Ethanol Trade as Impacted by Climatic Variability: Lessons from the U.S-Brazil Experience

This study analyzes the impact of climatic variability on ethanol trade between the Brazil and the U.S over a study period of 30 years, from 1980-2009. An econometric model was set up to estimate a net export supply function for Brazil, and a net import demand function for the U.S, as impacted by market and climatic variables. The climatic variables for the model were derived from prior literature, linking them to the yields of corn and sugarcane, which are feedstock for ethanol production in the U.S and Brazil respectively. The results suggest that climatic factors play an important role in the feedstock production for ethanol in these two countries, thereby influencing the direction of exports and imports. In South East Brazil, both low temperature and increased precipitation during winter show a positive relation with the net export supply. With regard to the net import demand in the U.S, it shows a negative relation with both increased summer precipitation and higher summer temperatures, while the relation with the average annual minimum temperature is positive. The outcome of this study provides an initial framework for conducting international trade policy studies for bio-fuels like ethanol, by incorporating climate change variables.