The ethanol market in Brazil: price behavior and regional differences

The conditions facing the Brazilian ethanol market have created a need to improve the industry's understanding of price formation, and to analyze the effects of mandatory policies and the interaction between Brazil's ethanol, agricultural, and fuel markets. In this context, this study sought to analyze the behavior of ethanol production and consumption at the national and regional levels in Brazil from 2012 to 2016; hence, the supply and demand functions are estimated at national and at regional levels using the two-stage least squares method. Our findings indicated that gasoline and anhydrous ethanol blended gasoline were substitutes for hydrous ethanol on the demand side in Brazil. At the national level, the estimates also showed that the income elasticity of hydrous ethanol characterizes it as a normal good. At the regional level, the regions with the highest production and consumption (southeastern and central-western Brazil) responded to price variations less elastically than the other regions (southern, northeastern, and northern Brazil). (c) 2023 Society of Industrial Chemistry and John Wiley & Sons Ltd.