Brazil Cane Producers Eschew New Mills, Former Unica Chief Says

Brazilian sugar-cane producers probably won’t start construction on new sugar and ethanol mills until the government revises its pricing policy for gasoline, according to the former head of the sugar-cane association Unica.

Ethanol producers have little control over the price consumers will pay for the renewable fuel at the pump because it competes with gasoline, the price of which is set by state- controlled oil company Petroleo Brasileiro SA (PETR4), said Marcos Jank, who presided over the trade group Uniao da Industria de Cana-de- Acucar from 2007 to 2012.

Some ethanol producers are selling the fuel at a loss, he said in an interview today. Cane processors may invest as much as $8.5 billion expanding existing plants through 2020 and won’t undertake any new projects.

“Who’s going to invest 1 billion reais ($499 million) in a new mill when you don’t know what the price of gasoline will be in five years?” Jank said.

A revised gasoline-pricing policy that’s more transparent and includes tax incentives would spur as much as $30.5 billion in investments in 65 new plants and expansions of existing ones through 2020, he said. Brazil is the world’s biggest ethanol producer after the U.S. and the largest sugar maker.

About 30 percent of the fuel consumed by Brazil’s light- vehicle fleet this year will be ethanol, down from 55 percent in 2008, he said. That may drop to 15 percent in 2020 without any major policy changes.

The Ministry of Mines and Energy didn’t immediately reply to a telephone call and e-mail from Bloomberg News seeking comment. Spokesmen for Raizen Energia SA and Sao Martinho SA (SMTO3), the biggest ethanol producers, didn’t immediately reply to messages today.

To contact the reporter on this story: Stephan Nielsen in Sao Paulo at snielsen8@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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