The high oil prices in the 70ths weighted heavily on the Brazilian trade balance and it became more expensive for the government to borrow money from abroad. The government then decided to implement a program that rapidly expanded the use of alcohol in cars, thus decreasing the dependency of oil.
The program was fully implemented and alcohol, or ethanol, reached almost 50% market share at best, a share that plunged to 25% during the 90ths. The alcohol was subsidized the first 15 years, but is since mid 1990ths competing with gasoline without subsidy. It is worth mentioning that the difference in tax ratios between the fuels is very small; despite that alcohol is a more environmental friendly fuel.
The consumption of alcohol is now rising again, boosted by a new fuel system (called flex system) that allows cars to run on either alcohol or gasoline, or any mixture of them. And with increasing oil prices the last years the future looks good for a continuous increase of the alcohol consumption, even if the price formation of alcohol is quite complex and partly follows other factors like seasonal patterns and sugar prices.
Through this program Brazil has become not only the world’s largest consumer but also the world’s largest and most efficient producer of alcohol. More than 1/3 of the world production is produced in Brazil, and the production cost may be some 40% of the production cost in USA. The development of the alcohol market continues, now with focus on the export market. And many countries have shown interest in not only buying alcohol but also in obtaining know-how and production technology.
The large supply of alcohol means that this product is available all over the places, for example for cleaning of floors or for lighting the barbeque. Alcohol is very inexpensive and a bottle of vodka can be bought for a couple of dollars. Brazilians do not drink a lot of alcohol in general, but prefer a cold beer which actually combines better with the climate.