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An Economic Model of Brazil’s Ethanol-Sugar Markets and Impacts of Fuel Policies: Implications for World Commodity Prices

An Economic Model of Brazil’s Ethanol-Sugar Markets and Impacts of Fuel Policies: Implications for World Commodity Prices

By Harry de Gorter, Cornell University

Jon Strand, DECEE


Wednesday, October 17, 2012

Time: 12:30-2:00 pm

Venue: MC C2-131


This study is motivated by Brazilian ethanol prices rising above U.S. levels from mid-2009 to mid-2012 with Brazil importing ethanol from the U.S. Meanwhile, world sugar prices surged. The lack of growth in the Brazilian sugarcane-ethanol complex since the 2008 financial crisis has been blamed on Brazilian fuel policies, including a low blend mandate, gasoline prices held below world prices, a lowering of fuel taxes, and inadequate fuel tax exemptions for both anhydrous and hydrous ethanol. Unlike mandates and tax exemptions elsewhere, the impacts of Brazil’s policies are unique and in theory ambiguous as to the effect on ethanol and sugar prices. We empirically estimate the effects of policies and market shocks in fuel-ethanol-sugar markets facing Brazilian producers. When world ethanol prices are linked through trade, sugarcane-ethanol market shocks directly affect world grain prices and vice-versa; shocks in world grain and ethanol markets including policy changes have implications for world sugar prices. In consequence, ethanol policies may now have more direct impacts on the economic welfare of developing countries.

Bio, Harry Gorter:

Harry de Gorter is a professor in the Charles H. Dyson School of Applied Economics and Management, Cornell University. His research focus is on agricultural trade policy. Much of his recent work is related to biofuels and agricultural trade reform and the Doha Development Agenda, especially on impacts of subsidies and protection on developing countries.

For further information on the presentation, contact Jon Strand at:, 202-458-5122

The Joint Bank-Fund Brown-Bag Research Seminars on Environment and Energy is a joint initiative between the Development Research Group, Environment and Energy Team (DECEE), World Bank, and the Fiscal Affairs Department, IMF. Organizers of the series are Jon Strand (DECEE), and Ruud de Mooij and Ian Parry (FAD/IMF). The seminars are held at lunch time, normally once every two weeks, alternately in the Bank and Fund. Aims of the seminars are to raise attention to, and interest in, environment, energy and natural resources issues in both institutions; to promote the interaction between the two institutions in these fields; and to improve the institutions' common work on policy.

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