Ethanol Gains Traction

This is number 4/2007. I have been on the road for most of the month of April. Work on our Mexico report and the upcoming Iran & Russia report is moving forward slowly but will pick up pace through May. After spending some time in Washington, DC, it's become clear ethanol has gained traction where other ideas and policies out of Latin America have not.

In this edition:

Brazil has breeched the gap with Washington through Ethanol. According to some people I met with in DC, the head US diplomat for Latin America, Tom Shannon, has been pushing the formation of a policy bridge between Brazil and US vis-a-vis ethanol for some time. But it took more than a series of tours to Latin American and hollow agreements.

When Brazilian president Lula visited Bush at Camp David, it marked a clear division between Lula's administration and the Brazilian foreign policy camp, led by Celso Amorim and based in Itamaraty. The follow through and real policy implementation team is now the Inter-American Ethanol Alliance, led by Jeb Bush. What at first looked like a hoax has begun to look more like a win-win ethanol alliance.

Brazil, however, has not stopped with the United States. A memorandum of understanding was signed in mid-April between Petrobras and PetroEcuador. The two countries will work to produce and distribute biofuels and ethanol in Ecuador. A similar project is underway in Peru. On 18 April, the Peruvian Council of Ministers approved legislation that will make the use of biofuels obligatory in Peru. To that end, the Peruvian Agrimisa consortium will begin in June the cultivation of 23,000 hectares of sugarcane in the department of Piura to produce sugar and ethanol. It will be a US$ 80 million investment.

Brazil has also reached out to Japan. On 22 February, Marubeni Corporation, Japan's fifth largest trading company, has invested US$ 40 million in a biodiesel join venture with Brazilian grain trader Agrenco Group.

Mexico, like Venezuela, has pulled away from an ethanol initiative. Both countries are major oil producers, and both compete with Brazil for regional leadership. Venezuela has resumed ethanol imports from Brazil, however, but Mexico has announced that it will not focus on ethanol in the short term.

Rather, president Calderon has chosen to focus on a development initiative, Plan Puebla-Panama, that will incorporate Central America and Colombia. This sub-regional initiative has strong support from Colombian president Uribe, something it didn't have when Calderon's predecessor, Vicente Fox, first announced this plan years ago.