The Brazilian government will inject Real 52 billion ($30 billion) in the next four years to revive declining ethanol production and attract new private investments in the sector, according to the Ministry of Agriculture.
The aggressive investment plan aims to help Brazil maintain a 25% ethanol blend in regular gasoline and keep ethanol as a major standalone fuel for 50%-55% of the country's car fleet.
The funds will help ensure sustained growth of sugarcane crops, which are the primary feedstock for ethanol production in the South American country.
The government will provide Real 29 billion in subsidized credit to bring down the average age of cane crops, which have been dropping in productivity in the last years due to a lack of investments to renew fields.
"Today, the average age of cane crops is above desired levels, with fields currently at their 6th harvest," the ministry said late Friday in a statement. Sugarcane yields begin to tail off after five years.
Credit will be available for millers and producers to replace 6.4 million hectares (15.8 million acres) of sugarcane fields, or 76% of the current planted area, the ministry said.
Brazil's weather-ravaged sugarcane harvest is bound for its first decline in more than a decade this season after hitting an all-time high of 603 million mt in 2009-10.
The government will also provide Real 23 billion to expand the current planted area, which according to official estimates, will have to grow by 3.8 million hectares by 2015 to guarantee enough feedstock to meet rising ethanol demand.
The sugar-ethanol sector has been operating around 16% beyond installed capacity due to a lack of sugarcane, hampering profitability at mills and sending companies' results for the season below original estimates.
In addition to the Real 52 billion directed at expanding crops, further investments will go to enhance storage capacity and curb price volatility between the harvest and interharvest periods.
Credit lines of Real 4.5 billion/year will be available for stock building, which the government hopes will smooth out supply throughout the season and keep prices more stable.
FALLING SUPPLY, RISING DEMAND
Brazil, the world's second largest ethanol producer after the US, saw its output slump by almost 20% in the current season as millers struggled to secure sufficient sugarcane to meet burgeoning demand.
The South American country, which has been dubbed the "Saudi Arabia of biofuels" for its pioneering ethanol program, was forced to turn to imports from the US to avoid a shortage on its domestic market, defying traditional industry dynamics.
The plunge in domestic production came at a time when car sales and car production in Brazil are at historical highs, boosted by a growing middle class and booming economic output.
In addition to falling production, Brazil has been facing a dearth of new private investments in the ethanol sector in the past years to due uncertainty over local market conditions and new regulatory actions, experts says.
The country's fuel regulator had to reduce the ethanol blending rate into gasoline to 20% from 25% by October 2011 to prevent blenders from running short of supplies.
