Sugaronline Editorial - The big fat bully By Meghan Sapp

Published: 07/28/2017, 12:30:00 PM

There's a big difference between being competitive and being an aggressive $%*(&!.



There's a big difference between being competitive and being an aggressive $%*(&!.

 


Nobody like a bully. Especially when it comes to trade. Sometimes when a competitor is much more efficient than you are, it can seem like you’re being beat upon repeatedly when in actual fact, it’s just that they’re more competitive (for a whole host of reasons). That may well be the case when it comes to Brazilian sugar in Europe but what about US ethanol in Brazil?

With the king bully sitting in the White House, perhaps it’s no surprise that American exporters think they can bully too. Though there are plenty of arguments supporting America’s position as a bully going back far further than the current administration…

When it comes to US ethanol in Brazil, it may very well be a case of too much of a good thing. For Brazil, it needs ethanol imports during the interharvest period to keep ethanol competitive and drivers filling up. As the industry builds up its own maize and sorghum ethanol production capacity to fill the supply gap itself, demand for US ethanol imports will dwindle.

For now, those imports are needed. And while global sugar prices still mean that economically challenged mills make more by making sugar than by making ethanol, the choice remains clear and ethanol supplies are diminished. That could make an argument for occasional additional imports from the US.

In actual fact, however, those occasional additional imports have turned into a flood that is literally drowning the already challenged sugarcane producers in the north-northeast where it’s cheapest for US ethanol imports to land in Brazil. Between fewer taxes and a shorter trip, the choice is clear for the Americans. For the Brazilian producers, they’re so worried they’re seeking a 16% import tax to stem the flows from the northerly neighbour.

With cheap maize and the results of several years of expansion projects throughout the US ethanol industry, they’re desperate to find new markets. They need ethanol to go as far and wide as possible until a more friendly policy environment develops at home to absorb all of that fuel. And that friendly environment is probably going to take an administration shift to happen. So until then, load them ships and get the fuel off of American shores.

One saying yes and the other saying no does not necessarily make a bully. A bully is when there’s fear, and not just fear of competition by the poor north-northeast cane farmers. It’s the fear by the eight ministries who make up the Brazilian foreign trade chamber who worry that if they put up tariffs against US ethanol that there will be other trade repercussions that will sink their already weakened economy. They are afraid that if they say no to the US straight out, things could get very, very bad.

So they postpone the decision, postpone it again, and again. Maybe next month they’ll put in an import quota rather than a tariff so it’s not an outright no, just a sort of no. Maybe the US won’t get mad about that. Or maybe they will. Brazil just doesn’t know what to do.

And that’s what makes the US a bully.

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