Outlook on Brazil's sugar cane industry competitiveness

This paper reviews the Brazilian sugar cane production sector as well as the drivers impacting its competitiveness. First, large scale sugar and ethanol production is a fundamental comparative advantage of Brazil's cane industry. The vast majority of cane is planted and harvested by the mills themselves, rather than by independent growers, in a model that reinforces gains from economies of scale. Moreover, gross income from sugarcane growing is the second highest among a selected group of crops directly competing for land in Centre-South Brazil, at an estimated US$ 1,600 per hectare. The industry has recently suffered a blow as a result of the credit crunch. However, a strong level of inflow of foreign direct investment in the Brazilian sugarcane industry, resulting in increased access to relatively cheaper credit, combined with a fastly consolidating industry via mergers and acquisitions, is likely to continue to give Brazil an additional edge over other market players in the short to medium term. Ethanol and sugar production costs are among the world's lowest, estimated at a respective USD 0.35/litre and US 12 cents/lb.