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Márcia Azanha Ferraz Dias de Moraes*

Luciano Rodrigues**

Piracicaba - Brazil
Junho 2006

* Ph.D. Professor, University of São Paulo (USP – ESALQ, Department of Economics,

Administration and Sociology)
** MSc, Student in Applied Economics at the University of São Paulo (USP – ESALQ,
Department of Economics, Administration and Sociology)

LIST OF PICTURES.................................................................................................................... 3

LIST OF CHARTS....................................................................................................................... 4

LIST OF TABLES ....................................................................................................................... 5

THE FIRST PHASE OF PROÁLCOOL : 1975 TO 1978 ........................................................... 8


ALCOHOL ................................................................................................................................. 10

BOTTLENECKS IN THE SECOND PHASE OF PROÁLCOOL............................................ 11

PROÁLCOOL RESOURCES (1ST AND 2ND PHASES) ....................................................... 13

THE SUBSIDY TO HYDROUS ALCOHOL ........................................................................... 16

SECOND PHASE OF PROÁLCOOL: INCENTIVES TO DEMAND..................................... 20

PROÁLCOOL CRISIS............................................................................................................... 23

THE 1990’S: THE DEREGULATION OF THE SECTOR ...................................................... 25

PRICE LIBERALIZATION: FEBRUARY 1999 ...................................................................... 27

DIRECT SUBSIDIES ................................................................................................................ 29


CURRENT TAXATION ON FUELS........................................................................................ 32

EVALUATION OF THE ALCOHOL NATIONAL PROGRAM............................................. 34

ECONOMIC VIABILITY OF PROÁLCOOL .......................................................................... 40

CONCLUSIONS ........................................................................................................................ 42

REFERENCES ........................................................................................................................... 44

Appendix 1 ................................................................................................................................. 46

Appendix 2 ................................................................................................................................. 50

Appendix 3 ................................................................................................................................. 52

Appendix 4 ................................................................................................................................. 54

Picture 1. Evolution of petroleum prices in the international market......................................... 7

Picture 2. Evolution of sugar international prices ...................................................................... 8

Picture 3. Brazil: domestic sales of auto-vehicles (automobiles and other small-sized vehicles)
per type of fuel, 1970 to 2005**. ..................................................................................................... 22

Picture 4. Historical evolution of alcohol production in Brazil, harvests from 1970/71 to

2005/06........... .................................................................................................................................. 36

Picture 5. Sugarcane in Brazil: evolution of production and area harvested, from 1970 to
2005*............... ................................................................................................................................. 37

Picture 6. Evolution of hydrous alcohol and gasoline C sales shares....................................... 39

Picture 7. Sales evolution of alcohol (anhydrous, hydrous and overall) and of gasoline A .... 39

Chart 1. Pricing structure of fuels in Brazil during intervention period .......................................18

Chart 2. Summary of the mandates of Sugar and Alcohol Council (CIMA) that deal with resource
subsidies from the government to producers..................................................................................29

Chart 3. Summary of the Mandates of Sugar and Alcohol Council – CIMA regarding the purchase
and the sales of alcohol by the government....................................................................................30

Chart 4. Values actually used by the financing program for fuel alcohol stocks..........................32

Table 1. Annual flow of Rural and Industrial Proálcool investments. 1975 a 1985 .................. 15

Table 2. The government’s annual balances on the trading of carburating alcohol (1981-
1990……………… .......................................................................................................................... 20

Table 3. IPI rates for different passenger cars - 2006................................................................. 23

Table 4. Gasoline and alcohol Sales – 2001 to 2005 – in cubic meters ..................................... 38

The Alcohol National Program (Proálcool or PNA) was created by President Ernesto
Geisel on November 14th 1975, during the military regime, through Decree No 76593. The alcohol
production targets of the program forecasted the production of 3 billion liters of alcohol in 1980,
which was fully reached and increased to 10.7 billion liters in 1985.
As to the Alcohol National Program implementation process, two phases stand out. The
first one starts with the promulgation of Decree No 76593, in November 1975, and lasts until 1978.
It concerns the use of a mix of 20 per cent alcohol contents in the gasoline, the implementation of
alcohol distilleries attached to sugar distilleries, and the involvement of the automotive industry
for the production of alcohol-run cars. The alcohol production in this period grew approximately
350 per cent (from 555.6 million to 2.49 billion liters of alcohol).
The second phase of Proalcool, started in 1979, regards large scale production of hydrous
alcohol to be used in cars that ran exclusively on this fuel. From 1980 to 1988 the alcohol
production soared from 3.7 billion to 11.6 billion liters, showing an average annual growth of 15
per cent.
In PNA’s first phase, the government gave many incentives to alcohol producers, such as
agricultural and industrial financing, product acquisition guaranteed by the Sugar and Alcohol
Institute (Instituto do Açúcar e do Álcool - IAA), and fixed prices considering the parity of 44
liters of alcohol for every 60 kgs (a sack) of sugar1. In the second phase, the support to producer
and to consumption was reinforced. To the producer, alcohol production was stimulated by the
reduction of the parity of a sack of sugar to 38 liters of alcohol. To the consumer, many measures
were adopted aiming at encouraging the consumption of the new fuel (hydrous alcohol): (i) a
guarantee of maximum selling price was established at 66 per cent of the gasoline price; (ii) a 50
per cent price reduction was offered on the Flat Road Tax (Taxa Rodoviária Única2); (iii) vehicles
for taxi drivers were exempted from Tax on Manufactured Goods (Imposto sobre Produto
Industrializado - IPI); (iv) 5 per cent IPI reduction for cars run on alcohol, besides exemption from
both Tax on Operations Regarding the Trading of Goods (Imposto sobre Circulação Mercadoria -

Fuel alcohol prices were fixed by the government taking sugar prices as a basis, so that it would be indifferent for the
producer to manufacture either sugar or alcohol from the same raw material (sugarcane).
Tax falling on vehicles’ register and annual license, to be charged previously to the vehicle’s register or annual
license renewal. The amount charged used to be calculated on the total value of the vehicle: 7 per cent for those run on
gasoline, and 3 per cent for ethanol-run ones.
ICM) and on Tax on Fuels and Lubricants (Imposto Único sobre Combustíveis e Lubrificantes -
IUCL) (Moraes, 2000).
The advent of PNA should be analyzed taking into consideration the combination of two
markets – sugar and petroleum – that stimulated the development and the achievement of the
national policy for fuel alcohol.
The rising of petroleum barrel prices, deriving from petroleum exporting countries
(OPEP) policies, resulted in the imported product prices soaring by 225 per cent between October
1973 and January 1974. The effects on the Brazilian balance of trade were substantial, culminating
at a deficit of US$4.69 billion dollars in 1974 (Santos, 1993). The inflation rate increased by 122.6
per cent in one year – from 15.5 per cent in 1973, it built up to 34.5 per cent in 1974. These factors
turned out to be fundamentally significant to the definition of energy policies to be adopted by the
At the same time, sugar producers faced an overproduction crisis, with declining prices
both on the national and on the external markets. In the sugar international market, prices
plummeted from US$0.55 per pound to US$0.12 per pound, pressing profitability in the sector.
Therefore, fuel alcohol was to be an important way for the government to reduce
petroleum importation and to improve the country’s macroeconomic indices. Alcohol production
would also allow sugar producers to direct part of the sugarcane used in the production of sugar at
the new market of fuel alcohol. The alignment of public and private interests was fundamental to
the attainment of the program goals. Pictures 1 and 2 illustrate price behavior in both markets.
Picture 1. Evolution of petroleum prices in the international market



Source: Elaborated as from Santos (2003)

Picture 2. Evolution of sugar international prices

Source: Elaborated as from Santos (2003)


As we have pointed out before, the first phase of the program regarded the use of a mix of
20 per cent anhydrous alcohol contents in the gasoline. In July 1975, the promulgation of Decree
No 75.966 established the first rules for the development of the Alcohol Program, in which the
following stand out: (i) the parity price of anhydrous alcohol and sugar; (ii) trading rules (all the
alcohol production should be sold to PETROBRAS3; the Sugar and Alcohol Institute (IAA) should
control the production and trading of all types of alcohol all over the country); (iii) anhydrous
alcohol should be produced primarily in distilleries attached to sugar mills; (iv) alcohol distilleries
would be financed by official credit entities, or by the Special Fund for Exportation (Fundo
Especial de Exportação4).
Credit conditions to sugar-mill-attached or autonomous distilleries, as stipulated in
Decree No 75966 in the beginning of Proálcool, were the following:
(i) 100 per cent of industrial investments financed. Investment conditions: 15 per cent
a year interest rates for projects in the North/Northeast, and 17 per cent for the

Public company at the time, which detained the monopoly of petroleum exploration and refinery.
Fund that comprised taxes charged on every sack of sugar and on every liter of non-carburating alcohol produced, as
well as on net revenues on exportation. Sugar producers received for the exported product an amount that was similar
to its price in the domestic market, so that the difference was destined to the Special Fund for Exportation (Fundo
Especial de Exportações). This caused a high level of dissatisfaction among producers from the Center-South Region.
remaining regions of the country; up to 12 years for full payback, and up to 2
years’ term of delay ;
(ii) Agricultural area financed (sugar cane and other raw materials): 7 per cent a year
interest rates, up to 5 years for full payback, and up to 2 years’ term of delay;
(iii) Monetary correction was inexistent for agricultural as much as for industrial areas.
By the end of 1975, the macroeconomic unbalance of Brazilian economy had become a
lot worse: the external debt had grown, foreign currency reserves had been reduced, exportations
showed to be far below forecasts and not enough external resources were attracted in order to
cover deficits in current transactions.
In October 1975, President Geisel made a speech to the Nation announcing a series of
drastic measures as a means of reducing the deficit in the balance of duties as much as possible,
the Alcohol National Program being among them. On November 14th 1975, PNA was launched by
Decree 76593, following the rules previously stipulated.
As from 1977, the Program’s credit norms were altered, so that the monetary correction
was included in the loans. Here are the main changes:
(i) From 70 to 90 per cent of industrial investments financed, depending on the sized of
the distillery and on the raw material used;
(ii) Reduction of interest rates to: 6 per cent for distilleries attached to sugar mills (4 per
cent for the region of SUDAM/SUDENE5); and 5 per cent to autonomous distilleries
(3 per cent for areas of SUDAM/SUDENE);
(iii)Monetary correction equivalent to 40 per cent of ORTN6 variation;
(iv) Term of delay for starting payback: three years.

As from 1982, already in the second phase of Proálcool, credit rules were altered again: a
3-year-term-of-delay was stipulated to attached distilleries and of 4 years to autonomous units. In
the same year, the interest rates changed to 5 per cent a year plus monetary correction, according
to the following rules: in SUDAM/SUDENE areas, up to 60 per cent ORTN for attached

States belonging to the North and Northeast Regions of the country.
Obrigações Reajustáveis do Tesouro Nacional (ORTN). Federal government bonds that featured monetary correction
added to return on investments. The value of one unit of such government bond was to be largely used as a monetary
correction index in the Brazilian economy.
distilleries and up to 55 per cent ORTN for autonomous units; in the remaining regions, up to 70
per cent ORTN for attached units and up to 65 per cent for autonomous ones.
The lack of monetary correction in the credit, considering the high inflation rates of the
period, implied lower interest rates than local private banking in the Brazilian market at that time,
and it is indicative of an important support to the sector.
Nastari et al. (2005) state that these special conditions for investments together with other
government support programs established at the launching of the PNA were subject to an
investigation by US Department of Commerce. The inspection on alcohol exports from Brazil to
the United States7 was related to a countervailing duty case carried out by the ITC (International
Trade Committee, Washington DC), which was initiated in March, 1985.
According to the authors, the US DOC investigation concluded that the effect of all the
Brazilian government support programs to its alcohol industry, including special interest rates on
government-financed loans was equivalent to only 2.63 per cent of the industry revenue in 1984.
ITC considered that the residual effect of the government support was insufficient to constitute
harm to US alcohol producers8.


The retaking of Proálcool started with the second petroleum economic crisis, which
occurred during the first half of 1979. From 1976 to 1978 there was a relative stability in the
petroleum market, and this was followed by a period in which OPEP members – mainly Saudi
Arabia, Iran and Iraq - disputed petroleum market control, disagreeing on prices and on volumes to
be exported.
In 1979 there were various price rises, so that in the spot market of Rotterdam the price of
the barrel was US$36.80 by the end of 1979 (by the end of 1978 it was US$12.58).

At the same time, ITC also ordered investigations on anti-dumping charges. Both investigations were requested by
the US ethanol industry in response to increasing Brazilian ethanol exports to the US in 1984. The base period for
analysis was the year of 1984.
According to Nastari et al (2005) all findings were submitted to independent auditors from United States, who
attested to all results. The ITC ruled on a 4x1 vote that there were no grounds for conviction, since no evidences were
found to support the alleged harm.
From 1978 to 1979, the value of Brazilian importation grew by 32 per cent, mainly due to
petroleum, almost tripling the deficit in the balance of trade (at that time, Brazilian energy
dependence regarding petroleum was 41.6 per cent; in 1973, it was 43.6 per cent).
Although external loans were abundantly available, the balance of duties was closed with
a deficit of US$3.2million, and the net external debt increased by 27 per cent (reaching US$40.2
billion). The inflation rate in 1978 had already outstripped the barrier of 40 per cent a year, and
after the economic crisis it soared to 77 per cent a year in 1979 (Santos, 1993).
In June 1979, during a meeting at the Economic Development Council (Conselho de
Desenvolvimento Econômico) chaired by the President of the country, a new alcohol production
target of 10.7 billion liters was established, to be reached in 1985.


The second phase of the program started with some of the problems that had had their
origins in the first phase, among which we emphasize: (i) a long time to have distillery projects’
legal proceedings approved; (ii) the absence of monetary correction in in the loans offered to the
distilleries9; (iii) distribution and warehousing of alcohol; (iv) price of alcohol paid to producers;
(v) resources for financing the expansion of plantations and of industrial capacity; (vi) fragmented
decision-making structure, and (vii) development of technology for engines running exclusively on
alcohol. Besides these, there was the difficulty in managing to get the automobile industry involved
in Proálcool (Santos, 1993).
The lack of infra-structure for alcohol warehousing and distribution logistics was the most
serious problem faced by PNA at the end of the first phase of the program.
Resolution No 18/78, dating from November 1978, granted fuel dealers the responsibility
for purchasing alcohol straight from alcohol distilleries (according to monthly quotas fixed by
CNP) and transporting it to mixing centers. However, due to the new production scale, this system
was no longer compatible to the new phase of the program. As from 1979, PETROBRAS would be
in charge of the product’s distribution and storing.

Due to slow legal proceedings for the projects approval and high inflation rates, at the time when projects were
approved the amount requested had lost its value, and therefore it was not sufficient for the implementation of
investments any longer.
According to Santos (1993), it was necessary to create a chain of warehousing tanks and
collection centers, as well as a transportation system (pipes, and also railway, highway and
cabotage systems) to transport alcohol from mills and distilleries to collection centers, from which
it would be taken to mixing centers.
In March 1980, a resolution from Alcohol National Council (Conselho Nacional do
Álcool - CNAL), established that the means of transport to be used for hydrous alcohol should be
primarily pipes, followed by cabotage, railways and highways, given that the latter could not be
used for distances over 300 km.
This decision privileged PETROBRAS, as it already had a wide transportation system
available (oil pipes, tankers and trucks) for petroleum derivatives, whereas the dealers had only
trucks. In August 1983, Decree No 88626 established that PETROBRAS could purchase and
distribute the necessary volume of alcohol to supply the demand and the emergency stocks by
means of its distribution system.
Santos (1993) points out that by the end of 1983, PETROBRAS was very near to holding
the monopsony of alcohol, as it was already authorized to buy about 50 per cent of all the
country’s alcohol consumption (considering both anhydrous and hydrous alcohol, given that in
São Paulo and surrounding areas this percentage reached 100 per cent). In addition, PETROBRAS
used to buy not only the government’s emergency stocks, but also 100 per cent of the distilleries’
excess production. On top of this, it controlled a significant share of tank collectors (23.5 per cent
of the total warehousing capacity, approximately 1.3 million cubic meters), and the biggest chain
of hydrous alcohol filling stations in the country.
This way, the problems of distribution and tanking – considered to be bottlenecks for the
implementation of the program – were solved, and as from 1989 filling stations all over the
country received permission from the National Petroleum Council (Conselho Nacional do
Petróleo-CNP) to install alcohol pumps.
The number of stations equipped for selling hydrous alcohol grew rapidly: on December
31 1980, 3,587 filling stations sold both gasoline and hydrous alcohol; one year later, the number
of such stations had grown to 9,021, and by the end of 1982, to 10,009 stations (Santos, 1993).
Currently, over 32,000 filling stations sell both fuels all over the country.
Concerning the involvement of the automobile industry in the second phase of the
program, car producers claimed guarantee on the government’s own commitment and on the

creation of an infra-structure for hydrous alcohol distribution, as the issues of alcohol tanking and
distribution systems were essential for the success of the program.
The Aeronautics Technical Center (Centro Técnico da Aeronáutica - CTA), an agency
from the Ministry of Aeronautics, together with the automobile industry developed the technology
for cars run on hydrous alcohol, under the supervision of the Industrial Technology Agency
(Secretaria de Tecnologia Industrial - STI), belonging to the Ministry of Industry and
Commerce. In 1978, as the problems of storing and distribution had been overcome by the
government, car manufacturers joined PNA, and the main ones (Volkswagen, Ford, G.M. and Fiat)
already produced vehicles running on alcohol in the same year.


Concerning the resources for the accomplishment of the program, Santos (1993) points out
that during the first phase of Proálcool, they stemmed from the country’s budgetary endowments
and from positive results in the trading of anhydrous alcohol mixed to gasoline. In March 1976,
through Resolution No 304/76, the Brazilian Federal Reserve Bank (Banco Central) stipulated the
regulations of Proálcool industrial operations. It established that resources for financing
installations, for updating or enlarging alcohol distilleries would derive either from the trading of
carbureting alcohol or from government allowances from the National Monetary Committee
(Conselho Monetário Nacional).
Operations on rural credit were regulated by the Brazilian Federal Reserve Bank (Banco
Central) in June 1976. It is important to point out that initially, the value financed consisted of 100
per cent of the budgeted values, with 7 per cent interest rate a year, with 2 years’ term of delay and
up to 5 years for full payback, according to the type of activity.
Other measures taken to stimulate alcohol production were the financing of trading costs,
mainly for storing (the harvesting lasts 6 months while the trading occurs all year round), given
that this credit corresponded to 60 per cent of the total amount produced in the case of sugar, and
up to 80 per cent in that of alcohol.
According to Belik (1992), the biggest part of the resources for PNA’s credit derived
from the Monetary Budget of the Country, where agricultural credits (Rural Proálcool) as well as
credits for the acquisition or enlargement of the industrial units (Industrial Proalcool) were

originated. These resources were administrated by the Brazilian Federal Reserve Bank (Banco
Central), through the General Fund for Agriculture and Industry (Fundo Geral para Agricultura e
Indústria - FUNAGRI), in the sub-account Proálcool10.
In December 1980, the International Bank for Reconstruction and Development (IBRD –
World Bank) and the Brazilian Federal Reserve Bank (Banco Central) made an agreement aiming
at offering about US$1 billion resources to the program. In November 1982, Proálcool received
US$250 million from the World Bank.
The US$1 billion loan was subjected to the opening of the Brazilian market of equipment
for distilleries to foreign companies. However, there was strong pressure from national groups,
including São Paulo State Industry Federation (FIESP), the very alcohol producers, and even from
the National Bank of Social and Economic Development (BNDES), who were against the opening
of the market. Due to such disagreement, Brazil received only the first part (US$250 million), and
the rest was cancelled by the World Bank.
After 1987, the fund administration was taken over by the National Treasury, and the
information was not published11 anymore.
Table 1 shows the annual flows of Rural and Industrial Proálcool investments. From 1976
to 1982, the data used have separate values for Rural and Industrial Proálcool. After this period,
there is only overall data available.

The sub-account Proálcool was created inside FUNAGRI in 1976.
Besides this, with the closing down of the Sugar and Alcohol Institute in the early 1990’s, a lot of information on
the sector was lost, marking the collection of primary data more difficult.
Table 1. Annual flow of Rural and Industrial Proálcool investments. 1975 a 1985

Year Rural Proalcool Industrial Proálcool Total

(millions US$)* (millions US$)* (millions US$)
1976 7 53 60
1977 101 198 299
1978 79 283 362
1979 120 197 317
1980 280 404 684
1981 498 657 1,155
1982 134 483 617
Total (1976-1985) 1,219 2,275 3,494
1983 __ __ 207**
1984 __ __ 173**
1985 __ __ 201**
Source:* 1976 a 1982: Santos (1993). Average values of 1982, updated by IGP-DI index.
Converted into dollars at the average rate of Cr$ 180.451/US$1.00
** 1983 to 1985: Belik (1992). Nominal values, converted by annual average exchange

We observe that, out of the total amount invested form 1976 to 1982, the biggest part
(65,1 per cent) was destined to the industrial area. Until then, US$ 3,494 billion had been invested
in PNA. As from 1982, the amount invested fell considerably, totalling US$ 581 million.
On June 15th 1981, a CENAL (Comissão Executiva Nacional do Álcool - National
Alcohol Executive Committee) decision temporarily suspended all credit contracts for distillery
projects due to a lack of funds. As from 1982, on account of a reduction on public expenditures,
resources from the IBRD were the only available source of funds for approved projects. This
shortage of resources during the second phase of PNA resulted from the critical economic situation
of the country, and turned out to be a bottleneck for the expansion of the program. Projects
approved by CENAL were from then on sponsored by the private enterprise, which made it
possible for external loans to finalize the implementation of industrial units.
Belik (1992) analyzed the resources financed to producers through Rural and Industrial
Proálcool credit facilities, which were used to stimulate PNA. The author mentions the study
FUNDEPAG/SICCT (1987, p.49), which evaluated subsidies given to producers from 1975 to
1985 through loans that charged lower interest rates than those in the market, due the absence of
monetary correction.
According to this study, the sugarcane plantation implementation benefited from credit
facilities that implied in the lack of reimbursement of more than 50 per cent of the credit volume
granted. As to the industrial credit line, in two years, 1979 and 1980, the volume of non-
reimbursed resources amounted to 90 per cent of the values originally agreed to. The proportion of
non-recoverable agricultural and industrial investments started falling in 1982 and reached zero in
1985. The inflexion point in 1982 was due to the introduction of monetary correction through the
variation of ORTNs. As from 1985, loans to rural and industrial Proálcool were to include full
monetary correction, discouraging new entrepreneurs’investments (Belik, 1992).
On the other hand, regarding the capture of subsidies by plantation owners and large-scale
businesses, Nastari et al. (2005) state that special financing conditions had limited impact on the
value of production, equivalent to only 2.63 per cent of the industry revenue in 1984, according a
US DOC (Department of Commerce) investigation 12.
Until 1987, these resources were originated in the sub-account Proálcool from
FUNAGRI. After this period there was a drastic reduction in the volume of financed distilleries,
and a general shortage of credit.


In economical terms, hydrous alcohol was not competitive as compared to gasoline, as it
had higher production costs. To make its use economically viable, there was a price supplementing
mechanism to the producer that lasted until October 1999.
At first, the Account Alcohol (Conta Alcool), created in 1976 and later called Price
Standardization Fund (Fundo de Uniformização de Preços - FUP) was used to operate this subsidy.
Resources from the FUP account were transferred to the Alcohol Price Standardization Fund
(Fundo de Unificação dos Preços do Álcool - FUPA), and were used to make alcohol consumption
viable as compared to gasoline, as well as to unify the price of the product in the country. Later,
these resources were destined to a PETROBRAS Account, and were to be called Specific Price
Rate (Parcela do Preço Específico - PPE).
Resources from the Alcohol Account were used for several incentives given to the sector,
such as the support to hydrous alcohol. Although Regulation No 114 from the Ministry of Mines
and Energy had scheduled its extinguishment for January 1997, this subsidy was maintained until
October 1999. Then, the supplementation to hydrous alcohol prices was extinguished, as the price

See page 10
rise of petroleum derivatives together with the depreciation of the national currency, the “real”,
made hydrous alcohol become economically competitive as compared to gasoline.
The subsidies given by the government to ensure competitiveness between hydrous
alcohol and gasoline were guaranteed only for the effectively existing demand (as estimated by the
government), and not for the overall production. Support was given according to the volume
demand in each State, given that the transference to producers was made by the Sugar and Alcohol
Production Industry Trade Unions (Sindicatos das Indústrias de Fabricação de Álcool e Açúcar) in
each of the States.
As stated by Serodio (1999), in 1999 the government guaranteed the subsidy of R$0.045
per liter of hydrous alcohol on a total volume of 7.3 billion liters (the estimated demand), totaling
expenses of around R$330 million with the support to this product.
Nastari et al. (2005) explained the mechanism of the Alcohol Account (Conta Álcool),
which was used to operate the support to fuel alcohol. The Alcohol Account (Conta Álcool) was
created in 1976, and it was kept by the National Petroleum Council (CNP) until November 1984.
In December 1984 the control of Alcohol Account was transferred to PETROBRAS, a period
when the national inflation rate was very high, and the prices of fuels (both alcohol and petroleum
derivatives) were under the control of the government.
The Alcohol Account (Conta Álcool) and the Petroleum Account (Conta Petróleo) were
accounting tools to measure differences due to the price structure of fuels in general (oil
derivatives and ethanol). Nastari et al. (2005) show the pricing structure of fuels used by the
government to fix the fuel prices at producer and consumer levels. It is noted that these accounts
could have surplus or debit balances, depending on the prices determined by the government at
producer and consumer levels (Chart 1).

Chart 1. Pricing structure of fuels in Brazil during intervention period
Parcel Discrimination
A Price of fuel net of taxes
B (+) Federal taxes on sales (PIS/COFINS)
C (+) State Tax (ICMS)
D (=) Invoiced Price including taxes
E (+) Taxes on distribution and retail
F (+) Distribution margin
G (+) Freight
H (+) Retail margin
J (=) Cost of fuel
K (-) Price for the consumer
L (=) Difference (Petroleum Account or Alcohol
Source: Nastari et al. (2005)

Until the deregulation, the government set the price of the fuels at the producer level
(parcel A), and at the consumer level (parcel K), as well as those for distributions and retails
margins (parcels F and H), and also the freight margins (parcel G). The cost of fuel (parcel J) was
a value constructed as a result of the government policy for fuels. The government also set the
price at the consumer level (parcel K). The Petroleum and Alcohol Accounts corresponded to the
accumulated value of the parcel L. In certain periods, as when the government’s main aim was to
curb inflation, fuel consumer prices had smaller readjustments than those paid to producers, which
resulted in deficits in the accounts mentioned.
From 1976 to 1983 the Alcohol Account (Conta Álcool) accumulated a surplus of
US$1.045 billion; from 1984 to 1993, the Alcohol Account accumulated a debit balance of US$
0.70 billion. In the latter period, the Petroleum Account accumulated a deficit of US$2.7 billion.
(Nastari et al., 2005, p.59).

According Nastari et al (2005) the alleged subsidies received by ethanol producers
through price during the period when prices were administered by the Brazilian government and
PETROBRAS are incorrect. On the contrary, they state that there is evidence showing that, during
the period between the end of 1986 and April 1997 (when the price of anhydrous alcohol at the
producer level was liberalized), prices determined by the government for producers, on their sales
of ethanol to fuel distributors, were in varying degrees consistently below the average cost of
production13, resulting in a large transfer of income from producers to consumers.
The difference between the selling price of hydrous and anhydrous alcohol determined by
the government and their average costs of production has been the object to court cases whose
decisions are pending still today.14
Nastari et al. (2005, p.11) concluded that there was an effective transfer of income from
producers to consumers of US$ 9.38 billion for sales of hydrous ethanol, and of US$ 2.21 billion
for sales of anhydrous ethanol.15 This policy motivated the producers to seek permanent cost
reductions, through the application of technological innovations and scale savings in production.
Brugnaro (1992) analyzed the shaping of fuel prices and costs in order to assess the
government’s balance in the trading of alcohol. According to the author, in the period 1981-90,
government expenses in the federal realm concerned the acquisition of alcohol by producers, the
subsidies for equalizing costs, the transportation of anhydrous alcohol to the gasoline mixing
centers, the mixing, managing and warehousing costs, and also the payback of transportation costs
to distributors. As far as revenue sources are concerned, the author mentions sales to distributors
and tax collection.
The author estimates the government’s balance in the trading of carburating alcohol from
1981 to 1990. During the whole period considered, the balance estimated by the author presented a
surplus, as shown in Table 2.

Along this period, costs of production were surveyed by IBRE/FGV (Instituto Brasileiro de Economia/Fundação
Getúlio Vargas). These surveys were conducted to serve as benchmarks for the determination of prices as the producer
level (Nastari el al, 2005).
Monthly data on production costs for sugarcane, anhydrous and hydrous, as well as the prices fixed by the
government, from November 1986 to April 1997 can be found in Nastari et al. (2005).
The authors multiplied the difference between prices and average costs by demand of each product during this
period, and converted them into nominal US dollars. The average loss over this period was US$ 90.53 and US$ 94.21
per cubic meter of hydrous and anhydrous alcohol, respectively.
Table 2. The government’s annual balances on the trading of carburating alcohol (1981-1990)

Balance Excahange Rate Balance (US$)

Cr$ (million) ExchangeRate US$ (million)
1981 95,700 92.89 1,030.25
1982 128,030 179.47 713.38
1983 138,230 577.36 239.42
1984 132,950 1.833.45 72.51
1985 24,320 6.195.02 3.93
1986 92,440 13.59 6,802.06
1987 145,430 39.33 3,697.69
1988 181,790 264.25 687.95
1989 24,030 2.81 8,551.60
1990 23,820 67.67 352.00
Source: Brugnaro (1992)

Appendix 1 brings anhydrous and hydrous alcohol price evolutions and the value of the
subsidy received by producers per cubic meter, from 1980 to 1990.


Among the incentives given by the government aiming at expanding the use of hydrous
alcohol, it is worth mentioning:
(i) lower prices for alcohol (initially fixed at 65 per cent of gasoline prices) than for
(ii) discount in the Flat Road Tax (Taxa Rodoviária Única) for alcohol-run vehicles;
(iii)longer financing term for the purchase of alcohol–run cars; and
(iv) the opening of filling stations for alcohol during the weekends (as they used to be
closed for gasoline).

However, in May 1980, alcohol-run car production targets were far behind plans, and this
made hydrous alcohol stocks increase to the point of exceeding warehousing capacity, which
resulted in the liberation of exportation to Japan and to the United States.

Resolution No14, from March 1982 established measures viewing at the recovery of the
alcohol market, such as: (i) lessening of the maximum ratio between alcohol and gasoline prices
from 65 per cent to 59 per cent; (ii) increasing the IPI of gasoline-run cars and reducing it for cars
run on alcohol; (iii) installing densimeters in filling stations, so that the consumer could check the
quality of the alcohol.
As to car prices, the automobile industry agreed to sell cars run on alcohol for the same
price as those run on gasoline, despite the higher production costs, as a means of encouraging the
consumption of cars run on alcohol.
Consumers reacted favorably to these measures, as sales of alcohol-run cars increased by
59.7 per cent in April, 20.2 per cent in May, and 46.9 per cent in June. Picture 3 shows the sales
evolution of alcohol-run and gasoline-run cars.
It is interesting to notice that consumers reacted immediately to incentive and disincentive
policies to the Program (sale trends for the different products would revert in a few months,
making demand fluctuation become rather important), which indicated the importance of the
consumer for the success of the Program.
Another measure of high impact for the recovery of alcohol-run car sales was
Government Decree No1944, from June 1982, which exempted up to 100HP alcool-run passenger
cars to be used as taxis from IPI, for one year.
At the end of 1982, alcohol-run car market was superheated, representing 38 per cent of
the total passenger car sales, and in December the same year this rate reached 67 per cent. As from
1984, consumers showed clearly to have approved of cars run on alcohol, as shown in Picture 3.
(Appendix 2 presents the data regarding cars sales).
We observe that from 1983 to 1989 sales of alcohol-run cars represented 90 per cent of
the overall car sales, on average. As from 1989, this proportion started to decrease (probably due
to the alcohol shortage crisis that occurred at the time) and in 1990, alcohol-run car sales were
only 11.04 per cent of overall car sales.
In 2000, this proportion corresponded to less than 1 per cent. Nowadays, flex fuel car
sales have inverted the demand again in their favor. Consumers have promptly approved of flex
cars, and they can already be found in most models, from various brands. In 2004 and 2005 there
was an increase in the demand for hydrous alcohol, as consumers fill their cars with alcohol
whenever it costs up to 75 per cent of gasoline prices.

Picture 3. Brazil: domestic sales of auto-vehicles (automobiles and other small-sized vehicles) per type of fuel, 1970 to 2005**

1973 1975 - 1978 1980 – 2nd Petroleum shock 1997 1999

1st Petroleum 1st phase of Beginninf of Deregulation
shock! proálcool 1979 – 2nd phase of proálcool deregulation!

Source: Anfavea, 2005 (from 1970 to 2004) and UNICA, 2006 (year 2005).
* Flexfuel: Either gasoline or ethanol, or still any mix of gasoline/ethanol in a single tank of fuel
** considering sales up to November, 2005.

The governments gives an incentive to alcohol and flex fuel cars by charging a lower rate
of IPI (Tax on Manufactured Goods – Imposto sobre Produto Industrializado) than that for
gasoline-run cars. The same rates are charged for both flex fuel and alcohol-run cars. Table 3
shows the rates in force in 2006.

Table 3. IPI rates for different passenger cars - 2006

Alíquota IPI
Engine Power Gasoline Alcohol or Flex Fuel
Engine up to 1 liter 7% 7%
Engine 1 - 2 liters 13 % 11 %
Engines above 2 liters 25 % 20 %
Source: Automotive manufacturer (Volkswagen)

We note that tax rates for low-power cars are equal for gasoline, alcohol and flex cars,
and also are lower than those for more powerful models. The more engine power, the bigger the
taxation difference between gasoline and flex/alcohol cars.

As from 1986, various factors contributed to the beginning of a reassessment of the
Program. According to Santos (1993), since January that year, petroleum international prices
started to decline. The growing internal production of alcohol lessened the country’s dependence
on imported petroleum, and the economic plans prioritized inflation and public deficit controls,
showing clearly that the expansion of the Program should be made by increasing productivity in
agricultural and industrial activities, as government loans for expanding installed capacity had
been suspended.
The depletion of official resources evidenced the difficulty of the government in
continuing to intervene in the sector. Moreover, conflicts between producers and government
showed the need for a new model of government intervention.
In October 1987, due to the deficit in the Alcohol Account, PETROBRAS quit buying
any stock of alcohol that exceeded the demand. This terminated payments to producers, although

the norms established in Decree No 94541, from July 1987, still determined that PETROBRAS
must buy emergency stocks and exceeding volumes.
The measures adopted by PETROBRAS resulted in problems for alcohol producers, who
complained about the gap in product prices. The prices were based on cost studies made by
Fundação Getúlio Vargas, but they were determined jointly by the Petroleum National Council and
government agencies in charge of the economic policy, which was anti-inflationary, that is, it was
for cutting down public prices. As from the harvest of 1985/86, these factors caused the stagnation
both of sugarcane and alcohol productions, while consumption grew by 12 per cent.
As stated by Santos (1993), in the harvest of 1989/90, about 28 autonomous distilleries
financed by Proálcool had closed down, which meant a reduction of about 500 million liters of
alcohol. In the same year, sugarcane suppliers and even alcohol producers themselves threatened
to halt production. Besides this, conflicts between sugarcane suppliers and alcohol producers
aroused. At that time, there were also denunciations of illegal trading of alcohol. The
circumstances still aggravated when PETROBRAS reduced radically its alcohol stocks, which
generated a product shortage crisis: by the end of 1989, consumers faced long lines in the filling
The government took measures to relieve the supply crisis: a reduction of anhydrous
alcohol contents (from 22 per cent to 13 per cent) in the mix gasoline-alcohol, importation of
methanol, and the replacement of anhydrous alcohol by MTBE (methyl tertiary butyl ether). In
spite of these, there were lines in filling stations again in 1990 when it was not harvest time, due to
a new shortage of alcohol.
This way, a new reversion in consumer behavior took place, and alcohol-run cars sales –
which represented 90 per cent of overall sales for four years consecutively – started to decline in
1988, as illustrated in Picture 2. The demand decrease for alcohol-run cars and the economic crisis
faced by the country ended up by balancing the fuel alcohol market.
The 1989 and 1990 alcohol supply crises showed clearly the strong dependence of
PETROBRAS on anhydrous alcohol (which was and still is mixed to gasoline, replacing tetraethyl
plumb to guarantee its octane), and so the institution came to defend the use of MTBE as a
substitute product.

While the conflict between PETROBRAS and alcohol producers grew, the environmental
issue emerged, strengthening the standpoint of alcohol producers, as alcohol is regarded as a
“clean fuel”. The use of oxygenated fuels – aiming at reducing CO2 emissions – turned out to to be
a trend in developed countries as from the mid 1990’s. In Brazil, CETESB (Companhia de
Tecnologia de Saneamento Ambiental - Technology and Environment Sanitation Agency -), the
agency that controls polluting elements emissions, has become an important fuel alcohol alley.
In August 1990, President Fernando Collor recognized the limits of alcohol as a substitute
to petroleum derivatives. Despite refusing to extinguish Proalcool, he chose to keep alcohol
production within the already installed capacity. Meanwhile, he pointed out the need for providing
resources to PETROBRAS so as to enlarge the national production of petroleum. In 2005,
Brazilian self-sufficiency in petroleum production was announced.
In the early 1990’s, with the commercial opening to external markets promoted by the
Brazilian government, and with the featuring of State financial difficulties, the exhaustion of the
previously existing state intervention model in the sugar-alcohol production chain was made
evident. This is especially clear when we consider the changes that occurred in the country’s
institutional environment, as shown in the following section.


Moraes (2000) analyzed the deregulation of the sugar and alcohol sector in Brazil. Dating
from 1999, the State considerably turned away from the sugar alcohol sector, and the main impacts of
such change are: sugar cane, sugar and alcohol prices are ruled by a free market; mills and distilleries
no longer have sugar and alcohol production quotas, and the support to fuel alcohol was discontinued.
It is important to observe the distinct institutional environments at the beginning of
Proálcool and nowadays: today the political regime in force is democratic, as the Congress has a
decisive role in public policy decisions, whereas in 1975 the military regime allowed for
centralized decisions. The present Federal Constitution (1988) impedes state interventionist action;
the country’s economy is inserted in a globalized market, subject to the World Trade Organization
(WTO) rules, not to mention the lacking resources of the Brazilian government to implement public
sectorial policies.

As from the reform implemented by President Fernando Collor, a new institutional
apparatus was established for the decision-making policy on alcohol and sugar, within a context of
economic liberalization of the country as a whole, supported by the Federal Constitution of 1988.16
According to such Constitution, the intervening role of the State on the Brazilian
economy has changed significantly, as it has established that State planning must have only an
indicative character, which has ended up by weakening government action, and therefore it has
limited the strength of the Sugar and Alcohol Institute in the sugar-alcohol sector.
The publication of Law No 8.178, from March 1991, determining rules on prices and
salaries, was of crucial importance for the deregulation process of the Brazilian economy started
during the Collor government.
Concerning product prices in the sugar-alcohol chain, in March 1996, Minister of
Treasury Pedro Malan emitted Regulation No 64, establishing that: “…are subject to the
government policy of price liberalization… sugarcane prices, including freights, supplied to mills
and autonomous distilleries all over the country, standard crystal sugar prices, alcohol prices for all
types of carburating ends, alcohol prices for all types of non-carburating ends, and all types of
residual molasses prices, in the producing units” given that January 1st 1997 was the initial date for
the Regulation No 64 to be in force.
There were three delays before the total liberalization of the sugarcane production chain,
as only in 1999 all the products were to operate without any government intervention. The delays
in deregulation were the following:

1. Ministry of Treasury’s Regulation No 294 (December 1996)

It delayed sugar cane, sugar and alcohol price liberalization, originally forecasted for
January 1st 1997. These were postponed to two distinct dates: anhydrous alcohol prices would be
liberated as from May 1st 1997 (which really happened); prices of sugar cane, standard crystal
sugar, all types of alcohol (except for anhydrous) and of residual molasses would come to be freed
as from May 1st 1998.

The Federal Constitution of 1946 ordained the State intervention principle on the economy, which was kept in the
Constitution of 1967. Instead, the Constitution of 1988 regulates in a completely opposite way (Bezerra, R.C. Parecer
sobre os dispositivos legais da legislação intervencionista do setor sucroalcooleiro. São Paulo, 1997. Technical review
presented to UNICA, São Paulo).
2. Ministry of Treasury’s Regulation No 102 (April 1998)
New delay for the liberalization of prices for sugar cane, standard crystal sugar, and
hydrous alcohol for carburating ends, for November 1st 1998.
3. Ministry of Treasury’s Regulation No 275 (October 1998)
It delayed for three more months the date of price liberalization for sugar cane, standard
crystal sugar, hydrous alcohol for carburating ends, and of residual molasses, postponing the
liberalization date from November 1st 1998 to February 1st 1999.
On this same day, CIMA emitted Resolution No6, stipulating the limit of resources to be
used on expenditures with the Álcool Program in 1999. It determined a reduction on the total
annual volume of the expenditures, which went from R$ 1.3 billion to R$ 1.1 billion in financial
resources deriving from the Account Specific Price Rate (PPE), administered by ANP.


Finally, on February 1st 1999, the system of liberalized prices was installed, both for
sugarcane and for all the products from the sugar-alcohol agro-industry.
The various delays in the liberalization of the sugar-alcohol sector, the discussions and the
active participation of the agents involved, as well as the news on the media constitute clear
evidence of the difficulties faced in this process as a means of balancing economic, environmental
and social issues.
We should emphasize the strong pressures and counter-pressures from the various
segments involved, whether supporting economic liberalization (required by efficient producers,
inclined to facing free market rules), or in the opposite direction, for keeping the pre-existing
system, as the continuity of production in comparatively less efficient regions (in the various
phases of the production chain) still depended on government support.
The liberalization occurred in an overproduction scenario both for sugar (nationally and
internationally) and for alcohol. The sector faced a serious financial crisis, culminating at the
closing down of many industrial units in 1999.

Free market pricing imposed a new competition model to sugar and/or alcohol mills,
leading them to seek new strategies to cut down costs and increase competitiveness in order to
ensure survival in the new environment. According to Vian (2003), the mills have adopted
different competitive strategies regarding sugar production (the companies started producing other
types of sugar: liquid sugar, organic sugar, sugar-artificial sweetener mix), and a diffusion of the
trading and use of byproducts (yeast, filtercake, molasses, bagasse to co-generate electric power).
The author also mentions the changes in the production process: the outsourcing of agricultural
and industrial services, as well as the introduction of mechanical sugarcane harvesting and
planting. Also, many mills have endeavored to improve their power balance to generate higher
exceeding electricity17 for the electric power market.
In addition, the mills also implemented new production organization and management
practices, resulting in a more professional company management, with reduced family
administration. The new management approaches and the recognition by the companies that the
more Brazil participates in the international trade, the higher the need for labor rules
corresponding to those of sugar producers of developed countries, have not only strengthened the
companies’ manpower departments, but have also caused positive impacts on labor negotiations
and on the labor market.
The competitive environment has also redefined the production market structure, which has
undergone a concentration process through mergers and acquisitions, including the introduction of
foreign capital18 in the sector. This move led the sugar and alcohol sector economical groups to

The Brazilian sugar mills and alcohol distilleries are self-sufficient in electric power, which is co-generated by the
sugarcane bagasse burning process. The bagasse of the sugarcane ground for sugar and alcohol production is burned in
broilers that generate steam to produce heat or move the power generators needed in the industrial process. With the
increase in the power efficiency in the sugar and alcohol manufacturing process, they started selling the exceeding co-
generated electrical power.
Currently four multinational groups operate in Brazil: FDA (a joint-venture formed by Brazilian group Cosan, with
participation of 47.5 per cent, and by French groups Tereos/Union DAS, also with 47.5 per cent, and Sucres &
Denrées/Sucden, holding 5 per cent); Coinbra/Louis Dreyfus (takeover of two sugar mills – Luciania Mill and Cresciumal),
Béghin-Say (takeover of Guarani sugar mill), and Glencore Group (Switzerland). Altogether, they account for
approximately 10 per cent of Brazil’s total crush. Also the English company Tate & Lyle took over 10 per cent of the sugar
port terminal from the Grupo Cosan in Santos, in Sao Paulo state. In June 2006 the multinational company CARGILL
bought 63% of CEVASA sugar and alcohol Mill in the State of São Paulo.
PNA’s decision-making structure has changed deeply with the deregulation of the sector.
As from 1988, with the creation of the Sugar and Alcohol Interministry Council (CIMA), this
agency has taken over all the decisions concerning the sugar-alcohol sector.
CIMA mandates concern the direct subsidies to fuel alcohol; they also regard the
formation of government’s strategic stocks as well as the availability of resources for producers to
develop regulating stocks, whose credit costs are lower than those in the market. It is observed that
the actual availability of resources has always been below producers’ needs and also below those
stipulated in the mandates mentioned.
The main decisions taken by CIMA are stated below:

There have been no direct subsidies to fuel alcohol since CIMA19 Mandate No15, which
extinguished the subsidy to alcohol producers as from November 1th 1999. Chart 2 brings the
articles in CIMA mandates that tackle with subsidies to alcohol.

Chart 2. Summary of the mandates of Sugar and Alcohol Council (CIMA) that deal with resource
subsidies from the government to producers
Nº 6/1998 Reduction of maximum government expenditures in fuel alcohol programs in 1999.
10/16/1998 The maximum expenditures, which were R$ 1.3 billion (one point three billion reais or
US$1.095 billion dollar) were lowered to R$ 1.1 billion (one point one billion reais, or
920 million dollars).
Source of Resources: ACCOUNT - PPE.
Nº 10/1999 Subsidy value for hydrous fuel alcohol fixed at R$0.0450 (US$ 0.024) per liter as from
02/01/99 02/01/1999. Support on 7.3 billion liters production volume over one year. (demand
estimation). Total amount of resources: R$330 million (three hundred thirty million
reais (US$ 175.513 million dollars).
Hydro fuel alcohol producers in Mato Grosso and Mato Grosso do Sul States obtain
authorization of support for five years, with decreasing values as from the second year.
The aim of this mandate was to enable the trading of alcohol in internal consumer
centers located far from these producing regions.

Sugar and Alcohol Council, a federal government agency that establishes policies for the sector.
Nº 15/1999 Extinction of hydrous alcohol subsidies as from 11/01/1999 (the subsisies was done
10/27/99 previously to assure competitiveness between hydrous carbureting alcohol (AEHC)
and gasoline)
Source: Elaborated with information from Ministry of Agriculture, Cattle Breeding and Food
Supply (Ministério da Agricultura, Pecuária e do Abastecimento), 2006, and from the Petroleum
National Agency/ANP (2006).


The National System of Fuel Stocks was constituted by Law No.8,176 in February, 1991.
However, despite the institutional support, there is no effective model for the creation of
government strategic stocks of fuel alcohol in the Country20. Alongside with time, occasional
actions have been taken by the Federal Government, such as the purchase of fuel alcohol
exceeding stocks, instead of the adoption of policies for the creation of government fuel stocks, as
stipulated by the legislation in force. Between 1998 and 1999 three purchases were authorized for
the formation of stocks.
CIMA is the organ responsible for the definition of the amounts destined to the Stock
Program for every harvest year. Chart 3 shows the decisions concerning the Government’s
formation of stocks. We notice that there has been no puchase of alcohol for the formation of
government stocks since 2002.

Chart 3. Summary of the Mandates of Sugar and Alcohol Council – CIMA regarding the purchase
and the sales of alcohol by the government
Nº 1/1998 Concerns the acquisition of 90,000m! (ninety thousand cubic meters) of hydrous
Data:01/30/98 carburetting alcohol produced in the North & Northeast Regions for the formation of
government stocks of hydrous carburetting alcohol.
The alcohol acquired will be reinserted in the internal market between August and
December of the current year, and the financial resources deriving from the sale will
return to the Petroleum, Derivatives and Alcohol Account (PPE).

We must remember that most of the alcohol production takes place during the sugarcane harvest in the Center-South
Region of the country between April and November. In other words, the production takes place during 9 months and
must be stocked for the rest of the year.
Nº 4/1998 Concerns the acquisition of 500,000 m! (five hundred thousand cubic meters) of
Data: 08/14/98 hydrous fuel alcohol produced in the Center-South Region for the formation of
government stocks of hydrous carburetting alcohol.
The alcohol acquired will constitute the product’s regulating stock, will be reinserted in
the market and the financial resources deriving from the sale will return to the
Petroleum, Derivatives and Alcohol Account (PPE).
Nº 11/1999 Concerns the acquisition of 300,000 m! (three hundred thousand cubic meters) of
Data: 03/02/99 hydrous fuel alcohol produced in the Center-South Region for the formation of
government stocks of hydrous carburetting alcohol.
The alcohol acquired will constitute the product’s regulating stock, will be reinserted in
the market and the financial resources deriving from the sale will return to the
Petroleum, Alcohol and By-products Account. (PPE)
Nº 17/1999 Concerns the sale of governmental stocks of hydrous fuel alcohol.
Data 11/06//99 The financial resources deriving from the sale of fuel alcohol authorized in the form of
this Mandate will be accounted as credit in the Petroleum, Derivatives and Alcohol
Account. (PPE)
Nº 22/2002 Concerns the importation, as far as March, 2002, of 300,000 m! (three hundred
thousand cubic meters) of fuel alcohol and the acquisition of 300,000 m! (three
hundred thousand cubic meters) of hydrous fuel alcohol – AEC, from distilleries or
from their associated cooperatives, installed in the Northeast Region (the volume may
be increased by up to 100,000 m! (a hundred thousand m!) owing to the need for the
product in the Center/South Region and to its availability in the North East Region.

Source: Elaborated with information from Ministry of Agriculture, Cattle Breeding and Food
Supply (2006), and from the Petroleum National Agency/ANP (2006)

Besides the formation of government strategic stocks, there is a finance line (provide at
below-market interest rates) which enables producers to maintain stocks of this product. Chart 4
shows CIMA’s decisions concerning the financing of proven alcohol stocks

Chart 4. Values actually used by the financing program for fuel alcohol stocks.
Harvest Values authorized Values actually Annual Annual official
by CIMA spent* special interest average
Mandates interest rates (Central
rate Bank - Selic)
Harvest 01/02 There was no finance ------------ ------------- ----------
program for stocks
(Program established
in 2002)
Harvest 02/03 R$500 million reais R$115.4 million reais 11.5 per cent 19.22 per cent
(Mandate (US$149.65 million (US$34.54 million to 12.5 per
CIMA N.24, dollars) dollars) cent
Harvest 03/04 R$500 million reais R$464.8 million reais 11.5 per cent 23.53 per cent
(Mandate (US$169.21 million (US$ 158.30 million to 12.5 per
CIMA N. 29, dollars) dollars) cent
May/27/2002) (Center South Region:
91.14 per cent; North
Northeast: 8.86 per
Harvest 04/05 R$500 million reais R$466.78 million reais 11.5 per cent 16.24
(Mandate (US$161.31 million (US$150.59 million to 12.5 per
CIMA N.32, dollars) dollars) cent
May/05/2004) (Center South Region:
90.6 per cent; North
Northeast: 9.4 per cent)
Harvest 05/06 R$500 million reais Resources still not 11.5 per cent 19.12
(Mandate (US$203.92 million freed. to 12.5 per
CIMA N. 33, dollars) cent
Harvest 06/07 -------------- Not forecasted in the ---------------- -------------------
Government’s Budget. ---
Source: Ministry of Agriculture, Cattle Breeding and Food Supply /MAPA; Departament of
Sugarcane and Agro-energy - DCAA General Coordination of Sugar and Alcohol - CFAA/DCAA,
2006 (personal communication)


The current taxation and social contributions on fuels are:
• Tax on Operations Regarding the Trading of Goods and on Rendering Services (Imposto sobre
Circulação de Mercadorias e Serviços- ICMS);
• Contribution for the Worker’s Social Integration and for the Formation of the Civil Servant’s
Patrimony (Contribuição para o Programa de Integração Social do Trabalhador e de Formação
do Patrimônio do Servidor Público - PIS/PASEP);
• Social Contribution for Financing Social Security (Contribuição Social para o Financiamento
da Seguridade Social - COFINS);
• Contribution of Economic Domain Intervention (Contribuição de Intervenção de Domínio
Econômico - CIDE)

ICMS, PIS/PASEP and COFINS taxes are not in force exclusively in the fuel sector, also
falling on the remaining sectors of the economy. These taxes are percent taxes, applied on sale,
distribution and retailing chain of fuels, being analogous to excise or value added taxes. Except for
the case of ICMS, all taxes are accrued on equal terms, or percent rates, to gasoline C and hydrous
ICMS is a State tax whose rates vary both among products and states. In general, for most
of the Brazilian states, there are no significant differences in the ICMS rate between hydrous
alcohol and gasoline. In the State of Paraná, the rate of ICMS on gasoline is 8 per cent higher than
that on alcohol during the entire period analyzed; in the State of Sao Paulo, the main alcohol
producer and consumer, we observe that since 2003 the gasoline ICMS rate has been 13 per cent
higher than that for alcohol. This change was made to fight the existing tax evasion in the hydrous
alcohol market (as it was made public), which had been motivated by the previous 25 per cent
ICMS rate21.
CIDE was instituted by Law No.10336, dating from 12/19/2001, and falls both on
importation and on trading of petroleum and its by-products, as well as on natural gas, and on
hydrous fuel alcohol. According to this law, CIDE’s tax collection will be destined, in the form of
the Budgetary Law, to: (a) subsidize the prices for, or the transportation of, fuel alcohol, natural
gas, and for petroleum and its by-products; (b) finance environmental projects related to petroleum
or gas industry; and (c) finance a program of transport infra-structure.
It was verified that CIDE is a tax that falls on fuels in differentiated ways, viewing at
encouraging the use of alcohol and at reducing the use of fossil fuels. The current level for CIDE
on gasoline is R$ 280 per cubic meter (US$ 115.23/m3), and on diesel is R$ 70,00 per cubic meter
(US$ 28.81/m3). To all the other products, including fuel alcohol, the net rate of CIDE has always

The high ICMS rate (25%) encouraged tax defraudation, in that defrauders felt it was worth running the risk of being
caught by the government auditors (in this case, they would have to pay the tax defraudation fine).. See document
from the Parliamentary Investigation Committee (CPI) on fuels and Moraes, 2000.
been zero. Therefore, the difference in taxation between alcohol and gasoline is R$280/m3 (US$


The evaluation of Proálcool has been the research object of many authors, and several
different results can be found, whether criticizing PNA due to high public expenditures, or
defending it, even to the point of alleging income transference from producers to consumers. In
this paper, we bring the viewpoint of some of the authors who have presented approaches on the
The evaluation of PNA starts from its goals, as stated in Decree No 76,593/75, which
created Proálcool. According to such Decree, the goals for the creation of PNA are:
(i) saving exchange values by reducing petroleum importation; (ii) reducing regional
income disparities; (iii) reducing income inequality; (iv) expanding the production of capital goods
used in distilleries.
Santos (1993)22 affirms that the definition of the goals of a program is fundamentally a
political process, and that in the case of Proálcool it is the result of the bargaining situation of the
actors, disputing its formulation.
The main concern of the President, as well as of his direct assessors and of the Ministries
in charge of economic issues was the country’s balance of duties, which was increasingly
deteriorating. At the same time, the Sugar and Alcohol Institute (IAA) faced problems deriving
from sugar super-production and its declining prices. Therefore, IAA pressured strongly for policy
alternatives that favored the sugar industry (alcohol was to be an alternative product).
Santos (1993) evaluates Proálcool considering the three goals identified during the phase
of alcohol-gasoline mix (and which was maintained in the second phase of program): (i)
improving in the balance of duties; (ii) reducing the country’s dependence on imported petroleum;
(iii) creating a new market for the sugar industry.

The major part of this section is based on the excellent work of Maria Helena de Castro Santos, compulsory reading
for one to understand fuel alcohol policy in Brazil. The author defended her Phd thesis in the Massachusetts Institute
of Technology-MIT, USA, December 1984. Thesis called “Alcohol as Fuel in Brazil: an alternative Energy Policy and
According to the author, the goal for the creation of a new market for the sugar industry
was fully reached. From 1975 to 1983, Brazilian production of alcohol increased to 7.95 billion
liters; the production installed capacity went from 904 million to 11.1 billion liters per harvest. In
the early 1970’s, at least 96 per cent of all the alcohol produced was byproduct of the sugar
production process; in 1986/86 harvest, more than 60 per cent of the sugarcane was used in the
production of alcohol23. Alcohol production stabilized sugar production levels, and its stock levels
showed to be lower alongside with time.
There was a relevant expansion in sugar and alcohol production in Brazil as from the
creation of Proalcool, which is also observed nowadays. After the crisis in the late 1990’s, new
factors have increased the product demand and have stimulated the growth in alcohol production.
We can mention the development of flex fuel cars, which has increased the internal demand for
hydrous alcohol. Furthermore, environmental issues have caused the external demand for
anhydrous alcohol to increase: besides being renewable, fuel alcohol is less polluting than gasoline
and contributes to a reduction in carbon emissions. Picture 4 shows the evolution in alcohol
production in Brazil for harvests from 1970/71 to 2004/05.
The expansion in sugarcane production has followed the evolution of alcohol
production24. Picture 5 shows the evolution in sugarcane production and in plantation area
(Appendix 3 presents the data regards sugarcane production and plantation area). It is important to
observe the gains in productivity attained along the period: in 1975, sugarcane productivity (in
tons per hectare) was 46.5t/ha; in 1980 it improved to 57t/ha; in 1990, the productivity was
61.5t/ha, and in 2005 it reached 73.5t/ha. These productivity leaps were a consequence of public
and private investments in research. In recent years, it has been notably the result of research
investments with private resources (Copersucar).

Nowadays, the ratio is around 50 per cent for each product.
A expansão da produção de cana também foi motivada pelo crescimento da produção de açúcar.
Picture 4. Historical evolution of alcohol production in Brazil, harvests from 1970/71 to 2005/06.

1973 1975 - 1978 1979 – 2nd Petroleum shock 1997 1999

1st Petroleum 1st phase of Beginning of Deregulation
shock! Proálcool 1979 – 2ns phase of Proácooll deregulation!

Source: Moraes, 2000 (harvests from 1970/71 to 1982/83); Datagro, 2000 (harvests from 1983/84 to 1989/90) e UNICA, 2006
(harvests from1990/91 to 2005/06).

Picture 5. Sugarcane in Brazil: evolution of production and area harvested, from 1970 to 2005*.

Source: IBGE, 2006

Note: * estimation.

As regards to reducing the dependence on external energy, the goals have also been
reached. Considering the participation of fuel alcohol in the total consumption of liquid fuels,
Santos (1993) shows that in 1975 alcohol represented 0.2 per cent; in 1985 this ratio grew to 12.4
per cent. Strictly in the transportation sector, where all the alcohol is consumed, its contribution
evolved from 0.4 per cent in 1975 to 15.4 per cent in 1985. That is, not only did the country’s
dependence lessen, but the consumption pattern also modified in favor of renewable resources.
Nastari et al estimates that from 1975 to 2004, the use of alcohol allowed for the substitution of
nearly 230 billion liters of gasoline.
Alcohol and gasoline sales evolution from 2001 to 2005 can be found on Table 4. We
detect that gasoline C sales grew by approximately 5.8 per cent, while alcohol sales increased by
32.8 per cent, given that alcohol demands boosted as from the lauching of flex fuel cars. The
overall growth in alcohol sales, including the volume of anhydrous alcohol added to gasoline A,
was 28.3 per cent.

Table 4. Gasoline and alcohol Sales – 2001 to 2005 – in cubic meters

Anhydrous Hydrous
Year Gasolina C* Total Alcohol
Alcohol** Alcohol
2001 22,211,002 4,702,222 3,500,448 8,202,670
2002 22,610,257 5,558,740 3,789,193 9,347,933
2003 21,774,095 5,107,826 3,241,883 8,349,709
2004 23,130,996 5,782,749 4,298,667 10,081,416
2005 23,490,564 5,872,641 4,648,222 10,520,863
Source: National Agency of Petroleum, Natural Gas and Biofuels (Agência nacional do Petróleo,
Gás natural e Biocombustíveis - ANP), 2006
*Gasoline C: gasoline A plus anhydrous alcohol.
** Sales estimated as from anhydrous alcohol contents in gasoline A.

Picture 6 shows hydrous alcohol and gasoline C Sales shares. At the beginning of the
period, the hydrous alcohol sales share was 13.6 per cent, which was altered to 16.5 in 2005.

Picture 6. Evolution of hydrous alcohol and gasoline C sales shares.

When we consider that gasoline C has anhydrous alcohol contents, we notice that the
overall alcohol sales share (hydrous plus anhydrous alcohol) as compared to gasoline A25 sales
increased considerably (Picture 7). It reached nearly 60 per cent in 2005, showing the alteration in
automotive fuel consumption profile in the country.

Picture 7. Sales evolution of alcohol (anhydrous, hydrous and overall) and of gasoline A

As to the saving of exchange values, Santos (1993) regards the gains with Proálcool as
modest. From 1977 to 1985, Brazil’s expenditures with petroleum net importation were US$64.8

Gasoline sales to the automotive market comprise Gasoline C. The example above illustrates the importance of
alcohol Sales in the automotive fuel market.
billion, and estimations indicate that US$6.9 billion were saved (10.7 per cent of the total cost of
On the other hand, Nastari et al (2005) has calculated the value of alcohol, hydrous and
anhydrous, in gasoline equivalent, evaluated at the price of the gasoline in the world market
(Rotterdam). According to the author, in the period 1976 to 2004, ethanol used for fuel purposes
(excluding industrial and others uses) enabled savings of US$ 60.74 billion in gasoline
importation, in constant US dollars of January 2005. When interest on the foregone external debt
is considered (estimated at prime rate plus 2 per cent per year), Nastari et al (2005) found that
accumulated savings sum up to US$ 121.26 billion.
Proálcool social goals (reducing regional and individual income disparities) have not been
reached, since the aim of PNA, as designed by the burocratic agencies involved in decision-
making, showed to have primarily an economic bias.


The authors who assessed the economic viability of Proálcool have found diverse results,
considering both private and social costs. At the beginning of Proalcool, many opponents
criticized the use of alcohol as a fuel alleging lack of economic viability and the need for subsidies
for its implementation. On the other hand, the arguments of PNA supporters were the savings in
exchange values and the lessening of energy dependence.
From the private standpoint, Santos (1993) points out that existing estimation suggests
that the return on investments for most of Brazilian distilleries has been around 12 per cent, that is,
favorable to private entrepreneurs. However, due to IAA’s policy of fixed prices for sugar cane,
the situation has been unfavorable to agricultural entrepreneurs, given the noticeable deterioration
in the trading terms of sugarcane during the Program.
Bélik (1992) stands out that the various authors mentioned in Pelin (1985), who assessed
overall costs of Proalcool, worked with estimations either of the difference between CIF prices of
imported26 petroleum and private costs, or with the difference between CIF prices of imported

The prices of imported petroleum are taken as proxy of the petroleum consumed internally, due
to a lack of data about the cost of extraction of the national petroleum. Next, the author estimated
the barrel cost equivalent to gasoline, by comparing the calorific contents of the fuels and
volumetric power of engines.
petroleum and social costs of alcohol production. Private costs consider agricultural, industrial and
trading costs. They also consider capital opportunity costs.
In order to understand the results of the various studies, Pelin (1985)27 carried out a
detailed investigation on the proceedings adopted by the authors. The main divergences are in the
estimations of the correction factors of private prices, mainly concerning exchange rate and capital
opportunity cost. Calculations were made under different conditions: attached or autonomous
distilleries, industrial productivity, production scale, equipments for extraction (millstones or
According the author, the cost variation of the hydrous alcohol equivalent barrel ranged
from US$67.8 to US$99.6 per equivalent barrel of petroleum. The price of gasoline in the spot
market of Rotterdam was US$41.23 per barrel, or US$45.35, including freight, indicating that at
the time hydrous alcohol was not competitive as compared to gasoline. Appendix 4, elaborated
according to Pelin (1983), shows carburatting alcohol production costs, as estimated by various
At the time of those studies, neither the co-generation of electric energy from bagasse nor
the use of vinasse as a fertilizer were in practice. Production costs were reduced after these
practices were incorporated to the production process.
As opposed to these estimations, the MIC/CENAL28 study, from 1981, endorsed by IAA,
indicated that in July 1981 the social costs of hydrous alcohol production were around
US$39,9/barrel CIF, and for anhydrous alcohol they were US$39,7/barrel CIF. At that time, the
average price of Brazilian petroleum imports was US$ 37,3/barrel CIF. Therefore, according to the
MIC/CENAL study, hydrous alcohol was competitive with gasoline.
Concerning production costs, Nastari et al. (2005) showed that the Brazilian National
Energy Comission published a report assessing Proalcool, which showed an economic cost of US$
30.50 per barrel29, including a return on investment of 11 per cent per year, and excluding the
credit associated with the value of excess sugarcane bagasse. According to the authors, these
values of economic costs are compatible with those found by the World Bank in its assessment of
the Proálcool program, estimated between US$ 33.40 and US$ 42.00 per barrel.

The author makes a deep analysis of the various methodologies adopted in each study.
Ministry of Industry and Trading/ National ExecutiveCommittee on Alcohol (Ministério da Indústria e
Comércio/Comissão Executiva nacional do Álcool)
In US dollars of March 1986.
As stated by Bélik (1992) in a more recent work, Oliveira (1991) affirmed that Brazilian
alcohol would only be competitive if there was a new breakage in petroleum international market.
Nevertheless, Oliveira (1991) points out the positive aspects of PNA: if on the one hand the
government made investments of US$ 3.7 billion (US$2.5 billion in distilleries and US$ 1.2
billion in agriculture), on the other hand, they saved US$8.5 billion in exchange values until 1998
by cutting down petroleum importation.
In 1989, the Brazilian Federal Audit Issues Council (Tribunal de Contas de União) made
an operational audit on the management of Alcohol National Program, and found out that overall
investment until 1989 had been US$4 billion: 56 per cent by means of public loans, and the
remaining 44 per cent with private resources (Belik, 1992).

At present, Brazil is the world’s largest and most efficient alcohol producer, with the
lowest production cost in the world. From 1975 to 2004, cost reduction in ethanol production was
really impressive. The learning curve of the Brazilian ethanol is an important example of the
biofuel’s competitiveness as compared to fossil fuels.
Productivity gains are also important: in 1980, 4,200 liters of ethanol were produced per
cane hectare; in 2003, 6,350 liters of ethanol were produced per cane hectare; that is, there was a
51.2 per cent productivity increase in the period.
It is undeniable that Brazil’s leading position is a result of the intervening energy policy
of the Federal Government, as it controlled the sector until 1997. Alcohol National Program must
be analyzed considering the situation at the beginning of the program: a circumstance of two
markets, sugar and petroleum, which aligned public and private interests; authoritarian military
regime, privileging centralized decisions; a Federal Constitution that permitted direct government
action on the economy, and a closed economy. The replication of the Brazilian model in other
countries, besides the technical and economical issues, cannot underestimate the institutional
environment of each region, once the result may be distinct. The essential role of consumers in the
success of PNA should also be emphasized.
At present, however, the implementation of the Brazilian Program of Biodiesel, started in
recent years, faces a totally different institutional environment than that of Proalcool. Furthermore,
while at the time of Proalcool’s creation the main concerns of the Brazilian government were the
stability in the balance of duties and the reduction of the dependence on imported petroleum,
nowadays the environmental issues are important reasons for the growth in production and in use
of biofuels.
In order to create and develop Alcohol National Program, the Brazilian government gave
many incentives both to production and to the consumer. As far as alcohol producers were
concerned, the main incentives were agricultural and industrial financing, product acquisition
guaranteed, and fixed prices considering the parity between alcohol and sugar.
In the second phase, the support to producer was reinforced, given that a subsidy to
hydrous alcohol was introduced to ensure competitiveness between hydrous alcohol and gasoline.
It is important to bring to mind that in November 1999 the subsidy to hydrous alcohol was
Regarding incentives to demand aiming at the growth in the use of hydrous alcohol in the
second phase of the PNA, it is worth mentioning some of the measures adopted. Among those, the
government guaranteed a maximum selling price to consumer for hydrous alcohol at 66 per cent of
the gasoline price, and also fixed lower rates in many Federal and State taxes to alcohol-run cars as
compared to those fixed to gasoline-run cars.
Nowadays, current federal incentives concern lower IPI rates (Tax on Manufactured
Goods) for alcohol and flex fuel cars to the more powerful gasoline-run cars. There is also a credit
facility at lower interests than those practised in the market for alcohol stock formation by
As to the present taxes falling directly on fuels, the main difference between alcohol and
gasoline is found in CIDE rates (Contribution of Economic Domain Intervention), instituted in
1992. CIDE net values (PIS/PASEP and COFINS discounted) result in a difference in taxation
between alcohol and gasoline of R$280/m3 (US$ 115.23/m3). This way, there is an incentive to the
use of fuel alcohol, once it is considered renewable and less polluting than gasoline.
There is no consensus in the national literature as regards to an economic evaluation of
the PNA: some authors are very critical of the resources transferred to producers, whereas others
consider that there has been income transference from producers to the society.
Since the deregulation of the sector, in 1999, resources for the expansion of production
have come from the private enterprise, which continues investing in new agricultural and industrial
technologies as well as in new uses of sugarcane byproducts (such as the generation of electrical

energy, the sales of carbon credits, etc.), and also in new technologies to improve the sugar
contents in the cane.
Some challenges must be faced for the sustainability of sector in the future. Among these
challenges, it is worth mentioning the improvement of the labor market and the environmental
issues deriving from the expansion of cultivated areas.


Agência Nacional do Petróleo, Gás Natural e Biocombustíveis-ANP, 2006 (National Agency of

Petroleum, Natural Gas and Biofuels). Available at <>, accessed on

ANFAVEA. Associação Nacional de Fabricantes de Veículos Automotivos (National Assotiation

of Automotive Vehicle Manufacturer). Brazilian Automotive Industry’s Annual Records,
2005. Available at: <>, acesso em 05/06/2006.

Brazilian Federal Reserve Bank (Banco Central do Brasil), 2006. Temporal Series. Available at:
<>. accessed on 06/07/2006 (exchange rate).

BELIK, W. Agroindústria processadora e política econômica. Campinas, 1992. 219p. Tese

(Doutorado) – Instituto de Economia, Universidade de Campinas.

BRUGNARO, C. Estimativa do saldo do Governo na comercialização do álcool carburante.

Piracicaba, 1992. 100p. Dissertação (Mestrado) – Escola Superior de Agricultura “Luiz de
Queiroz”. Universidade de São Paulo

DATAGRO. Boletim informativo quinzenal sobre cana, açúcar e álcool (Informative Bulletim of
sugar cane, sugar and alcohol). 2000. nº 24. Available at: <>,
accessed on 06/05/2006

IBGE. Instituto Brasileiro de Geografia e Estatística-IBGE (City Agricultural Production).

Available at: <>, accessed on 06/05/2006

Ministério da Agricultura, Pecuária e Abastecimento (Ministry of Agriculture, Cattle Breeding and

Food Supply). Available at: <>, accessed on 03/27/2006.

MORAES, M.A.F.D. A desregulamentação do setor sucroalcooleiro do Brasil. Americana:

Caminho Editorial, 2000

NASTARI, P.M.; MACEDO, I.C.; SZWARC, A. Observations on the Draft Document entitled
“Potencial for biofuels for transport in developing countries, The World Bank air quality
thematic group”. São Paulo, 2005, 71p.

OLIVEIRA, A. Reassessing the Brazilian Alcohol Programe. Review Energy Policy, jan/fev.1991
Butter Worth-Heinemann Ltda.

PELIN, R.E. Avaliação econômica do álcool hidratado carburante no curto e médio prazos.
São Paulo: Instituto de Pesquisas Econômicas/Universidade de São Paulo. 1985, 280p.

SANTOS, M.H.C. Política e políticas de uma energia alternativa: o caso do Proálcool. Rio de
Janeiro: Notrya, 1993. 352 p.

SERODIO, E. Analisando as políticas existentes e traçando perspectivas para o setor

Anais. São Paulo: International Business Communications, 1999.

UNICA. União da Agroindústria Canavieira de São Paulo (São Paulo Sugarcane Agro-industry
League). Available at: <>, accessed on 06/05/2006.

VIAN, C.E.F. Agroindústria canavieira. Estratégias competitivas e modernização. Campinas,

SP: Editora Átomo, 2003. 216p.

Appendix 1

Enclosed Table 1. Evolution of carburating anhydrous alcohol to producer, and subsidy values –

Center- North-
In force Center-South North-Northeast Exchange South Northeast
PVU-PVD Subsidy PVU-PVD Subsidy rate *** PVU-PVD Subsidy PVU-PVD Subsidy
(----------------- US$/m -----------
(practised currency unit**/liter) umc**/US$ ---)
1/1/1980 11.47 0.03 11.51 3.11 43.44 264.04 0.69 264.96 71.59
5/5/1980 16.62 0.08 16.68 6.11 49.59 335.15 1.61 336.36 123.21
26/9/1980 23.19 0.11 23.27 8.52 56.41 411.10 1.95 412.52 151.04
7/1/1981 23.01 0.11 24.45 8.52 67.19 342.46 1.64 363.89 126.80
29/1/1981 27.79 0.13 29.46 10.31 67.19 413.60 1.93 438.46 153.45
18/5/1981 36.66 0.31 39.78 13.59 83.62 438.41 3.71 475.72 162.52
2/10/1981 48.93 0.45 51.77 17.94 110.91 441.17 4.06 466.77 161.75
11/1/1982 49.11 0.45 51.77 17.94 130.56 376.15 3.45 396.52 137.41
20/3/1982 58.94 0.51 62.18 21.53 144.2 408.74 3.54 431.21 149.31
17/7/1982 72.65 0.67 76.82 26.19 176.87 410.75 3.79 434.33 148.07
1/10/1982 92.83 0.85 98.26 33.13 214.62 432.53 3.96 457.83 154.37
9/3/1983 114.56 0.88 121.29 40.91 398.57 287.43 2.21 304.31 102.64
1/6/1983 153.07 1.18 161.98 54.74 515.2 297.11 2.29 314.40 106.25
30/9/1983 228.95 1.76 242.14 81.99 698.38 327.83 2.52 346.72 117.40
1/1/1984 229.23 1.76 242.59 81.99 1.016.05 225.61 1.73 238.76 80.69
23/2/1984 334.67 2.57 354.17 119.71 1.125.10 297.46 2.28 314.79 106.40
1/6/1984 490.72 2.19 511.37 140.55 1.636.70 299.82 1.34 312.44 85.87
9/8/1984 499.37 2.19 520.01 140.55 1.984.39 251.65 1.10 262.05 70.83
24/9/1984 757.05 3.33 788.04 213.64 2.193.00 345.21 1.52 359.34 97.42
6/2/1985 1172.13 5.56 1218.59 333.28 3.745.22 312.97 1.48 325.37 88.99
1/6/1985 1640.63 5.59 1697.81 4000.60 5.722.11 286.72 0.98 296.71 699.15
25/9/1985 2362.51 8.05 2444.84 576.87 7.424.52 318.20 1.08 329.29 77.70
1/1/1986 2953.13 10.06 3056.05 721.09 11.253.00 262.43 0.89 271.58 64.08
28/2/1986 2.95 0.01 3.06 0.72 12.965.00 0.23 0.00 0.24 0.06
21/11/1986 3.74 0.01 3.87 0.90 13.9 269.06 0.72 278.42 64.75
10/2/1987 5.10 0.02 5.34 1.13 18.05 282.55 1.11 295.84 62.60
1/5/1987 9.46 0.03 9.88 2.09 30.63 308.85 0.98 322.56 68.23
1/6/1987 11.44 0.03 11.94 2.58 39.24 291.54 0.76 304.28 65.75
3/7/1987 11.71 0.03 12.21 2.65 44.71 261.91 0.67 273.09 59.27
4/9/1987 13.47 0.04 14.06 3.05 49.62 271.46 0.81 283.35 61.47
8/10/1987 15.55 0.05 16.22 3.52 53.14 292.62 0.94 305.23 66.24
1/11/1987 16.96 0.05 17.69 3.83 58.99 287.51 0.85 299.88 64.93
4/12/1987 19.14 0.06 19.95 4.33 67.15 285.03 0.89 297.10 64.48

11/1/1988 21.88 0.06 22.83 4.94 77.27 283.16 0.78 295.46 63.93
9/2/1988 25.47 0.08 26.59 5.75 90.39 281.78 0.89 294.17 63.61
14/3/1988 29.63 0.09 30.92 6.69 106.61 277.93 0.84 290.03 62.75
20/4/1988 34.37 0.10 35.87 7.76 125.06 274.83 0.80 286.82 62.05
20/5/1988 49.21 0.14 51.33 11.11 149.89 328.31 0.93 342.45 74.12
22/6/1988 57.94 0.17 60.46 13.08 177.42 326.57 0.96 340.77 73.72
30/7/1988 71.27 0.21 74.35 16.12 214.75 331.87 0.98 346.22 75.06
23/8/1988 96.15 0.25 89.88 19.49 266.08 361.36 0.94 337.79 73.25
23/9/1988 105.10 0.31 109.64 23.77 324.61 323.77 0.95 337.76 73.23
26/10/1988 137.59 0.40 143.61 31.04 409.65 335.87 0.98 350.57 75.77
1/12/1988 172.00 0.50 179.52 38.80 667.69 257.60 0.75 268.87 58.11
30/12/1988 214.99 0.63 224.41 48.50 667.69 321.99 0.94 336.10 72.64
13/1/1989 0.27 0.00 0.20 0.06 0.9 300.00 0.00 222.22 66.67
9/5/1989 0.34 0.00 0.34 0.07 1.09 311.93 0.00 311.93 64.22
15/6/1989 0.40 0.00 0.40 0.08 1.33 300.75 0.00 300.75 60.15
13/7/1989 0.55 0.00 0.56 0.11 1.91 287.96 0.00 293.19 57.59
7/8/1989 0.62 0.00 0.63 0.13 2.46 252.03 0.00 256.10 52.85
16/8/1989 0.80 0.00 0.81 0.16 2.46 325.20 0.00 329.27 65.04
31/8/1989 0.81 0.00 0.82 0.16 2.46 329.27 0.00 333.33 65.04
5/9/1989 0.92 0.00 0.93 0.19 3.25 283.08 0.00 286.15 58.46
15/9/1989 1.25 0.00 1.26 0.25 3.25 384.62 0.00 387.69 76.92
16/10/1989 1.65 0.00 1.67 0.33 4.47 369.13 0.00 373.60 73.83
31/10/1989 1.83 0.00 1.85 0.37 4.47 409.40 0.00 413.87 82.77
16/11/1989 2.53 0.01 2.55 0.51 6.22 406.75 1.61 409.97 81.99
6/12/1989 3.57 0.01 3.60 0.72 9.21 387.62 1.09 390.88 78.18
28/12/1989 5.57 0.01 5.57 1.11 9.21 604.78 1.09 604.78 120.52
31/1/1990 8.72 0.02 8.74 1.73 14.24 612.36 1.40 613.76 121.49
20/2/1990 10.83 0.03 10.85 2.15 23.54 460.07 1.27 460.92 91.33
1/3/1990 15.09 0.04 15.09 2.99 37.01 407.73 1.08 407.73 80.79
15/3/1990 19.94 0.05 19.94 3.95 37.01 538.77 1.35 538.77 106.73
6/8/1990 22.93 0.06 22.29 4.54 71.54 320.52 0.84 311.57 63.46
14/8/1990 26.39 0.07 26.37 5.23 71.54 368.88 0.98 368.60 73.11
5/9/1990 29.53 0.07 29.54 5.85 75.17 392.84 0.93 392.98 77.82
10/10/1990 35.44 0.09 35.87 7.02 94.58 374.71 0.95 379.26 74.22
7/11/1990 45.30 - 56.96 - 122.47 369.89 - 465.09 -
6/12/1990 49.25 - 62.08 - 153.97 319.87 - 403.20 -
Source: BRUGNARO (1992); Brazilian Federal Reserve Bank (Banco Central do Brasil), 2006.
Temporal Series. Available at: <>. accessed on 06/07/2006 (exchange rate).
* values weighed according to annual productions in States.
** Practised Currency Unit (Unidade Monetária Corrente -u.m.c.): up to 02/27/1986 values in Cr$
(Cruzeiro); as from 02/28/1986 values in Cz$ (Cruzado); as from 01/16/1989 values in NCz$
(Cruzado Novo); as from 03/16/1990 values em Cr$ (Cruzeiro)
*** Exchange Rate: American dollar (purchase) – montly average.

Appendix 1
Enclosed Table 2. Evolution of carburating hydrous alcohol to producer. and subsidy values – 1980-

North- North-
In force Center-South Northeast Exchange Center-South Northeast
PVU-PVD Subsidy PVU-PVD Subsidy rate *** PVD Subsidy PVU-PVD
(----------------- US$/m3--------------
(practised currency unit**/liter) umc**/US$ --)
1/1/1980 10.31 0.03 10.35 3.11 43.44 237.34 0.69 238.26 71.59
5/5/1980 14.94 0.08 15.00 6.11 49.59 301.27 1.61 302.48 123.21
26/9/1980 20.81 0.11 20.90 8.52 56.41 368.91 1.95 370.50 151.04
7/1/1981 20.81 0.11 22.19 8.52 67.19 309.72 1.64 330.26 126.80
29/1/1981 25.11 0.13 26.72 10.31 67.19 373.72 1.93 397.68 153.45
18/5/1981 34.71 0.31 36.77 13.59 83.62 415.09 3.71 439.73 162.52
2/10/1981 46.31 0.45 49.05 17.94 110.91 417.55 4.06 442.25 161.75
11/1/1982 46.48 0.45 49.05 17.94 130.56 356.00 3.45 375.69 137.41
20/3/1982 55.80 0.51 58.90 21.53 144.2 386.96 3.54 408.46 149.31
17/7/1982 68.77 0.64 72.78 25.56 176.87 388.82 3.62 411.49 144.51
1/10/1982 87.88 0.81 93.13 31.29 214.62 409.47 3.77 433.93 145.79
9/3/1983 108.43 0.83 114.93 38.64 398.57 272.05 2.08 288.36 96.95
1/6/1983 144.91 1.11 153.48 51.70 515.2 281.27 2.15 297.90 100.35
30/9/1983 216.71 1.67 229.44 77.45 698.38 310.30 2.39 328.53 110.90
1/1/1984 216.99 1.67 229.86 77.45 1.016.05 213.56 1.64 226.23 76.23
23/2/1984 316.79 2.43 335.61 113.08 1.125.10 281.57 2.16 298.29 100.51
1/6/1984 464.56 2.07 484.77 132.77 1.636.70 283.84 1.26 296.19 81.12
9/8/1984 472.73 2.07 492.64 132.77 1.984.39 238.22 1.04 248.26 66.91
24/9/1984 716.67 3.15 746.52 201.81 2.193.00 326.80 1.44 340.41 92.02
6/2/1985 1109.54 5.25 1154.32 314.92 3.745.22 296.25 1.40 308.21 84.09
1/6/1985 1533.00 5.28 1608.10 378.42 5.722.11 267.91 0.92 281.03 66.13
25/9/1985 2236.33 7.60 2315.68 544.92 7.424.52 301.21 1.02 311.90 73.39
1/1/1986 2795.40 9.50 2894.58 681.15 11.253.00 248.41 0.84 257.23 60.53
28/2/1986 2.79 0.01 2.89 0.69 12.965.00 0.22 0.00 0.22 0.05
21/11/1986 3.55 0.01 3.67 0.85 13.9 255.40 0.72 264.03 61.15
10/2/1987 4.83 0.02 5.06 1.07 18.05 267.59 1.11 280.33 59.28
1/5/1987 8.94 0.03 9.35 1.97 30.63 291.87 0.98 305.26 64.32
1/6/1987 10.81 0.03 11.30 2.44 39.24 275.48 0.76 287.97 62.18
3/7/1987 11.07 0.03 11.56 2.50 44.71 247.60 0.67 258.56 55.92
4/9/1987 12.73 0.04 13.30 2.89 49.62 256.55 0.81 268.04 58.24
8/10/1987 14.71 0.04 15.38 3.32 53.14 276.82 0.75 289.42 62.48
1/11/1987 16.04 0.05 16.74 3.62 58.99 271.91 0.85 283.78 61.37
4/12/1987 18.12 0.05 18.90 4.09 67.15 269.84 0.74 281.46 60.91
11/1/1988 20.7 0.06 21.62 4.66 77.27 267.89 0.78 279.80 60.31
9/2/1988 24.11 0.07 25.17 5.44 90.39 266.73 0.77 278.46 60.18

14/3/1988 28.04 0.09 29.28 6.32 106.61 263.01 0.84 274.65 59.28
20/4/1988 32.53 0.10 33.96 7.33 125.06 260.12 0.80 271.55 58.61
20/5/1988 46.57 0.14 48.62 10.49 149.89 310.69 0.93 324.37 69.98
22/6/1988 54.84 0.16 55.27 12.36 177.42 309.10 0.90 311.52 69.67
30/7/1988 67.46 0.20 70.43 15.23 214.75 314.13 0.93 327.96 70.92
23/8/1988 81.54 0.24 85.12 18.41 266.08 306.45 0.90 319.90 69.19
23/9/1988 99.48 0.29 103.87 22.46 324.61 306.46 0.89 319.98 69.19
26/10/1988 130.23 0.38 136.04 29.32 409.65 317.91 0.93 332.09 71.57
1/12/1988 162.79 0.48 170.05 36.65 667.69 243.81 0.72 254.68 54.89
30/12/1988 203.49 0.59 212.57 45.81 667.69 304.77 0.88 318.37 68.61
13/1/1989 0.25 0.00 0.26 0.06 0.9 277.78 0.00 288.89 66.67
9/5/1989 0.32 0.00 0.32 0.07 1.09 293.58 0.00 293.58 64.22
15/6/1989 0.37 0.00 0.37 0.08 1.33 278.20 0.00 278.20 60.15
13/7/1989 0.51 0.00 0.52 0.11 1.91 267.02 0.00 272.25 57.59
7/8/1989 0.58 0.00 0.58 0.13 2.46 235.77 0.00 235.77 52.85
16/8/1989 0.74 0.00 0.75 0.16 2.46 300.81 0.00 304.88 65.04
31/8/1989 0.76 0.00 0.76 0.16 2.46 308.94 0.00 308.94 65.04
5/9/1989 0.85 0.00 0.86 0.19 3.25 261.54 0.00 264.62 58.46
15/9/1989 1.16 0.00 1.17 0.24 3.25 356.92 0.00 360.00 73.85
16/10/1989 1.53 0.00 1.54 0.32 4.47 342.28 0.00 344.52 71.59
31/10/1989 1.70 0.00 1.71 0.35 4.47 380.31 0.00 382.55 78.30
16/11/1989 2.34 0.01 2.36 0.48 6.22 376.21 1.61 379.42 77.17
6/12/1989 3.31 0.01 3.34 0.68 9.21 359.39 1.09 362.65 73.83
28/12/1989 5.16 0.01 5.16 1.05 9.21 560.26 1.09 560.26 114.01
31/1/1990 8.09 0.02 8.09 1.64 14.24 568.12 1.40 568.12 115.17
20/2/1990 10.05 0.03 10.05 2.03 23.54 426.93 1.27 426.93 86.24
1/3/1990 13.97 0.04 13.98 2.83 37.01 377.47 1.08 377.74 76.47
15/3/1990 18.46 0.05 18.46 3.73 37.01 498.78 1.35 498.78 100.78
6/8/1990 21.23 0.05 21.23 4.29 71.54 296.76 0.70 296.76 59.97
14/8/1990 24.45 0.06 24.42 4.94 71.54 341.77 0.84 341.35 69.05
5/9/1990 27.34 0.07 27.35 5.53 75.17 363.71 0.93 363.84 73.57
10/10/1990 32.81 0.08 32.82 6.63 94.58 346.90 0.85 347.01 70.10
7/11/1990 41.94 - 52.12 - 122.47 342.45 - 425.57 -
6/12/1990 45.72 - 56.81 - 153.97 296.94 - 368.97 -
Brazilian Federal Reserve Bank (Banco Central do Brasil). Temporal Series. Available at:
<>. accessed on 06/07/2006 (exchang rate).
* values weighed according to annual productions in States.
** Practised Currency Unit (Unidade Monetária Corrente -u.m.c.): up to 02/27/1986 values in Cr$
(Cruzeiro); as from 02/28/1986 values in Cz$ (Cruzado); as from 01/16/1989 values in NCz$
(Cruzado Novo); as from 03/16/1990 values em Cr$ (Cruzeiro)
*** Exchange Rate: American dollar (purchase) – montly average.

Appendix 2
Enclosed Table 3. Automobile Sales per Fuel Type

Fuel Type
Year Gasoline Alcohol Flex
1965 161.668 - -
1966 186.538 - -
1967 193.867 - -
1968 230.234 - -
1969 303.519 - -
1970 373.825 - -
1971 467.140 - -
1972 546.267 - -
1973 663.437 - -
1974 755.948 - -
1975 778.920 - -
1976 808.729 - -
1977 748.071 - -
1978 877.295 - -
1979 905.706 3.114 -
1980 626.467 240.643 -
1981 344.467 136.242 -
1982 365.434 232.575 -
1983 78.618 579.328 -
1984 33.482 565.536 -
1985 28.655 645.551 -
1986 61.916 697.049 -
1987 31.190 458.683 -
1988 77.312 566.482 -
1989 260.821 399.529 -
1990 542.855 81.996 -
1991 546.258 150.982 -
1992 498.927 195.503 -
1993 764.598 264.235 -
1994 1.127.485 141.834 -
1995 1.557.674 40.706 -
1996 1.621.968 7.647 -
1997 1.801.688 1.120 -
1998 1.388.734 1.224 -
1999 1.122.229 10.947 -
2000 1.310.479 10.292 -
2001 1.412.420 18.335 -
2002 1.283.963 55.961 -

2003 1.152.462 36.380 48.178
2004 1.077.945 50.950 328.379
2005* 614.751 27.081 755.810
* Sales up to November/2005 included
Source: National Assotiation of Automotive Vehicle Manufacturers (Associação Nacional dos
Fabricantes de Veículos Automotores-Anfavea). 2005

Appendix 3
Enclosed Table 4. Sugarcane in Brazil: Evolution of Production and Area Harvested.
Year Production Área Harvested
(in t) (in ha)
1947 28.989.901 772.853
1948 30.892.577 818.608
1949 30.928.755 796.687
1950 32.670.814 828.182
1951 33.652.508 874.341
1952 36.041.132 919.780
1953 38.336.721 990.872
1954 40.301.966 1.027.409
1955 40.946.305 1.072.902
1956 43.975.743 1.124.083
1957 47.703.359 1.172.413
1958 50.020.121 1.208.134
1959 53.512.230 1.291.073
1960 56.926.882 1.339.933
1961 59.377.397 1.366.640
1962 62.534.516 1.466.619
1963 63.722.895 1.509.011
1964 66.398.978 1.519.491
1965 75.852.866 1.705.081
1966 75.787.512 1.635.503
1967 77.086.529 1.680.763
1968 76.610.500 1.686.727
1969 75.247.090 1.672.101
1970 79.752.936 1.725.121
1971 80.380.399 1.728.003
1972 85.106.223 1.802.648
1973 91.994.024 1.958.776
1974 95.623.685 2.056.691
1975 91.524.559 1.969.227
1976 103.173.449 2.093.483
1977 120.081.700 2.270.036
1978 129.144.950 2.391.455
1979 138.898.882 2.536.976

1980 148.650.563 2.607.628
1981 155.924.109 2.825.879
1982 186.646.607 3.084.297
1983 216.036.958 3.478.785
1984 222.317.847 3.655.810
1985 247.199.474 3.912.042
1986 239.178.319 3.951.842
1987 268.741.069 4.314.146
1988 258.412.865 4.117.375
1989 252.642.623 4.075.839
1990 262.674.150 4.272.602
1991 260.887.893 4.210.954
1992 271.474.875 4.202.604
1993 244.530.708 3.863.702
1994 292.101.835 4.345.260
1995 303.699.497 4.559.062
1996 317.105.981 4.750.296
1997 331.612.687 4.814.084
1998 345.254.972 4.985.819
1999 333.847.720 4.898.844
2000 326.121.011 4.804.511
2001 344.292.922 4.957.897
2002 364.389.416 5.100.405
2003 396.012.158 5.371.020
2004 415.205.835 5.631.741
2005* 422.926.362 5.791.792

Appendix 4
Enclosed Table 5. Hydrous carburatting alcohol production costs.
In US dollars* per barrel EQUIVALENTE of petroleum
Source Type of Evaluation Region/Estate Raw Material US$/BE
Borges Attached Social cost São Paulo Cane 67. 8
Borges Attached Private. with subsidy São Paulo Cane 71.8
FGV Attached Private. with subsidy São Paulo Cane 72

IPT Autonomous Private. with subsidy Center-South Cane 75.3

INT Autonomous Private. with subsidy São Paulo Cane 76.9
FGV Attached Private. with subsidy Minas Gerais Cane 77.9
IPT Autonomous Private. with subsidy Center-South Sorghum/Cane 79.5
Williamson Autonomous Private. with subsidy São Paulo Cane 80.6
Borges Attached Private. with subsidy São Paulo Cane 82.2
IPT Autonomous Private. with subsidy Center-South Cane 83.3
Williamson Autonomous Private. with subsidy São Paulo Cassava 83.8
IPT Autonomous Private. with subsidy Center-South Cane 83.8
Barzelay Attached Social São Paulo Cane 84.7
FGV Attached Private. with subsidy Rio de Janeiro Cane 85.9
Barzelay Attached Private. with subsidy São Paulo Cane 86.1
CNE Autonomous Private. with subsidy Sudeste-Sul Cane 87.6
IPT Autonomous Private. with subsidy Center-South Cassava 88.1
Williamson Autonomous Private. with subsidy São Paulo Cane 94.4
Williamson Autonomous Private. with subsidy São Paulo Cassava 99.6
Source: Pelin (1985)
* in US dollars. from May 1981