October 21, 2009 / 3:42 PM / 11 years ago

Brazil drivers ditch biofuel over high sugar costs

SAO PAULO (Reuters) - Some Brazilian motorists who fuel their cars solely on cane-based ethanol are switching back to gasoline as high sugar prices now make the biofuel more costly in some states.

A gas station worker fills a car's tank with ethanol in Rio de Janeiro April 30, 2008. REUTERS/Sergio Moraes

Brazil is a pioneer in biofuel with its millions of flex-fuel cars that can run solely on ethanol or gasoline, or any mixture of both. Usually cheaper than gasoline, drivers needed no persuasion to switch when flex-fuel arrived in 2003.

But as mills use cane to produce more sugar in response to a world deficit that pushed prices to near their highest in three decades, prices for ethanol, made using the same cane, have leapt up to 50 percent in places in just a few months.

“(Drivers) have gone back to gasoline,” said Paulo Mizutani, head of the sugar and ethanol division at Cosan, Brazil’s top producer of the products. He said demand for ethanol in the center-south region fell to about 1.6 billion liters a month from 2 billion liters earlier this year.

“It could be like this until March when a new (cane) harvest starts,” he said, speaking to reporters at Brazil’s Sugar Dinner Week, an industry event held every other year in the world’s top sugar grower.

Only in states with higher levels of sales tax, has ethanol become comparatively more expensive. Price data from National Petroleum Agency (ANP) showed that ethanol in southern states Minas Gerais and Santa Catarina were at or above the threshold of 70 percent of gasoline prices above which it is effectively more costly than gasoline.

In Sao Paulo, it was around 60 percent and about 67 percent in neighboring Rio de Janeiro, meaning it still offered better value for the money. A liter of ethanol in Sao Paulo city costs about 1.50 in Brazilian reais, equivalent to US$3.26 per gallon.

Ethanol’s lower energy concentration means a tank of the biofuel will do around 70 percent of the miles a tank of gasoline would permit, though it gives engines added zip.

Brazil began mass producing ethanol-only cars in the 1970s in response to the oil crisis, but when sugar prices later spiked, motorists were lumbered with higher fuel costs. Flex-fuel gets around this by allowing the driver to choose.

“Ecologically sound is a nice idea but no one will pay for it,” Mizutani said.

He held out little hope that Brazilians, who already pay comparatively high taxes on goods and services, would shell out more for ethanol despite its environmental selling points.

“Your car goes quicker. It is clean and renewable energy and it is Brazilian. I think the consumers should not only look at the economic side but at these aspects too.”

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