Everton Anger Cavalheiro

Abstract Biofuel has come up as an important alternative to diversifying the global energy matrix, with economic, social, and environmental impact. Currently, Brazil is the main supplier and one of the top consumers of biofuels in the world, and has prioritized the use of soy as a raw material for the biofuel industry, as well as the sugarcane for producing ethanol; both industries use more than 8 million hectares of cropped land and employ over 1 million people every year. Considering the impor­tance of this subject for the energy matrix and Brazilian economy, we sought to ana­lyze the concentration level for each one of these industries, as well as its impact in pricing. The results point to a low concentration of the biodiesel market, where its production is centralized in four Brazilian states: Goias, Mato Grosso, Rio Grande do Sul, and Sao Paulo. This low concentration implies high competitiveness and homogenous average prices in the last couple of years (2011 and 2012), for com­panies holding 80 % of the market, as well as other firms in this industry. On the other hand, the industrial concentration level of the ethanol distribution channels has significantly grown, thus implying a significant and positive correlation between the increase of concentration and the increase of the contribution margin in this industry.

Keywords Biofuel • Biodiesel • Ethanol • Industry concentration

1 Introduction

Biodiesel has come up as an important alternative to diversifying the energy matrix in the world, where nations have tried to decrease their oil and oil derivatives dependence. Furthermore, the use of biodiesel has generated several economic, social, and environmental advantages, since it can generate both employment

E. A. Cavalheiro (H)

Federal University of Pelotas, Pelotas, Brazil e-mail: eacavalheiro@hotmail. com

A. Domingos Padula et al. (eds.), Liquid Biofuels: Emergence, Development and Prospects, Lecture Notes in Energy 27, DOI: 10.1007/978-1-4471-6482-1_4, © Springer-Verlag London 2014

and rent, it can decrease greenhouse gases emission, and it can also increase a country’s currency value in productive countries, both by exporting product and by reducing oil imports.

On the other hand, biodiesel has raised discussion since some evidence points to a causality relationship between biodiesel and agricultural commodities prices (Senauer 2008; Zhang et al. 2009, 2010). No matter what forces are oper­ating this system, it is crucial to understand the concentration level of this new Brazilian industry, while expecting it to become more and more important for both Brazilian and global energy matrix, as stated by MME (2010), which indi­cates that biodiesel will account for about 8 % of the transportation fuel global consumption in 2,035, a significant increase when compared to 3 % in 2009, for example.

Furthermore, despite being recent, the Brazilian biodiesel industry represents billions of dollars per year and is currently responsible for 5 % of the fuel used in Brazilian transportation, which currently demands 17 million biodiesel barrels/ year. If we consider that around 80 % of the raw material comes from soy, we have 12 % of the total soy crops today (around 27.2 million hectares, according to CONAB (2013) destined to supplying this important national industry.

Brazil is the number one user of biofuel when considering the total con­sumed by vehicles in the national freight, and it comes in as number two, con­sidering volume, after the USA. It is also the largest ethanol exporter in the world. This performance reflects the weather conditions and the technology developed by companies and institutions in the country. This segment accounted for, in 2012, the production on 27.78 million cubic meters of ethanol and bio­diesel in Brazil.

For 2012-2013 (from April 2012 to March 2013), the central-southern region alone exported 3.333 billion cubic meters of ethanol, and the main destinations are the USA (21 %), the Caribbean (31 %), and the European Union (31 %), where the sugar-alcohol exports alone generated US$14,601 billion in 2012-2013. These figures are the result of over a million people working in the area. Despite de expressive mark, the sugarcane for the production of ethanol—the main biofuel currently used in Brazil—takes up a relatively small area in Brazil: around 4.85 million hectares of cropped land.

Considering this problem, and considering the hypothesis that the concentra­tion level increases represents a decrease in the industry competitiveness, creat­ing opportunities for firms to price differently, we established the following research problem: what is the Brazilian biofuels industry concentration level like? Additionally, we tried to evaluate the concentration level of this industry for each one of the five Brazilian regions, the installed capacity usage level, as well as the possible effects of the industrial concentration in market prices.

In order to answer the research problem, we initially sought to show the con­cepts related to the market concentration, as well as their impacts for an industry. Subsequently, we discussed the biodiesel industry model and the possible infla­tionary pressures on food. Then, we presented this research’s method, and the results found.