How a change in Brazil's sugar policies would affect the world sugar market

Although Brazil is the world's largest sugarcane producer, only one-third of the cane it grows is used to produce sugar; the rest is used to produce ethanol as fuel for automobiles. Still, Brazil is the world's fourth largest sugar producer. This paper asks what it would mean for Brazil and for the world sugar market if Brazil were to shift largely away from ethanol to sugar production. This question is of keen interest for the world sugar market because such a shift -- although politically difficult -- is possible. Brazil's system of controlling the sugarcane and sugar industries to ensure enough ethanol for domestic fuel needs is costly. The author concludes that although Brazil could influence world sugar prices significantly in the short run, it could not influence them to its short- or long-term advantage by restricting production. Indeed, to the extent that Brazil could make world prices more stable by allowing its producers increased flexibility in production, removing existing production controls could provide not only substantial economic gains (in terms of increased exports to Brazil), but also more stable world prices. For other producers, there could be a tradeoff in terms of lower but more stable income.