Brazil's government should immediately set up subsidized lines of credit for sugar and ethanol producers in the country, or they may lack capital to plant and harvest the sugarcane needed to meet Brazilian ethanol demand that is growing at around 30% a year, industry consultant Datagro said Monday.

In the past 40 days of the global credit crisis, annual interest rates private lenders are offering to Brazil's sugarcane industry have risen to between 20-23%r, from just 6-8% rates offered as recently as early September, Datagro President Plinio Nastari told reporters on the sidelines of an annual sugar and ethanol conference hosted by his consultancy.

"At current rates a lot of people cannot afford to finance their costs, so we need to find a solution where credit is offered at pre-crisis rates," Nastari said.

If access to credit is too expensive or unavailable, more of Brazil's sugarcane crop could go uncut, expansion of ethanol mills could slow, and badly needed storage facilities to keep more ethanol available between Brazil's sugarcane harvest seasons may not be built, while Brazil's ethanol export capacity could also be limited, Nastari warned.

One way to keep credit flowing to cane producers would be for Brazil's government banks to offer temporary, subsidized loans to the sugarcane sector, Nastari said. Also, the lack of credit in the market is also likely to set off a spate of mergers and acquisitions in Brazil's sugarcane industry, which is the world's biggest, Nastari added.

Nastari said he sees Brazilian ethanol prices rising as much as 15% by the end of the year on more demand from flex-fuel car drivers and as fewer ethanol mills than were expected have begun their operations in Brazil this year.

Only around two-thirds of the 35 sugarcane crushing facilities that had been slated to open this year in south-central Brazil have begun crushing. Insufficient credit, crushing capacity, as well as periods of heavy rain where harvesting becomes impossible, may mean Brazil will fail to harvest around 8% of its total sugarcane crop this year, leaving up to 40 million metric tons of sugarcane standing in the fields, Nastari said.

Brazil is the world's largest ethanol and sugar exporter, and one of the top consumers of ethanol.
 
(Por Josh Schneyer, Petroleum World, 27/10/2008)