Global Economy in 2008

Billy T,

Did you not know your favorite US company, Cargill, also owns a large refinery in San Paulo state? The US already buys all the ethanol it can get from Brazil, THE largest buyer. Even a year ago, there were protests in Brazil over using land for alcohol instead of food production.

http://www.mstbrazil.org/?q=reutersonbushbrazilvisitprotests

Now Billy, you know I was speaking of manufactured products becoming more expensive as the Real increases in world value. China's comsumption will continue to hike the price of oil, raw materials and food. But how many of those millions of people living in those apartments in San Paulo work in those mines located thousands of miles away? Increases in the price of manufactured goods will mean fewer exports, factory closings and job loss. It is what has happened in the US cities. If I were a rich American living in San Paulo, I would be a little concerned about the comming protest and riots. Got plenty of ammo?

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Rich Americans are not too popular in Brazil even today, are they?

Billy T, the US has had a thriving export market in soybeans even while the dollar was over-valued. Why do you think the buyers in poor countries would pay Brazil a much higher price for soybeans when they could buy them from the US much cheaper? A lower valued dollar and a higher valued Real gives the price advantage to the US exporter. The US farmer can grow much, much more food crops if allotments are increased for the farmers. The allotments were put into place to prevent an oversupply of product on the world market. An oversupply drops prices recieved for the produce too low, causing the farmer to lose money on the crops. The farmer cannot stay in business if money received for his crops does not exceed what it costs him to plant and harvest them.

 

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I think you know Cargill, a privately owned, non-stock company -the largest in the world, I think, is not my favorite. I suspected they might have some control over part of Brazil's alcohol production, but do not know much about the ownership of it - many are privately owned by rich people in private companies. I tend to try not to buy into what is obvious, but the supplier of things "the obvious" is buying. I would love to own part of Didini, who is world leader in making the large stills, cane crushers, etc. that the expanding alcohol industry is buying, but they too are private. More on them, in English at:
www.anba.com.br/ingles/especial.php?id=393 (There see they are already sellin in 40 countries and making new jobs as they expand.)

I did not know US was greatest customer of Brazilian alcohol, if that is what you are stating. Japan & Brazil have joint company, building ships to transport it to Japan and several long term contracts for alcohol supply. Shipping to US would cost less obviously, but the import duties discourage export to US more than the difference in shipping cost aids US soon, there will be no surplus to sell to US - the current US stupidity of favoring Japan etc. as the export destination in long term contracts, will have long lasting consequences, even when US's current stupidity ends.

MST is Portuguese for Movement without land. They are a political organization very similar to the "shining path" in that they destroy things, are communistic and want to reverse the privatizations that have taken place in Brazil for ideological reasons. For example, before the telephones were privatized only the very rich had cells phones and they only worked inside the major cities. You had to wait several years to get a conventional telephone installed, so if you had one, you could "sell the line" for about $5000. Many people Invested in telephones for sale later. Likewise the interstate roads, pre-privatization they were full of holes that only had patches installed every 4 years, as elections neared. (Made many jobs briefly) I own shares in Aracruz, world's most efficient and largest producer of short fiber wood pulp. They have perfected the eucalyptus tree - doubled the yield per acre (in part by dramatically reducing the years from planting to harvest) the Women of MST invaded the main research plantation one night and worked all night pulling up the tiny trees - about 10 years of genetic progress was lost.
Yes I know that group of communists well. - Their recent efforts are to block the trains taking iron ore to the port for export. They want to destroy any productive thing they can (Often they invade farms and kill the cattle, etc.) They are a mix of anarchist and communists. Occasionally they do operate in cities - usually breaking into banks or government offices in mass with women and children.

Yes, The factories that have high labor cost are closing - we call it "de-industrialization" This has strong political consequences so the central bank has been buying up part of the flood of dollars, sort of "buyer of last resort" to try to stem the growing strength of the Real. (Reserves are up from 50 to 200 billion even though most of the external debt has been paid off. Brazil is now a "net creditor nation." - has more value in its foreign holdings than total external debt, both public and private total!)

I do not mind the closing of these factories as I think Adam Smith was correct - every nation should do what it can best and trade - Brazil has lots of fertile land (in millions of hectares) 176.5 in pasture, 63.1 in food and fiber crops, and only 7.7 in sugar cane (and all that is growing cane is at least 500 miles from the Amazon forest) and lots more than that total not in natural forests but not now being productively used for food, fiber or fuel production(typically, abandoned pasture, or huge tree farms.) lots of rain fall and long growing season (year long for some crops)

Thus, IMHO, Brazil should make mainly agricultural and mineral* products plus high value products like airplanes, cars (world's no 3 or 4 in planes and making 3 million of world’s most advanced cars this year.) Like the developed world, the jobs of the city are ever more in services, and sales. There are at least 40 different banks (not branches) I can walk to from my apartment, probably about same number as NYC, London or Frankfort. Sao Paulo is the financial center of South America. The real problem in Brazil (in addition to corruption) is education and wealth redistribution, not wealth generation. Being a net oil exporter with huge natural gifts in agriculture and minerals - has a flood of wealth pouring in.

Like Brazil, but not as much, the US has a great natural gift in the mid west for agricultural production. Unfortunately it is being diverted to corn to alcohol nonsense – where it is not economically viable without great assistance from the tax payers to the already very rich, like the owners of Cargill. You are correct (I hope, as I get only about ½ now for dollars I bring to Brazil.) the strong real will weaken some when others can sell soybeans etc to Asia as cheaply as Brazil can, but as the US is already selling along side of Brazil (some years even more soybeans than Brazil, but not now that the corn to alcohol nonsense is in place) the price has adjusted already. (I.e. both can export at current price and make more than their costs but probably not for much longer can the US continue exporting soy beans.)

Now that food prices are high, is a good time for US to stop using tax payers dollars to help the very rich owners of agribusiness get even richer. But there is an aspect to these subsidies not well discussed that I want to point out:

Many very poor countries also have considerable agricultural potential. They also have very cheap labor, in some cases very malnourished. With their primitive oxen plows etc. the local farmer could not sell to the near by city as it could import from the US (Or Brazil etc.) more cheaply. This has been the case for decades. Now the kids of that farmer do not know how to farm, how to harness an ox etc. The US’s farm subsidies are the primary reason why that kid is dying of starvation now. If they had not existed three decades ago, he would be a profitable farmer now and possibly saving to buy a US made Zenith TV that now jobless Joe American could have been making for export in the now closed Zenith factory. Farm subsidies are a huge distortion of the GLOBAL economy and have made millions of extremely poor people so a few very rich can get richer and contribute to politicians of both parties in the US and in EU also.
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*Brazil makes the steel it needs for domestic use, but should stop selling ore and sell steel instead. Some new steel plant are underconstruction. I think mainly with Japan, l but perhaps one is even being made with Chinese funds and technology. (China is both world's largest producer and consumer of steel. Their technology is much superior to that of the US, which still makes steel in some WWII plants.) China will still get the steel, and pay less in shipping charges when they make it in Brazil.

 

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Billy T,

Billy, Brazil is following in the exact same footsteps that the US did, as far as "de-industrialization" is concerned. The Brazilian government is subsidizing the industrial sector by letting the manufacturers sell in dollars and then buying the dollars at a higher than exchange value. The question is, how long will the government be able to afford to do so?

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And that will lead to the same situation that the US is in. The large city populations are not located where the jobs are. If the factories in or near the cities close, the working class lose their jobs.

What is ignored by Wall Street and many economists is that an increasing economy does not always translate into increasing standards of living for the average citizen. For the last decade or so, the wealth has been concentrated in the financial and import sectors of the US economy. For instance, Kodak is a US company but it imports almost everything it sells today. Kodak can make large profits on Chinese made cameras, they pay the US government large taxes on those profits, the government also collects import duties on the cameras. Kodak and the US government make money, but no manufacturing jobs are created for the portion of the population that is not highly educated.

As you mentioned before, the companies like Cargill are mechanizing your agricultural sector for increased productivity. That also means fewer jobs per hector of land farmed. More job loss for the working class, even if the Brazilian 'economy' grows from the alcohol sales. The wealth is concentrated in corporate sector and the people that own large amounts of land. They will soon put many small farmers out of business because they can't compete with the mechanized sector and can't afford the expensive machinery for small patches of land. Some of the small farmers may have to sell their land to the corporations and look for a job in the manufacturing sector. Will the manufacturing job be there? The Brazilian economy is growing, but the working class will be left out. Civil unrest and protest will be the result.

Again you only refer to one segment of US agriculture. The US midwest agriculture is mostly dominated by large corporations and owners of extremely large tracts of land. Brazil's south-central region will soon be the same. In the US, the alcohol refineries are located in the midwest near the largest concentration of corn production. In Brazil, the refineries are located in the south-central region near the largest concentration of sugarcane production. It is too expensive to transport corn or sugarcane from distant locations in either country to make alcohol production profitable. Brazil also has infrastructure problems such as good roads connecting remote farmers to the refineries. You ignore the southern US, which still has mostly family owned farms and vast amounts of agricultural land. These farmers do not sell their corn for alcohol production. It is mostly used for animal feed and food products. A friend of mine that owns several thousand acreas of land used to grow corn, but stopped when the money he received for his crop failed to cover his expenses in producing the crop. He had also stopped planting winter wheat for the same reason. Part of the problem was transportation costs, which meant his grain brough less on the local market where he had to sell. He hasn't started growing corn again yet, but he is again growing winter wheat as he can now make a profit due to price increases. In the summer, he grows mostly soybeans because there are local buyers and processors. His main worry now is weather-related problems. It costs him much more today because of large increases in equipment prices, fuel costs, fertilizer, etc., etc. The money is borrowed to cover the costs of planting and growing the crops. If he experiences a weather-related crop failure, he still will have to make payments on his equipment, pay back the loans for seed, fertilizer, fuel, etc. Those expenses are so great, one year of crop failures could bankrupt him.

No, that is bullshit Billy T. The very poor countries are overpopulated with respect to the amount of food they produce internally. Part of the problem is low production per acre due to unprotected crops (insects, plant fungus, etc.) part is weather related, and part is storage and distribution problems. Their governments import additional food to feed their populations. The US furnishes much of this food, a lot of it in the form of free aid to the worst affected nations.

Again, bullshit. ALL countries except some of the poorest African nations subsidize their farmers in one way or another. India and China do it in the form of fuel subsidies or caps on fuel costs. Brazil does also in the form of diesel subsidies. Cars in Brazil are banned from using diesel, restricted to gasoline or alcohol. The farmer gets the diesel used in his equipment for about half the cost of gasoline because the Brazilian government subsidizes the fuel. In the US, diesel is not subsidized and cost more than gasoline.

 

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To 2Q:

We are not far apart in POVs, so I just make some observations.

There are always two distinct economic problems or tasks. One is to make the pie bigger (communistic system usually much worse than capitalistic systems in this) and to divide the pie "fairly" or at least sufficiently so that there is little violent social reactions. (Socialistic systems usually better here.) Some "middle way" like common in Scandinavia seems best compromise.

Brazil's pie is rapidly growing (mainly due to external factors and great natural gifts) and the division of it is improving. Brazil has 5 defined social/economic groups A at top and E at bottom. For example, if family owns a car, they are not D or E. Under President Lula the lot of D & E has improved very much. There is a program (which preceded Lula, but he expanded) to pay the lower groups if their kids go to school instead of beg in streets or work at very menial jobs, like stacking sun dried bricks in sheds out of the rain etc. The gap between A & E classes is enormous still, but being reduced.

High labor percentage jobs are, in a globally completive world, always carried on the backs of the "exploited poor." (Not to say that they would be better off without these jobs.) These jobs are the ones Brazil is "trading in" as China has already done, to a large extent. For example, the cutting of sugar cane had 18,000 less workers this year despite the expansion of the area planted. Every year a dozen or so cutters literally die from (heat?) exhaustion as they are paid by how much they cut under the hot sun. Mechanization is reducing the need for the cutters. Didini etc are hiring more to design, test, and make the machines, but most of the former cutters need much more schooling before they can work in some high value producing factory. Brazil is following China and India (or the US of 7 decades ago) and becoming more efficient producer - growing the pie and also now slicing it up better. There is perhaps something to be said psychologically and politically for the "family farmer" but not economically.

Brazil's government is trying to help the family farmer, especially in the bio-diesel area. Units mounted on the back of trucks come to the farm and press the oil for the oil crops etc. Some even process it into a crude fuel the farmer can use. The dry NE is having a large river diverted to supply that area with badly needed water. There appears to be more intelligent government actions of the "self help" nature as opposed to the "hand out" nature in Brazil than in the US, largely directed at keeping the poor from moving more to the cities by making the rural life more profitable.

You state: "... The very poor countries are overpopulated with respect to the amount of food they produce internally. Part of the problem is low production per acre due to unprotected crops (insects, plant fungus, etc.) part is weather related, and part is storage and distribution problems. ..." and that is true, but the solution is better, education (especially in birth control) and capital for the increase in yields on the farms. This capital will not come so long as the large scale highly capitalized US farmer can sell at lower price in the poor farmer's local market. That is one reason why I oppose the farm subsidies in the US.

I do not know if you are correct or not about: "ALL countries except some of the poorest African nations subsidize their farmers in one way or another. ..." I tend to doubt it as surely some do not. I also suspect that not one gives even half the per capita or per acre subside that the US does. CNN has just started a week long series on the food/fuel problems - In the promo I heard Sunday eve for it they stated that the US subsidies total 17 billion dollars. (Annually I think) and this does not count the other interventions that protect the US market from foreign competition.

If the farmers get less than market cost for their diesel, that is news to me. I have shares in Embraer and just read a few days ago that there are more than 100 alcohol powered planes operating in Brazil (Most are "crop duster") and that Embraer is working on the "second generation" (motor designed for alcohol instead of modified mainly.) It is hard for me to believe that they buy diesel for half the regular price as you say if alcohol power planes are selling well. Here at the filling station diesel is less than gasoline but more expensive than alcohol. As far as I know the Brazilian farmer get only two subsidies: lower than market cost loans, but not by much, from the government controlled Bank of Brazil (It is the largest bank in Brazil and I own shares in it too, but either of two private banks would have been a significantly better investment for me.) and the agricultural service in research, soil testing, etc. are essentially free. Many of the farmers pledge their crops for these loans and Bunge (I have shares in them also.) does this also especially for the fertilizer Bunge sells the farmers. - The big farmers are now trying to break many of these contracts in the courts as in some case they can sell at current market for twice the price. - (I think the little farmers will be covered also.) They want the option of stepping back in time to make it a cash buy with interest for late payment, not deliver the tons of soy promised etc. I bet they win their case - Brazilian courts tend to have more respect for "justice" than for contracts. (Part of the mechanism for better "division of the pie" - I spoke of at start.) They will no doubt argue that they took all the risk of "no rains" etc. and should get the benefit of the current higher prices, not a gigantic international corporation.

 

Billy T,

Petrobras is a state-owned energy company in Brazil. Brazil controlls the price of diesel fuel, fixed at an artificial low which is offset by higher than normal gasoline prices. It is a support for the alcohol industry (lower prices for alcohol vs gasoline) and a diesel support for the farm and trucking industries. The latest price for I found for diesel in Brazil was .36 Euro per liter from a european publication. That is about $2.22 per gallon, which includes road taxes collected by Brazil on the fuel. In the US, diesel sells for about $4.20 per gallon, including federal road taxes of $.18 per gallon. I don't know how much road tax Brazil collects, but know it does collect the tax from articles I have read. Most countries, including the US, do not collect the road tax from fuel to be used in farm equipment. The US dyes the farm version of diesel to prevent truckers from illegally using the fuel. The dye coats the fuel tanks and fuel delivery systems. Trucks are checked at inspection stations to see if the dyed farm fuel has been used. Farmers must have their own diesel storage tanks and pumps, to which the dyed fuel is delivered by distributors.

All "crop dusters" I know of are gasoline powered, not diesel. They must have very high performance, high revving engines to carry out the acrobatic maneuvers with full tanks of liquid fertilizer. It is much more cost effective to spray liquid fertilizer from a plane than drive a tractor slowly through the crops only fertilizing a few rows at a time and possibly damaging taller crops with the tractor axels, tires, etc. Converting a gasoline engine to alcohol is technically very easy. The problems arise if the plane (or car) has metal or rubber components in the fuel delivery system that are incompatible with alcohol.

Billy T, because you may not know of the various subsidies does not mean they don't exist. Some are obscure, such as reduced prices for fuel and the government buying the crops to prevent an excess on the market which lower prices. Others are more direct, such as the Brazilian government's subsidy on coffee beans. Here is a cut & paste and link:

http://www.bloomberg.com/apps/news?pid=20601086&sid=aL8GK72pmfJw&refer=latin_america

 

PetroBras is a stock company (I own shares in it, via ADR PBR.a There are two other ADRs: PZE & PBR ) but the government still owns slightly more than 51%, appoints the director etc. They also control the price of gasoline in Brazil - it is too low, much below current value in export. (In the last 3 years, while oil has more than doubled, the price of gasoline has gone up in Brazil less than 10%!!!!) It will go up more after the election.

Part I made bold of your post is simply wrong, both in fact and in logic. This keeping artfically low price for gasoline domestically (about 2.60R$/L now I think but I buy alcohol at 1.19R$/L, as even with only 0.7 of the energy it is cheaper per mile) HURTS the sales of alcohol. Pertobras does sell some alcohol, but I think they buy it from some of the approximately 100 different producers. Even the largest tend to have only a few refineries. The reason why my investment on one of them (San Martinho) is currently showing a loss is that the demand is less than the production, which is expanding with an "eye for the future" * These independent producer get NO help from the government - they get lots of hurt in the form of keeping gasoline artificially cheap to not anger voters.

I would think (but do not know) that none are diesel also as diesel needs stronger (heavier) engines for same power even though diesel is more efficient. One of the advantages of alcohol, in addition to possiblity the farm may make it, (probably does in "drinking quantities"

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) is that it give more power than gasoline as it too can use higher compression ratios - but they need not be so high as to eliminate the spark plugs. I do not know but think the "second generation" alcohol powered planes Embraer is working on will have higher power to weight motors than gasoline motors can have. - just putting gas in your flex-fuel car LOWERS the power slightly. Hard to believe but true - see the specs on any of brazil's flex-fuel cars - they give data for both 100% gas and 100% alcohol in tank.

Traditionally, Brazil has grown lower quality coffee in large volume (say compared to Columbian coffee). Government is trying to get Brazil in on the "Starbucks" market, but cut down old and plant new trees etc. without some government assistance is not very popular idea. This is a "transition problem." Also as your link clearly states, the guarantee of a minimum price is to try to end the concentration of sales just after harvest. Part of reason for lower quality, I think, is that presently the coffee growers strive to be the first to harvest and sell before the price drops. Do not sun dry the beans as long as they should etc.) I.e. this is not like the chronic subsidies in the US. It is not even an assured gift of money as in the US. Probably, no funds will be given in 2008 as the world price of coffee is up, like most food stocks as farmers will get from the market more than the minimum price government is guarantying. Even your link says "MAY" get guarantee again in 2008. I.e. unless the crop looks like it will be big, or global prices fall, they probably will not even get the guarantee!

As I do not believe your: "The latest price for I found for diesel in Brazil was .36 Euro per liter from a European publication. " is correct can you give a reference?
0.36€ x3.7 = 1.332€/ gallon. If €/$ was 1.5 when your article was written that is only 2.00$/gallon, which I would agree is less than half market cost for diesel, if true. As I said, I do not pay much attention to price of diesel at the pump, but think it about 2.30R$/L, which with currently $/R$ = 1.68 = 1.37$/L or $5.06$/gallon for diesel at the pump in Brazil now. (More than your $4.20/Gallon for diesel in US. Our $5.73/Gallon gas price is more than even $4 gas in the US, but the more efficient Brazilian cars probably make the per mile costs about the same.)

You aqre correct that the government does buy an store food crops (as does the US I think Does US gov still have 100s of tons of butter that has been rancid for years? - Why not use it to make diesel, if it does?) Just today in paper I read that Brazil will join many others and not export any rice from the supply it controls and is asking others with rice not too also. They are considering doing the same with corn. Brazil has never exported corn before but is starting to as GWB's stupidity has made corn price increase enough to cover the cost of shipping it. Agrentina has banned the export of wheat, and Brazil imported more than half of its wheat needs from them. - I guess we will be eating corn bread for a while.
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*If the democrates get the white house, it will not take them long to kill GWB's stupid corn to alcohol program and the barriers to importing cheap fuel that does not supply funds to terorists or support the "religious" schools in Saudi Arabis that fill them with enought hate of the US that they gladly flew into US buildings on 9/11. There is a multi-year backlog of orders for the quipment needed to build refineries at Didini, so even if not currently profitable to expand, need to buy now for the day when US is less stupid (less under Saudi control by their agent, GWB).**

**Buying a small oil company as a present to GWB before he was even Gov. of Texas, was a great investment by the Saudis. - Also showed GWB's management skills - It is hard to bankrupt an oil company, but George was able to. - His training for bankrupting the entire USA later.

 

Billy T,

Billy, 2.60 Real per liter is 9.84 Real per gallon. Converted into dollars, that is $5.88 per gallon for gasoline. Gas averages about $3.56 per gallon in the US today. A barrel of oil costs the same for Brazil as it does for the US and all other countries. Brazil places a high tax on gasoline, but places none on alcohol. The price of gasoline is artifically high in Brazil, not low. That is done to promote Brazilian alcohol sales over gasoline, a form of subsidy for domestic alcohol use.

As I said, I got the price from a European trade publication, but they did not list the date of the article. I was writing another post last night with more info, but I lost my internet connection for several hours.

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The "pump price" of diesel does not reflect what the farm industry pays for their diesel. Part of that high tax on pump gasoline subsidizes the low price the farm industry pays for diesel for their tractors and harvesting equipment. For instance, in the US taxes are not collected for farm diesel. The farmers must have their own storage tanks and pumps, to which distributors deliver farm diesel with a dye added to it. The dye is to prevent truckers from using the diesel on which no road tax is collected. The dye coats the fuel tanks and all parts of the fuel delivery system when used. Trucker must stop at inspection stations which check the fuel tanks for dye, among other things. I have read more than one article where it was stated Brazil sells farmers diesel at artifically low prices prices, offset by the high gasoline taxes.

I just read that the US has 171 biodiesel plants that are soon to be producing biodiesel from all kinds of stuff, from algae to animal fats. I know that I read of of two such plants under construction in my home state several months ago. Brazil started their alcohol program about 29 years ago, but the US has just recently gotten serious about alternative fuels to oil. It will be awhile before the US program is mature. The 'alcohol from corn' is just a basic beginning because the farmers in the midwest had plenty of land and the necessary farm equipment for growing corn. Corn is only temporary, but it may be a small number of years before the technology and supply of other feedstocks and processes displace corn as the common method.

I am not interested in your political rhetoric, Billy T. ALL commodities, ALL grains, raw materials and oil are increasing in price. Emerging markets, gaining wealth, have increased consumption which has lead to tight supplies. The drop in the value of the US dollar has resulted in many investors entering the commodities market for safety and profit, driving up the price of commodities even further. The higher grain prices is a godsend for the world's farmers, but a travesty for the poor that cannot afford the increased prices. The US has not banned corn or any other food exports, but many nations have banned rice exports, which the poorest nations depend on for food.

Well, you could eat rice instead of bread. Seems Lula does not care about the starving people in the poor countries, as he has also banned rice exports:

Let me bring up one more point about the $.54 "tariffs" the US places on Brazilian alcohol. They are hardly ever actually collected. There are mainly two ways of bypassing the tariff. (1) there is a trade agreement between the US and Brazil that allows the importation of jet fuel by Brazil from the US to offset the alcohol tariff on a gallon per gallon basis. Brazil imports a lot of jet fuel from the US. I imagine the tariff will be eliminated before the new offshore oil fields in Brazil are developed and jet fuel refineries are constructed in Brazil. (2) A lot of Brazilian alcohol is shipped to Carribean nations before it is dehydrated. Cargill and others built dehydration facilities in the Carribean, from which the dehydrated alcohol can be shipped with no tariffs collected. The tariffs are more political than anything else.

 

To 2Q:

Some months ago, I read about the taxes on gas and fuel alcohol in my local newspaper: It stated (contradicting your unsupported assertion) that both were equally taxed based on their energy content. I.e. Alcohol has only 70% as much tax as gasoline per liter as it has only 70% of the energy.

Please support with some reference your assertion that fuel alcohol is not taxed in Brazil. Drinking alcohol is of course much more heavily taxed. I have been keeping my eyes open for a couple of years to try to learn what they add to fuel alcohol to keep people from drinking it - still do not know, so if you find out in search trying to support your claim, please tell me.

Also I thought that blue dye was added to both gas and diesel in the USA and sold cheaper to farmers. - Almost sure that was the case 20 years ago. As far as I know that is not done in Brazil - Farm fuel is same as car and truck fuel and does not have any parallel distribution system. I agree my not knowing of it does not mean it does not exist, but I as have about a $15,000share interest in the Brazilian alcohol industry, I read a lot of reports and get at least 6 related Emails every business day. Consequently, as you contradict my belief, I again ask you for some reference which asserts either the use of dye or lower sales price for farm fuels occurs in Brazil.

The farmers do get some government supports in several minor ways. One you mentioned for rice is that the government buys some and uses it to try to stabilize the price. As rice is in the news, today paper (page B6 of Folha de S.Paulo) has some details: Gov. will sell by auction 55,000 tons on 5May to help hold price down. Brazil normally exports 1,500,000 tons and should do at least that in 2008 as price may become R$8 for the 5Kg sacks. THERE IS NO PROBITION ON PRIVATE EXPORT (only foreigners may not bid on sales from government stocks, which are not disclosed but a small fraction of Brazil's annual production.) Brazil has imported thus far in 2008 an average of 66,000 tons monthly, mainly from Argentina and Uruguay, but Argentina just put ban on more exports of most food stocks. (There is now a "war" between the government and the farmers. - The government is foolishly fighting inflation with the short-term measure of price controls. Some farmers are even being sent to jail for holding back their crops, etc.) Climate problems have reduced global production by 3,000,000 tons and many in Asia now eat rice twice per day. These are the main fundamental reasons why rice has increased in price so much, but restriction of exports (sort of government hoarding) and private hoarding, at all levels (even the extra bag bought at SAM’s Club) are making the problem worse – helping some die of hunger.

Another way the Brazilian government helps the farmers, was also in today's paper. Farmers pay back loans in installments over several years. (A good plan as they make more money in some years than in others.) The “due date” of installment now due thru September are set back until 1 October, and those from three earlier harvests are set back until 1 July. This farmer debt total is 66 billion Reais. Also 15 billion R$ due from areas where there was drought or flood loss of the crop is forgiven. (They cannot pay it anyway and no point in putting them into bankruptcy, as is done in the US.) This is possible as the Government does have more than 51% of the stock of the Bank of Brazil from where the farmers mainly borrow.

I made a separate post on two oil companies waking up to the threat of alcohol, which was also in today’s paper, at
http://www.sciforums.com/showpost.php?p=1835076&postcount=319

Here I Just mention that the largest producer of Alcohol, COSAN, makes only 4% of it in 17 refineries with 500,000 hectare of cane (owned or total with purchases?) and has 35,000 employees. Cosan, just paid US$954 for 1,500 "gas station" that were ESSO (still use that old name in Brazil) to become first fully vertical cane- to-pump of the industry. Until 2004 Cosan was owned by Ometto family for 4 generations. Most of the hundreds of refineries still are private. San Marinho, one of the few publicly owned, is 3d or 4th largest and owns only three plants. Point is that unlike government controlled PetroBras, the Brazilian alcohol industry is not consolidated, but fragmented and highly competitive and without government subsidies or help to these rich owners by the left leaning government.

In US of course it is very different. Joe American, may be having his house foreclosed but will send 17 billion dollars of his taxes to a few wealthy agribusinesses. – 80% will go the 10% largest farm corporations, Cargill being one still family owned. Joe either has a big heart or is ill informed and/or dumb as he votes for congressmen doing this every year


It is only because the price of gas is low in US by comparison to ALL in EU and Brazil, that you are stating:

"The price of gasoline is artificially high in Brazil, not low."

(Reminds me of the proud mother watching her son Jonny in a parade and stating: “Look everyone is out of step but Jonny.”)

Only the US prices are out of line - artificially low so as Detroit can sell its gas hogs, instead of the smaller cars the rest of the world uses. This stupidity will cost the US dearly as we now enter the era of expensive energy.
Brazil and EU countries have taxed gasoline higher to make the stock of cars on the road more efficient. It will take the US a decade or more to adjust - time the US does not have. More of US stupidity on display.

 

Billy T,

Here is support for my "unsupported assertion". May I ask you to support your unsupported assertion that alcohol and gasoline is taxed equally based on energy content? First is a short review of the ProAlcool program.

http://www.europarl.europa.eu/meetdocs/2004_2009/documents/nt/692/692070/692070en.pdf
Brazil stopped subsidizing the purchase price of vehicles that ran on pure alcohol only, but now subsidize flex-fuel vehicle prices.

http://factsaboutethanol.org/?p=264
In this last link, there is another link to a Power Point presentation of Jerry Taylor's lecture. As I said earlier, the price of a barrel of oil is the same on the world market. The price of gasoline in the US is lower than many nations because the US only adds Road Taxes to the retail sale. The Federal road tax is $.18 per gallon, and the state tax varies state-by-state, but is also low. Most countries with a universal health care program, such as the EU, tax fuel heavly to pay for health care and other budget expenses. The US only taxes fuel to pay for road and bridge construction and maintence. That is why farmers don't have to pay those taxes, because farm equipment is off-road use. Trucks that transport farm products over the roads do have to use regular retail diesel.

I didn't state Brazilian farmers didn't pay road taxes on fuel for farm equipment, only that it was a practice in many nations. I have read in several articles that Brazil places a high price on petrol to offset a low diesel price, but I do a lot of reading and seldom bookmark the articles I read. I have difficulty finding the exact same articles months later. Often the reference to fuel prices have nothing to do with the headline or scope of the article.

I agree with your statement, except about buying restrictions at SAM's Club (and CostCo) as being examples of hoarding. Those stores are selling to the US population (not exporters) and are preventing hoarding by restricting the amount of rice purchased by their customers.

Yes, I have read where Brazil supports its farmers by offering special low-interest loans for the purchase of equipment, fuel, fertilizer, seeds to plant, etc. I think that is a good idea, but the US farmer does not get those special loans from the government. They must borrow at commercial banks and purchase crop insurance in case of crop failure. The crop insurance does not pay full market value for lost crops however, but maybe enough for equipment payments and planting expenses. The farmer still makes little, if any, profit.

 

Thanks. Your link (in its "history section") does indicate that in 1999 tax relief for alcohol was granted by two states. No tax relief for alcohol by the federal government. Those states would have given that tax relief to a new gasoline refinery also, but there are 100 new small alcohol refineries for every new one producing gasoline, so question never came up. Finally, Brazil and Hugo Chaves are going to buildthe first new one in Brazil in many decades to process heavy crude.
I.e. States did compete for most new factories back then by granting property tax, etc. relief. (The income tax on the new jobs more than made up for the relief granted which was usually for 5 years.) This is now illegal. So I continue to think what I read in newspaper several months ago (Gasoline and alcohol have same tax on their energy content) is true, but can not now cite which issue (an unless you read Portugues, would not do you much good anyway.)

The “current situation” section of your link does not state there is any different tax treatment today. I think it is a good summary as of late 2007. For others, here it is in its entirety, but I could change its “nearly 40%” to “slightly more than 50%” in the bold section. (The “10 million tonnes” is probably about 12 now, but I do not have the correct value. 700 new flex fuel cars are sold every day now and all use 100% alcohol as it is much cheaper than gasoline.) I also added a foot note:

“Today the ethanol production sector in Brazil is booming. Sugar cane producers are looking for new markets which are more profitable than the export of sugar, for which world prices are currently low. It is also important to note the powerful influence of world sugar market trends on the ethanol market. There are still now in Brazil almost 3 million “dedicated" cars (i.e. running on ethanol alone) and
some 16 million running on a mixture of ethanol and petrol. The Brazilian government has also, by means of a tax deduction, resumed subsidies on the purchase of so-called "Fuel Flexible Vehicles (FFV)" (2) which can run either on pure ethanol or on a mixture. In view of their success, FFVs are now being produced by most manufacturers on the market. Total consumption of ethanol as a fuel has risen to some 10 million tonnes (nearly 40% of Brazilian petrol consumption).
The current boom on the Brazilian ethanol market is even attracting foreign investors* (including the main European sugar producers), and accounts for the plans to build up to 14 new factories in the State of Sao Paulo alone. The stated objective is to bring ethanol on to a new world market: the biofuels market. To that end, the first ethanol port terminal, with a storage capacity of 32 000 tonnes, was built in Santos in 2005. The main market targeted by Brazil is Japan, whose government is currently looking at the possibility of imposing compulsory ethanol levels in petrol of between 3% and 10%; Japan has very limited production capacities. The USA and the European Union are also under consideration as markets in the long term. At present, however, in order to encourage internal production, ethanol imports onto these markets are still subject to customs duties (EUR 19.2 /hectolitre in the EU), which for the moment makes them less economically interesting. …”

I do not know what the ”subsidies” on FFV mentioned refers to. They are >90% of the new sales of domestically made cars, but I think that is because they cost the same and are much cheaper to run on alcohol. Initially the FFV were about US$100 more expensive, but now that the fixed cost is distributed over 10 times greater production volume the gas only car is actually more expensive to make. One company, I think VW, has stopped making any gasoline cars so all their factories can be utilized for the FFV cars. Brazil exports many and will make 3 million in 2008. Most will soon stop making gasoline powered cars. - They are lossers now in Brazil.

I will reply to rest of your post later as must leave house now.

*British Petroleum two days ago paid approximate, US$1 million (1.66e6R$) for 50% in new large alcohol producer and PetroBras is planning 2.5 billion US$ in 10 new alcohol plants plus another million in a alcohol pipeline more than 1000km long to a port from the interior not yet used for much agricultural production. (Still far from the Amazon forest of course as they and the huge wet-lands of Pantanal are legally off limits.) More details oil companies see the future fuel is alcohol at:
http://www.sciforums.com/showpost.php?p=1835076&postcount=319about

 

Can continue my reply now:

There may be something to be said for this type of thinking, I guess. :shrug: (I.e. money is "ear marked" for particular uses.) My first wife did it all the time: "No that is the grocery money, the movie and beer money is all gone." even if we had plenty of money liquid in the bank.

I have never been a fan of "ear marked money." - For me tax on gas is just the tax on gas. I think it should have been set at level to make the cars smaller and more efficient in the US (as the rest of the world did); to help with the balance of payments problem; and to discourage the migration to the suburbs in recognition that the cheap energy era would end and one did not want to be stuck with the unsustainable "suburban infrastructure" the US has now, which will take decades to significantly change. - Time the US does not have. I.e. set the gas tax level to help the society even if the gas tax is a dozen times higher than the cost of keeping roads and bridges repaired. Not doing this is IMHO another example of stupidity and short sightedness, fortunately mainly limited to the US.

I am not sure, but think the US is an exporter of rice. Certainly buying more bags of rice at SAM's club than one ever has before done, up to their four big bag limit, is hoarding. A few days ago the SAM's clubs in Florida ran out of rice and when this was reported on CNN, they were not able to find anymore (at price they wanted to pay).

On Brazilian bank loans to farmers, I am not sure, but think they are at same rate as other loans with the same risk, but do admit that they often have their terms extended or their principle is partially forgiven. (As stated earlier the government control Bank of Brazil makes most of them so the government can do this.) Brazil does a lot of this and not just for farmers. Not rare to read in the newspaper that some old taxes, still not paid, can be paid until date X with all the interest and penalty forgiven. - Rational is that it is better to collect something than pay lawyers etc. I think the US is now doing some of this "government interference" with contracts in the subprime mortgage loans.

Back when Brazil had terrible inflations, the courts tended to ignore contracts to be "fair," whatever that means instead. For example, if you borrowed X and contract called for it to be repaid 3 years later and no index was included in the contract to correct for the inflation, the courts would make a "fair adjustment." Converting to dollar terms, they would not let you pay back a $1000 loan with six cents, even if that is what the contract would allow. This attitude is still strong - the courts like to be "fair." E.g. "It was not the farmer's fault the MST killed his cows - forgive the debt he incurred to buy them with Bank of Brazil." is what the court may order.

 

Billy T,

OK, I looked up some more information to support my contention that Brazil does subsidize alcohol over gasoline. Billy, I don't doubt for a minute what you read in your local newspaper was really printed, but I do doubt truth of the article. The paper was probably printing what the Lula government told them to print. Kind of like the WMD stories printed in the US papers. I never believed those either, except for maybe the potential for chemical weapons. It is just politicians telling us what they want us to believe.

Now, these figures were from 2005, so I looked up the amount of taxes collected on gasoline today. I'm sure you recognize the source.
http://www2.petrobras.com.br/produtos_servicos/ing/Composicao/Preco_Gasolina.asp

If you'll notice the price structure, you will see that only 29% of the R$2.49 price of a liter of gasohol is due to the cost of gasoline charged by Petrobras. All gasoline sold in Brazil is government mandated to contain from 20% to 25% alcohol. All is required to contain 25% alcohol today, as it has been for an extended period of time. The 1/4 of the liter that is alcohol costs R$0.2024. The 3/4 of the liter that is gasoline costs R$0.7404. Not including taxes and distribution, a liter of alcohol would cost R$0.81. A liter of pure gasoline would cost R$0.99. Considering the improved milage obtained with pure gasoline, it would be more expensive to drive using alcohol. Even if the bottom fell out of the price of a barrel of oil, you would still pay 41% more for gasoline than alcohol because the Brazilian government controls the price of retail gas at the pump, set to be 41% more expensive than alcohol.

BTW, that $.54 tariff the US has on the books was supposed to offset the $.51 tax deduction given to US blenders of gasoline/alcohol. The blenders recieve the $.51 tax deduction regardless if the alcohol is produced in the US or Brazil. The US taxpayer is subsidizing Brazilian alcohol to the tune of $.51 per gallon when the tariff is not collected, like in the case of alcohol shipments that go through Caribbean countries. Here is another link because I know you will want at least one. (I can give others, also

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http://en.wikipedia.org/wiki/Ethanol_fuel_in_Brazil
Like many wiki articles, the writer of this one had a mistake about the US not importing Brazilian alcohol. I have read many articles on the US imports of Brazilian alcohol, including estimated amounts.

 

To 2Q:

Also in your second link (Primera 2005 report) you will find on page 23:
“…After including all the costs (capital, commercial, labour, and social taxes) associated with processing the cane into ethanol, direct labour and social taxes account for 20 to 25 % of the cost of producing ethanol (both growing and processing it). Agricultural labour and social taxes account for more than 60 % of total labour costs. With the liberalization of hydrous alcohol prices in 1999, government intervention largely stopped. Today, authorities regulate the market through changes in the blending rate for anhydrous alcohol and occasional purchases for or sales from strategic reserves and credits for storing ethanol. [12] In ethanol, feedstock makes up the largest part of the overall cost. Brazil has the advantage of having the lowest feedstock costs of all fuel ethanol producers. ....” I note that the dollar farm land values and labor costs at the mimium scale have about tripled and doubled respectively under Lula since they colected their data, so this tax on alcohol is greater now.

These are taxes on alcohol production, only. The production and growing cane is labor and land intensive. (The cane cutters and other workers “social security” payments are made by their employer and the real-estate taxes on the land, mainly.) No directly corresponding tax on gasoline exists. Petroleum does however, effectively pay taxes that alcohol does not also. (All minerals in Brazil, not just oil, belong to the government which collect various fees when they are extracted and in granting license rights to take them from the Earth. Even the states nearest the ocean oilwell sites take a cut.) Thus it is really hard to know how the total of the relative taxes compare.

Much in your 2005 study is no longer valid. Brazil has greatly open up the oil industry at all levels since then and greatly increased it known off shore reserves. Today 71 different corporations are licensed to explore for oil and gas! (All of the oil companies you will ever know the names of and even Vale, the world’s largest exporter of iron ore and some very wealthy persons, such as Eike Basista’s OGX corporation, which has invested 1.3 billion US$ - mainly Eike’s own funds, I think.- data from page B4 of F. de S. Paulo, 20 April 08 issue.) Page B4 of the 25 April 08 issue gives a brake down of the distributer’s market share in article telling that COSAN, Brazil’s largest alcohol producer, had just bought the 1,550 ESSO stations for 954,000,000 US$.

About a month ago, PetroBras got the previously independent distributor Ipiranga in a complex three way share-swapping deal with Brazil’s largest petro-chemical company, BrasChem (think that is correct name in English and that they owned most of Ipiranga.) but it is not yet consolidated. (Some stations will no doubt close or be sold.) A host of small companies have 16.9% of the market. (Many sell “gas” below the cost of gas from PetroBras by illegally adding untaxed paint thinner, etc. I have a 4-wheel drive Russian made Lada, which is able to use low quality gas – but it could hardly go up hills with the cheapest I tried once.) Here it the remainder of the Market Share percentages:
In %:
34.7 BR (PetroBras)
17.2 Ipiranga (Now BR, but may need to divest some to others to drop BR total below 50%)
13.0 Shell
08.1 Texaco
05.9 ESSO (now COSAN)
03.6 Ale Sat (A local net with OK gas slightly cheaper – but no service available usually.)
00.8 YPF (Argentina’s state company, Repsol, mainly near boarder, I think. – I have never seen one.)

Both alcohol and petroleum industries in Brazil are very rapidly changing. Your 2005 report is not reliable now. For example, your link’s statement:
““The proceedings of this "tax'' on gasoline were used to reduce the cost of other petroleum derivatives (LPG and nafta)…”
Was true, but I am almost sure has completely flipped now. A few months ago, before the 3-way deal, BrasChem was demanding that the price of gasoline be increased so nafta from PetroBras would be no higher than the global price. BrasChem’s main plant making polypropylene monomers, etc. is literally adjacent to the main PetroBras refinery and get its nafta via a large, short pipeline. Both units were built by government (and still are the largest petro-chemical complex is at least South America. - Forbes had article on the complex recently. The 3-way deal and stock swap has made more common and less adversary interest between PetroBras and BrasChem, so after the next election, I bet the price of nafta does not go up (perhaps come down?) while gasoline prices certainly will go up. I.e. the above quote will be true again. Gasoline needs to be higher so nafta can have lower cost and polypropylene a more viable export, despite the strong Real. I suspect this was the main reason for the 3-way deal. But PetroBras is surely happy to expand it distribution network. Even Ipiranga stock holders are happy as the share price rose dramatically. (Another big scandal as that was caused several days prior to deal announcement by ”insiders” buying.)

Consolidation in the alcohol industry is just beginning. Never have I seen in any of the reports I get for San Martinho any mention of a “guaranteed price.” Quite the contrary, I often see statements like:
““Margins have been low and even negative at times because of the rapid expansion and new refineries making production exceed demand.”
Here is an exact quote from San Martinho’s third quarter 2007 report (published 10Dec07):
““Adjusted EBITDA was R$ 20.2 million in the quarter, down 54.9% against the 3Q07, also owing mainly to weak sugar and ethanol prices in the period.”
It is little wonder that my investment in them is currently showing “negative profit.” I am in for the long haul and when Japan starts converting to alcohol cars my investment will be more than OK as they are IMHO the best positioned for the future. COSAN’s shares fell approximately twice more in percent, and many of the small single refinery companies will not survive the current over-production, low-prices stress. (Good for the larger one absorbing their assets at bargain prices.)

SUMMARY: I still tend to belief that the DIRECT taxes are the same now and based on the energy content, as paper reported a few (Perhaps even 6 ?) months ago; however I now understand better thanks to your articles that it is almost impossible to tell which is favored more in the overall effects of government taxations and fees.

Certainly, Lula is like most politicians, especially presidents, able to influence the news, but the two main newspaper of Sao Paulo are among the world’s best, IMHO, if you do not mind reading some day-old news. (They ought to be. – They steal from all the world’s best newspapers, plus Bloomberg, Dow Jones, AP, BBC, etc.) Often they are very critical of the government, with their investigative reporters exposing some new scandal at least once every month.
Lula is as a big a supporter of sugar cane alcohol and critic of corn based alcohol as I am. He defends well fact that Brazil’s expanding alcohol production is not a part of the rapid increase in food prices. If there is no sudden adverse weather problems, Brazil will actually have record setting production of several food crops in the current harvest. Lula does blame, as do I, the diversion of large amounts of US food crop land to alcohol production, but states that the other, more important, factor (many poor eating more and better, especially in Asia) is “a cause for joy.” He should know as he was often was hungry as a youth in family so poor that he got his first shoes at age 12.

I think we have so little difference now that we should let thread alone on this, but I thank you for your diligent search/discovery of references and hope you enjoyed my contributions, which were relatively easy as just thing I have read in my newspaper or stock reports with no searching.

 

I do not believe either of those efficiencies, but will try to check my memory*, which tells me that the theoretical limit on silicon solar solar cell is 22%. It has to due with the fact that all photons less than the band gap energy can only produce heat, not lift electron up into the conduction band. (This could be aided by doping to create some states not so far below the conduction band but there are problems with significant doping also.)

There are other limitations in that you must get the energy out as some combination of current and voltages and there is internal disipation inside the cell when that is done. (Open circuit and short circuited cells give zero power.) Sometimes sellers of photo cells like to speak of the quantum efficiency (ratio of electrons pumped up into the conduction band to the number of photons absorbed). This ignores the energy loss when the photon has more than the band gap energy so let the seller talk about higher efficiency. Perhaps the printed cell can get 14% quantum efficiency. Quantum Efficiency is limited by the fraction of the solar photons that have more than the band gap energy.

All phontos with more than exactly the band gap energy difference still only lift one electron up (inintially to a higher resonate level but in micro seconds it cascades down to the un-occupied conductin band levels with release of heat. When this is combinded with the solar spectral distibution, it results in 78% (by memory) of the solar energy becoming heat.

Some have suggested and actually made solar cells with two different materials so that the photons without sufficient energy to elevate electrons in the first material (the larger band gap one) pass thru it (often, if it is thin) and can be usefully absorbed in the second. This technology is only economically attractive in unusual circumstances (Like on a space craft where larger collection area required to compensate for the lower efficiency has big weight cost)

I am not good at searching - can you find independent indication (not from the company selling), of what their Printed cells do achieve in efficiency? I will be very surprized if they can get better than 8%.

PS - This does not belong in the "Global Economy" thread.
-----------------
*Later by edit: Memory not bad for more than 30 years recall:

" ... "We have somewhere between 20 and 30 layers of semiconductor material," explains David Lillington, president of Spectrolab, Inc., which developed the new cell. The resulting layers in one single solar device respond to different spectra of light. The top layer, for example, captures the energy of blue light while the middle layer absorbs green and the bottom uses red. Such triple-junction solar cells are specially tuned to work with concentrated light, in this case the wattage of 240 suns. The resulting efficiency nearly doubles that of standard silicon solar cells, which hover at 22 percent. ... "

From: http://www.sciam.com/article.cfm?id=superefficient-cost-effec&ref=rss

 

For those interested here is link to some details about NanoSolar PV cells:

http://www.nanosolar.com/cache/PVSEC17_ns_dft.pdf

It is some four pages (of a Journal?) published in Toyko, but in English. Four or five times in the article is it is claimed that "Nanosolar’s rapid thermal processing of nanoparticle-based coatings resulted in solar-cell efficiencies confirmed by the National Renewable Energy Laboratory (NREL) to be 14.5%, which amounts to a world record for any printable solar cell." to quote from near end of section 1 text.

The article gives 8 references, but none supporting this claim. I remain skeptical, but obviously some investors with money are not. Thus far, not one cell has been provided to any independent organization's test, which has then published their results for its performance, at least I was not able to find any comments directly from NREL about this break thru. Perhaps some one more skilled in searching than me can.

You can not buy any. Their entire production is being shipped to a few who agree to secrecy terms: Here is how the CEO states this:

"Our product will be introduced into the market through a very small group of the most distinguished wholesalers there exist.

For instance, our first 100,000 panels are set to go into a very small number of private commercial installations where we deploy them in fenced or otherwise secured environments. ...

{We are} Focusing on a small number of non-public deployments simply makes everything so much easier for us to manage initially. Plus this also has the benefit of allowing us to secure an additional period of proprietary protection for all the new and product features we have.
All of the remainder of our 2008 product allocations are spoken for already too (for quite some time already in fact). This means that if your local system integrator has not secured any quantities from us, which typically will be the case, the next opportunity is in 2009. "

From:
http://www.nanosolar.com/blog3/

Which seems to be one of several official company blogs. The quote above was in answer to: "How to get hold of our product?" and posted by CEO, Martin Roscheisen on 8 Sept 2007. (There are many post by him there arranged chronlogically.)

 

Thats the trouble with the most promising companies...they tend to have all the private investors they need, meaning you cant buy stocks.

Same goes for the new ZINK printing technology.