Ethanol

As a result of the contribution that ethanol makes towards the nation's energy balance and the social benefits that the sector delivers through rural employment, the Brazilian government is very supportive of the sector. Until the early 1990s the ethanol market was strictly controlled by the government, which determined prices and production quotas. However, in 1990 this was abolished and a process of deregulation of the ethanol market began. The market is now completely deregulated.

Overall demand for Brazilian ethanol is expected to rise from its current level of approximately 14 billion litres per year to a forecast demand of 21 billion litres per year in 2010/2011. Ethanol production is likely to compete with sugar exports for available cane, resulting in a reduction in the pace of sugar export growth. Importantly, Brazilian Ethanol is the cheapest in the world to produce.

 

85% of new car sales in Brazil are flex-fuel cars which can run on 100% ethanol. All major car manufacturers in Brazil now offer at least one flex-fuel model.

We believe that the global ethanol market is in its infancy. High energy prices, environmental concerns and political pressures will continue to support expansion in the use and development of biofuels. Although there are currently a number of tariff barriers that limit access to overseas markets, given the current political climate, we believe that over time these barriers will diminish.

CEB will be well placed to benefit from a rise in overseas import demand. However, because of the expected growth in domestic demand as a result of the increase in flex fuel cars domestically, we believe that the future success of CEB will not be dependent upon this global demand.