Brazil fuel tax resumption positive for cane industry: Unica

The Brazilian government's restoration a fuel tax on gasoline and diesel will make the struggling ethanol industry more competitive and encourage the world's top sugar exporter to produce more ethanol rather than sweetener, industry group Unica said on Tuesday. Unica President Elizabeth Farina said the fuel tax, known as Cide, will make consumers more likely to choose ethanol rather than gasoline, though she warned that even more government support is needed to stop the wave of cane mill closures that have occurred in recent years.
The government announced late on Monday it would restore a tax that adds 0.22 reais per liter to the cost of gasoline and 0.15 reais per liter on diesel as it seeks to raise revenues to help balance its accounts and restore investor confidence. "This tax difference is a step in the right direction towards valuing renewable fuels," Farina told a news conference, adding Unica had long lobbied for the measure. Analysts have said gasoline prices could rise by 7 percent when the tax goes into effect on February 1.
The measure could lead to more investment and encourage bigger cane crops if other factors such as the weather cooperate, Unica technical director Antonio de Padua Rodrigues said. He said the ethanol sector has sufficient stocks to meet demand through April or May, when the next harvest starts, and that producers could charge higher prices for biofuel until then, generating much-needed cash.
He declined to give a 2015/16 cane crop forecast or say how much ethanol prices could rise. If the next crop is similar to the drought-damaged 2014/15 output of 567 million tonnes, as many analysts have suggested, producers are likely to produce even more ethanol than sugar, Rodrigues said. In 2014/15, 56.8 percent of cane was used for ethanol, up from 54.7 percent a year earlier.
"This policy confirms that the sector should plan a crop even more focused on ethanol," he said. Farina and Rodrigues said industry benefits would ultimately depend on how state-run oil company Petroleo Brasileiro SA sets fuel prices. If prices are lowered in line with global oil prices, then ethanol's competitive advantage would erode. But the company, known as Petrobras, said after the announcement on Monday it would not lower wholesale fuel prices, meaning consumers will pay more for fuel and should be more inclined to chose ethanol in the near term.