Since 2008, the Brazilian ethanol market has shown a growing gap between the effective supply and the potential demand for this product. The ethanol demand is being vigorously stimulated by the flexible-fuel vehicles market, which totaled 20 million units in 2013 (ANFAVEA 2013); this total represents approximately 60 % of the vehicles in Brazil. Unfortunately, the capacity to produce ethanol in Brazil was not able to follow this growth. With the increase in ethanol demand and a corresponding supply reduction, it is essential to consider that there is an opti­mal point for the consumer’s decision about using ethanol or gasoline in vehicles. Currently, for Brazilian consumers using ethanol is only viable when the price of it is at least 70 % of the gasoline price, due to the differences in the efficiency of gasoline and ethanol, which is popularly called the 70 % ratio.

According to the data shown in Fig. 6, whereas in 2008 27.1 billion liters of ethanol were produced, in 2013 it is estimated that approximately 23.4 billion lit­ers will be produced, which represents a decrease of 13.6 %. In contrast, sugar production in 2008 was 31.5 million tons, but in 2013 its estimate is 38.3 million tons, which indicates an increase of 21.5 %.

2008 2009 2010 2011

Sugarcane —•— Sugar Ethanol production

Fig. 6 The production of sugarcane, ethanol, and sugar in Brazil from 2008 to 2012. Source UDOP (2013)

Because the production areas for sugarcane remain stable, the supply of ethanol in Brazil is mainly dependent on the price of sugar in the international market, which interferes with the production process (Fig. 6).

Unlike the ethanol supply, biodiesel has several raw material substitutes, as it is not dependent on only one source of feedstock. Among the sources used for production, we can mention beef and pork fat, used cooking oil, cottonseed oil, jatrophas, canolas, castor beans, and soybean oil. With the variety of options of raw material for biodiesel production, Brazil has anticipated an increase in the ratio of biodiesel in its diesel mix.

The demand for biodiesel is now fixed at 5 % in relation to the total diesel con­sumption, which was 2.7 million cubic meters in 2012. However, the installed industrial capacity for biodiesel production can produce double what is actually processed, or 500,000 m3 per month. Therefore, it is estimated that by 2015, bio­diesel consumption will increase by 10 % and the demand will expand by 50 %.

Figure 7 shows the occupancy rate data for biodiesel plants in Brazil. Note that because there is an idle installed capacity in the regulatory period and throughout the series, the actual production is below than 50 % processing capacity.

Nevertheless, one of the constraints of the biofuels supply in Brazil is the con­centration of production. According to ANP, it is estimated that the Brazilian mid­west region represents 43 % of the total production of biodiesel, and the southern region represents 34 % of the national production. Therefore, when this combined percentage (77 %) is analyzed, a concentration on production is found in these regions, whereas in Brazil’s north and northeast regions, there is a high rate of idleness of the biofuel facilities due to the climate and agriculture characteristics in those regions, as well as a disruption of the supply chain.

This pattern of disruptions has a direct impact on the final price of biodiesel, as the logistics support in the biofuel chain extends from the primary source of the agri­cultural inputs to the delivery of biofuel to distributors at the point of consumption or in ports. The price of transportation has a significant impact on the total price, and therefore, the locations farthest from the production center have higher sales prices.

Biodiesel prices are different in each Federal Brazilian state, which is especially due to the logistical costs for transferring it, primary and secondary warehousing costs, and final distribution costs. In this context, it is clear that there are different price rela­tionships between ethanol/gasoline and diesel (Goldemberg 2007) in different areas.

The domestic market for biodiesel is made through auctions. Therefore, a nearer biodiesel refinery for feedstock production decreases the price of the prod­uct and thereby increases the local competitiveness of biodiesel.

Government strategies to encourage a regular supply and increase the com­petitiveness of biodiesel in distant regions are conducted primarily through tax incentives. This policy mainly covers disadvantaged regions, as it seeks to include family farmers in biodiesel production.