Saturday, March 03, 2007

Fidel Castro, Hugo Chavez, and the Response to the U.S. Brazil Deal on Ethanol Production

Many eyes in the United States are (finally) turned to South America as President Bush travels to visit his remaining friends in the region in his great anti-Socialist campaign. An incidental benefit of this peregrination is the move to (again finally) take Brazil up on its suggestion to exploit the great potential market for ethanol, by coordinating the productive capacities of the United States and Brazil and inducing consuming states to switch to ethanol. “President Bush, hoping to reduce demand for oil in the Western Hemisphere, is preparing to finish an agreement with Brazil next week to promote the production and use of ethanol throughout Latin America and the Caribbean, according to administration officials.” Edmund L. Andrews and Larry Rohter, U.S. and Brazil Seek to Promote Ethanol in the West, New York Times, March 2, 2007,.

In the process, as I have suggested in another essay. The Brazilians might obtain long sought for trade terms with the United States, and the Americans will get Brazilian ethanol technology (they are substantially more advanced than the Americans, who satiated on petroleum and ethanol subsidies have never had the necessary incentives to innovate sufficiently—until now). “The agreement could lead to substantial growth in the ethanol industry in Brazil as technology and manufacturing equipment developed there is exported to other countries in the region.” Andrews and Rohter, supra.

And indeed, American agricultural interests continue to whine about the possibilities of this coordination with the Brazilians. “But the agreement has already begun to prompt complaints from politicians from corn-producing regions of the United States. They fear that the plan would lead to an increase in imports of cheap foreign ethanol and undercut American producers.” Andrews and Rohter, supra. This whining is sufficiently ridiculous to merit mention. The loss of precious government subsidies will be more than made up by expanded markets and by the cheap transfer of technological innovation otherwise less available to American producers. “Senior Brazilian government officials said the most important effect of a collaboration with the United States would be in promoting a broader international market for Brazilian ethanol technology.” Andrews and Rohter, supra.

The irony, of course, is that traditional roles have been reversed. It is the Americans now who seek foreign technological improvements and the Brazilians supplying tem. It is the Americans who are attempting to protect inefficient local industry in the face of globally more efficient competition.

Brazilian business groups see commercial opportunities in supplying advanced equipment to other countries setting up their own ethanol distilleries. “We want ethanol to become a global commodity, and for that to happen, Brazil can’t be the only producer,” said José Luiz Oliverio, vice president for operations at Dedini Industries, Brazil’s leading manufacturer of equipment for sugar cane and ethanol mills. “We’ve been growing and processing sugar for 500 years, and we are confident of our ability to maintain our leadership in this sector.” Id.

None of this is fatal to American producers. American and Brazilian producers can more effectively begin to develop the sort of joint ventures for world wide exploitation that have characterized global production in other sectors.

This is not to suggest that the future of ethanol, either as a fuel alternative in the United States, or as a viable source of income in either Brazil or the United States, is assured. As noted by Welber Barral, Professor of International Economic Law, Universidade Federal de Santa Caterina (Florianópolis) and member of the firm BCA Consultoria:

Depois de muito ouvir entusiastas e críticos, a conclusão possível é que ainda sabemos pouco quanto à real materialização desse entusiasmo quanto ao etanol. Há dúvidas quanto à verdadeira capacidade de produção e à eficiência na troca da matriz energética. Essas dúvidas decorrem, em grande parte, da enorme complexidade do tema e da impossibilidade de prever todos os impactos – econômicos e ambientais – que as iniciativas pelo etanol poderão implicar, nas próximas décadas. Welber Barral, Febre de etanol, NetMarinha (February 27, 2007).

As Professor Barral notes, there is a long way to go and many uncertainties in the Unitedf States and Brazil, before there can be any long term assurance that the production of ethanol, and the expansion of a market for ethanol in Latin America and the rest fo the developing world will pay the sort of dividends the parties hope for. Still, the initiative, for all its faults, is worth pursuing, if only because positive economic activity tends to contribute to national wealth maximization more effectively than hand wringing and good wishes—and certainly is more apt to lead to some progress than an overabundance of caution, especially when it comes to taking risks in business (economic) ventures.

But American farmers are not the only ones complaining. While the Brazilians are focusing on ethanol to make money (a traditional American concern), the United States is more focused on political gains—the use of ethanol markets to weaken the governments of Hugo Chavez in Venezuela(a more traditional Latin American objective). It should come as no surprise, then, that Fidel Castro has come to the defense of Chavez, and indirectly, the petroleum industry. A recent colloquy, posed as a phone conversation between the leaders of Cuba and Venezuela, suggests the form that this defense will take in the coming years.

Hugo Chávez.- ¿Tú sabes cuántas hectáreas de maíz hacen falta para producir un millón de barriles de etanol?

Fidel Castro.- De etanol, creo que hablaste el otro día de 20 millones de hectáreas, algo de eso (Risas), pero recuérdamelo.

Hugo Chávez.- Veinte millones. No, tú eres el que tiene la mente privilegiada.

Fidel Castro.- Ah, 20 millones.

Bueno, y, desde luego, la idea de poner los alimentos a producir combustible es trágica, es dramática. Nadie tiene seguridad de a dónde van a llegar los precios de los alimentos, cuando la soya se esté convirtiendo en combustible, con la falta que hace en el mundo para producir huevo, para producir leche, para producir carne, y es una tragedia más de las muchas que hay en este momento.

Conversación telefónica del Comandante en Jefe Fidel Castro Ruz, con el Presidente de la República Bolivariana de Venezuela, Hugo Chávez Frías, durante la emisión radial del Programa Aló Presidente No. 269, el 27 de febrero de 2007. (Versiones Taquigráficas - Consejo de Estado) .

The Cuban authorities translated this exchange as follows:

Hugo Chávez.- Do you know how many hectares of corn are needed to produce one million barrels of ethanol?

Fidel Castro.- Ethanol…I believe the other day you spoke of 20 million hectares, something like that (Laughter), but refresh my memory.

Hugo Chávez.-Twenty million. I think you’re the one with the exceptional memory.

Fidel Castro.- Yes, 20 million. And, of course, the idea of using food products to produce fuel is tragic, startling. No one has any certainty about how high food prices are going to get when soy begins to be converted into fuel, when there is such a high demand of it around the world to produce eggs, to produce milk, to produce meat. This is one more tragedy among many today.

Telephone conversation between Commander in Chief Fidel Castro Ruz and President of the Bolivarian Republic of Venezuela Hugo Chávez Frías, on Alo Presidente radio program No. 269, aired on February 27th, 2007, “Year 49 of the Revolution”.

The trade off is obvious for Castro and Chavez: the more land is devoted to the production of renewable energy sources, the less land available for the production of foodstuffs. While this would be no problem in a world in which there was an excess of food, that is not now the case. So the choice is clear for Castro and Chavez—energy saving for the rich states means starvation for the poorer states. Or, the more land devoted to the production of renewable fuel sources, the more additional land will need to be cultivated to continue to feed people. That additional cultivation will add additional pressure to natural habitats throughout the world and pose additional risks to endangered flora and fauna. Thus, the “green” revolution could actually an ecological disaster. And in a sense, they have a pint—energy source substitution without advances in energy efficiency might provide little advantage to the conservation of the environment. On the other hand, a shift from petroleum to ethanol consumption, also shifts wealth production from traditional petroleum producers in the Middle East, Africa and Venezuela, to Brazil, the United States and other rising renewable fuel producers. The political gains to the Americans, and the financial gains to everyone else, might be sufficient to overcome any environmental or food supply concerns.

This colloquy between the leaders of Cuba and Venezuela suggests that while the American and Brazilian political establishments are finally getting it right with respect to biofeuls, that the issues it raises will be more complicated than the suggestion of substitution of renewable for nonrenewable energy sources suggests. The irony now is that the American agricultural establishment is make common cause with the current American administration’s favorite bete noire, but for wholly inconsistent reasons.

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