure that the benefits of free and fair trade are enjoyed by all people in all countries," he said.
Clearly, there is continuing friction on free trade issues with countries like Brazil. The United States wants Brazil to do more to protect intellectual property rights, such as drug patents, and to allow U.S. firms to bid on government contracts.
All sides will meet in Hong Kong next month for crucial WTO talks as part of the so-called Doha Round, supposedly designed to boost development in poor countries.
Brazilian sugar growers are looking forward to the fight, said Carvalho, the association president. "Now we have to prepare ourselves for the battle, because trade is war."
David Adams can be reached at email@example.comSUGAR AND ETHANOL PRODUCTION
SUGAR(in tons) ETHANOL (in gallons, produced in 2004)United States 7.8-million 3.4-billion
(fifth in world) (second in world)Brazil 26.6-million 4-billion
(first in world) (first in world)
Sources: U.S. Dept. of Agriculture, Renewable Fuels Association, Sao Paulo Sugarcane Agroindustry Union.