RIO DE JANEIRO, Nov 30: Hobbled by rising production costs and low prices, Brazil’s ethanol sector is in crisis, with many sugar mills closing despite rising demand.

The South American country is the world’s leading sugar producer with an ever-growing share going toward biofuel production. But despite an expected bumper crop for 2013-14 and growing domestic consumption, its mills are drowning in debt.

In the country’s central southern region — the main sugar production area — 40 mills have shut down over the past three years and 60 others are expected to follow suit in the next 24 months due to unsustainable debts, Deutsche Bank analysts said in late October.

The main headache faced by producers is prices at the pump. “Since consumers opt for hydrous ethanol (95 per cent ethanol, 5pc water) only if it is 30pc cheaper than gasoline, we are hostages to the price of gas,” said Antonio de Padua Rodriguez of industry association UNICA.

The federal government, keen to rein in inflation, has since 2006 set a ceiling for gas prices and, indirectly, for ethanol as well. Yet production costs are skyrocketing. According to the producers’ association Orplana, the cost of leasing land soared 57pc between 2005 and 2010, while labour costs shot up 47pc and those of mechanisation rose 28pc.

On the export front, prospects are also grim. The real’s rebound in relation to the dollar during the September to October period hurt the competitiveness of Brazilian ethanol. On top of that, the US, which takes in 70pc of exports, is planning to curb the mandatory percentage of ethanol in fuel products for the first time.—AFP