Luiz Prado
Luiz Prado is a journalist and an economist with a PhD in Biology and Human Ecology. He dedicated his life to environmental protection and sustainable development, acting in governmental positions, large consulting companies, international financial organizations, and private equity investment funds. He is now an independent consultant and can be reached at : www.luizprado.com.br
In a polite but straightforward way, President Lula heard from authorities of Nordic countries that they are not interested in buying Brazilian ethanol. Lula, who went to Finland, Denmark and other on a trip that was clearly commercial – in addition to tourism – has been trying to take political advantage of the Brazilian long-lasting leading position in ethanol production in spite of the fact that the Brazilian production of ethanol is currently concentrated in the hands of half a dozen groups, leaving small farmers totally out of its benefits.
In Finland, the message was clear: the country will focus on energy efficiency. In fact, less than a month before Lula’s visit Finland had been the first European country to deliver its National Plan for Energy Efficiency, according to guidelines established by the European Union. In fact, the EU had already made public a study in which its commitment to energy efficiency is a main priority to ensure compatibility between measures against global warming and energy security. In this study, it is said that the European Union needs to avoid its dependence on energy imports and that by properly invest in energy efficiency it may attain € 100 billion per year in avoid costs of energy consumption. In addition, the EU wants to take a leading edge in energy efficiency related technologies (http://europa.eu/energy/action_plan_energy_efficiency/index_an.htm).
Apparently, the Brazilian Ministry of Foreign Affairs did not do its home work when preparing Lula’s visit to Europe for talking about trade barriers on ethanol. Indeed, Brazil never had a consistent energy efficiency program and the stronghold construction companies keep on its energy sector always led the government to focus on investing in more generating capacity.
Clearly surprised with the speech of the Finish authorities, Lula went on to Denmark, where he heard a clear-cutting message from the Minister for the Environment, Connie Hedegaard: “as of today, the ethanol production is not necessarily good for the environment”. Connie Hedegaard emphasized the competition between energy and food for agricultural lands and made it clear that Denmark was also targeting efficiency and technology, highlighting the fundamental role of “second generation ethanol”, i.e. the production of ethanol form agricultural waste is expected to be commercially available in the near future. Among companies already advanced in its development, Iogen, created in 1970, which has already invested more that US$ 130 million in it (www.iogen.ca).
Lula and his staff where “forced” to hear about other cutting edge technologies such as gasification of organic waste. In this area, a company named Choren has already several facilities in Germany and it is entering the Chinese market (www.choren.com).
So, Lula left from Denmark with empty hands. A commitment to work on the reduction of trade barriers were not among the accomplishments of this visit, which only resulted in a memorandum of understanding between a Danish company and Petrobras targeting technical cooperation in the development of enzymes.
The Brazilian producers of ethanol, in the past heavily criticized by the candidate Lula and then promoted to “national heroes” in the speeches of President Lula, are now facing a tough reality: have they lost their competitive advantage in ethanol production, in addition to the leading role they conquered based on decades of heavy fiscal and other financial subsidies?
At this stage, available information indicates that Brazil will keep its role in the production of agricultural products with little aggregated value – based on its large territorial availability – while paying royalties for technology that has a high aggregated value. Put in simple words, only more of the same. For an administration that tried to surf in the wave of increasing demand for biofuels, it is indeed too little.
Will Lula still try to convince Latin American countries to produce ethanol in its old fashioned way? The divide between food security and energy security is too clear, and even in Brazil it will not be overcome by the mere distribution of the local “food stamps” approach.
