Critical Analysis Of The Evolution Of Ethanol In Sao Paulo Brazil

Background of the research

Discuss about Critical Analysis Of The Evolution Of Ethanol In Sao Paulo Brazil.

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From past few years, Brazil is facing a major political and economic crisis and as a result, Ethanol has become the most embattled sector in the country. Ethanol is known as a biofuel that can be fermented from sources like starch, corn, wheat, barley and potatoes. However, in Brazil, as the supply of sugarcane is abundant, most of the Ethanol made in Brazil is from sugarcane.  Almost 500 years ago, the Portuguese introduced sugarcane to the Brazilian agriculture. Soon after that, Brazil became the world’s largest supplier of sugar (Wang et al. 2012). Today, sugarcane is helping the economy of Brazil in yet another way. The country has become the world’s largest sugarcane Ethanol producer and home to one of the most significant renewable energy programs in the world. That is why almost 50 percent of the Brazil’s vehicles are run on flex fuel which is a blend of ethanol and gasoline (Ferreira et al. 2014). Sales of ethanol fuel in the last three months rose 10 percent from past few years, while sales of gasoline shrank 9.3 percent (Langeveld et al. 2014).

 As Brazil experienced a rise in gasoline taxes, in the last three years the ethanol sales climbed up to 36 percent to a record 17.8 billion liters (Cannella and Jørgensen 2014). This has helped Brazil to improve their economy as they are the number one ethanol suppliers in the world. However, it took years before the country could achieve this position in the ethanol fuel industry. Several evolutions have taken place that helped the country to slowly claim their place in the ethanol industry. This study will focus to find out how Brazil became an ethanol fuel giant in the world.

The current market position of Brazil in the Ethanol fuel industry was not achieved in one or two years. Hundred years of ups and downs was faced by the industry and the Government before they could successfully build an industry that is now contributing significantly to their economy. According to Pu et al. (2012), the Ethanol industry in Brazil had two eras, which are called the pro-alcohol era and the flex-fuel era. During the time of oil crisis in the year of 1973, the Government of Brazil started to promote bioethanol a fuel. The National Alcohol program known as “ProgramaNacional do Alcool” was launched in 1975 and became a nationwide program that was financed by the Government to create automobile fuels from fossil fuels such as gasoline (Zhu and Pan 2012). Later the decision to produce Ethanol from sugarcane was taken based on the low price of sugar at that time. Thereafter, the Ethanol industry did face some issues and challenges and eventually lost its position in the market.  However, the confidence in Ethanol-powered vehicles was restored when the Brazilian Government introduced flexible-fuel vehicles in the year of 2003. In March 2003, Volkswagen launched their first commercial flexible fuel vehicle capable of running on any mixture of gasoline and Ethanol. This initiative was soon followed by Chevrolet when they released Corsa 1.8 using an engine that was able to run on Ethanol fuel. However, according to Sims et al. (2012), the Ethanol industry in Brazil existed from the era of World War I and it made its way to this position after surviving the market crisis of both World Wars. Therefore, it was important to conduct this research to find out the proper evolution of the Ethanol industry in Brazil from its initial days till now.

Background of the organization

Brazil has claimed a huge energy security because of its focused attitude towards developing a competitive sugarcane industry and making Ethanol a key part of its energy mix. Using Ethanol, Brazil has replaced almost 42 percent of its gasoline needs with sugarcane Ethanol, making gasoline the alternative fuel in the country. Ethanol industry in Brazil can be divided in two sections such as the sugarcane Ethanol industry and Flex fuel vehicles industry. Brazil is known as the world’s biggest Ethanol producer and a pioneer in using Ethanol as a motor fuel. In the year of 2013/2014, Brazil’s Ethanol production reached 27.5 billion liters that is 7.3 billion gallons (Wallington et al. 2012). However, most of the production is absorbed in the domestic markets where it is sold either as a pure Ethanol fuel or blended with gasoline. According to Zhou et al. (2012), the country started to use Ethanol from 1920 and the trend gained urgency during the oil shock of the 1970s. However, Ferreira et al. (2014) stated that the popularity of Ethanol took off in 2003 when companies like Volkswagen and Chevrolet introduced vehicles that can run on Ethanol fuel. As a result of this, more than 90 percent of new cars sold today in Brazil are flex fuel vehicles. Besides, its low price and environment friendly characteristics are influencing the consumers to choose Ethanol fuel over gasoline.

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What is the issue?

The Ethanol industry in Brazil is dealing with a major issue as three out of seven biggest bio-fuel plants went bankrupt. Brazil’s one of the biggest biofuel producers Jairo shifted their focus from ethanol industry and started to invest in food again.

Why it is an issue

In recent years, the economy of Brazil has slowed down. As a result, their Ethanol industry is not getting proper financial supports from the Government. Sao Paulo’s economics professor, Paulo Furquim de Azevedo stated that the Government tried to protect the Ethanol industry, but its economic policy ended up damaging the sector (Langeveld et al. 2014).

Why it is an issue now

Sugarcane Ethanol is made from the sucrose found in sugarcane juice and molasses, however, it could only unlock one third of the total energy sugarcane can offer. The rest of the energy remained locked in leftover cane fiber. Recently, scientists have found a new technology that can unlock that leftover energy (Ferreira et al. 2014). They have named is as Cellulosic Ethanol. However, the production on Cellulosic Ethanol is much more complicated and required a great amount of procession that the traditional sugarcane Ethanol. This new technique of processing is also cost effective and expensive. Therefore, as the economic condition of Brazil is deteriorating day by day, it can be considered as an issue, as the Government will not be able to provide monetary support to the Ethanol industry for this new invention.

Rational of the research

The aim of the research is to find out the evolution of the Ethanol industry in Sao Paolo, Brazil and how the industry managed to claim a top position in the world.

Research objectives

  • Environmental benefits of Ethanol bio-fuel.
  • To find out other benefits of Ethanol in Brazil.
  • To find out the issues faced by the Ethanol industry.
  • To find out the probable solutions for the issues faced by the Ethanol industry.

Research questions

  • How the evolution of Ethanol took place in Brazil?
  • Why the Government of Brazil put their effort in promoting Ethanol?
  • What are the challenges faced by the Ethanol industry in Brazil?
  • How the Government can deal with the issues?

Introduction

The Ethanol industry of Brazil is often considered as the most successful innovation of energy technology and implementing policy regarding renewable energy. The country is in debt to its long growing season and the exuberance of fertile land. Brazil in naturally blessed to flourish in the production of agricultural policy (Wallington et al. 2012). It is argued that there are a number of nations, which are endowed with similar natural resources. However, what has set Brazil apart from them, as the long-term producer of Ethanol, is the application of consistent policy in order to support the production of Ethanol. As the other countries in the rest of the world consider the use of biofuel as a proper alternative of the use of exhaustible resources, these nations try to imitate the Brazilian experience (Armas et al. 2012). Therefore, it is quite essential to evaluate the evolution of the use of biofuel in Brazil critically. In this section of the study, the focus will be shed on the concepts regarding the use of Biofuel and the effectiveness of using Ethanol as a biofuel. The evolution of Ethanol in Brazil will be discussed in a chronological manner. Moreover, the study will also shed light on environmental as well as the social factors that are associated with the use of Ethanol. This will help to gain a broader insight on the concerned topic and on the basis of the gained knowledge, the relevance of Ethanol as a fuel particularly in the case of Brazil will be evaluated (Brouzgou et al. 2013).

Biofuel is defined as the fuel that is produced by either direct or indirect use of organic materials, including waste of the animals and plant materials. According to Cheng et al. (2014), Biofuel covers nearly 10% of the total demand of world energy. The traditional unprocessed biomass consisting of fuel wood, charcoal and animal dung account for the maximum portion of the source of biofuel. The people of developing countries mainly use biofuel and these people use this for heating and cooking purposes.

However, with the progress of technology,  the discovery of more efficient conversions are allowing extraction of biofuel from woods, waste materials and even crops as well. Biofuel may be found in different forms, solid, liquid or gaseous. In literature, the term biofuel is used to refer to only the liquid biofuel for the purpose of transport (de Souza Ferreira Filho and Horridge 2014). Biofuel can be derived from the agricultural crops, such as the conventional food crops as well as from the special energy crops. The other sources of biofuel are forestry, fisheries even from the municipal wastes as well as agro-industry and food service industry (Walter et al. 2014).

Aim of the research

Biofuel can be divided into two broad categories, primary biofuel and secondary biofuel. Primary biofuel includes fuel wood, wood chips and certain organic materials, which are used in an unprocessed format for the purpose of cooking, heating and generating electricity. On the other hand, according to Vizcaíno et al. (2012), the secondary biofuel is produced by processing biomass. Secondary biofuel includes ethanol and biodiesel, which are used for industrial purposes and as fuel for vehicles.             The use of bio-energy can be decomposed sector wise, 80% of the biofuel is used in the homes, while another 18% of the biofuel is approximately used in industries. Finally, the remaining 2% of the biofuel is used in the transport sector, which is significantly low (Zhou et al. 2012)

Brazil ranked second in the world in the perspective of ethanol fuel production and it is the largest exporter of ethanol in the world (Brouzgou et al. 2013). Brazil along with the United States of America leads the industrial production of ethanol fuel. According to the statistics of 2009, Brazil alone produced 24.9 billion dollars of ethanol, which accounted for 38% of the total production in the world (Zingaro and Papoutsakis 2013).

The ethanol fuel programme in Brazil is 30 years old, and it is based on the most efficient agricultural technologies that are used for the production of sugarcane at the cheapest possible cost. The modern equipment and cheap sugarcane is used as raw material On the other hand; the residual cane waste is used in order to produce heat and energy (Wang et al. 2012). This in turn gives rise to a production process, which is cost effective and thereby helps the country to produce at a price, which is highly competitive.

In Brazil, there is no longer any lightweight vehicle that runs purely on Gasoline. From 1976 onwards, the government of Sao Paulo implemented a legal framework that made blending of anhydrous ethanol with gasoline mandatory. Since the year 2007, this mandatory blend becomes 25% of the anhydrous ethanol with 75% of the gasoline or E25 blend (Azadi et al. 2012).

According to Zhou et al. (2012), the use of ethanol in Brazil is so extensive that the car manufacturing companies in Brazil are producing vehicles, which comes with a feature named flexi fuel. This means, that these cars can run in any combinations of gasoline and hydrous ethanol. These flex vehicles were introduced in the market in 2003, and immediately after launching, these vehicles became a commercial success. It had achieved a record of 92% share of the new cars and lightweight vehicles sales for 2009 (Brouzgou et al. 2013). As per the statistics by March 2010, the production of flex fuel cars reached a milestone of production of 10 million cars if considered cumulatively (Leoneti et al. 2012).

Research objectives

The government of Brazil used to control the prices of ethanol and maintain a constant relation between the price of gasoline and ethanol until 1997. The liberalization of the Brazilian fuel market eradicated all controls over the price level, and up to 2002, the prices of gasoline and ethanol were allowed to fluctuate freely (Zhu and Pan 2012).

Galdos et al. (2013) argued that the extensive use of ethanol and the restriction as imposed by the government to mix ethanol with gasoline mandatorily, has increased the competitiveness of ethanol. Ethanol is presently the most used fuel in Brazil (Babcock 2012). The extensive use of ethanol has compelled the car manufacturers to produce flexi fuel cars, which can run in all probable proportions of ethanol and gasoline (Zilberman et al. 2013). Moreover, Brazil uses the most efficient agricultural technology for the production of sugarcane. This has lowered the cost of production of the sugarcane, used as the raw materials for the production of ethanol. On the other hand, wastes from sugarcane are used for heating and energy enticing purposes of the process. This in turn has helped the country to produce ethanol at the lowest possible costs (Babcock 2012). Therefore, it is quite evident that the country will be able to export ethanol at the cheapest possible price; this again in turn will help the country to gain a competitive advantage in the market.

Nowdays, the lightweight vehicles are now bound to use fuel, which is a mixture of gasoline and ethanol. This has also increased the use of ethanol in turn. However, Bergquist et al. (2012) argued that, the price of ethanol produced in United States by using corn is much lower than the ethanol produced in Brazil using sugarcane. This proves the competitive nature of the price of ethanol produced in Brazil.

The cost of production of ethanol is dependent on three main factors: the cost associated with the production of sugarcane, cost associated with the processing of sugarcane and conversion rate of sugarcane into ethanol. Sao Paulo produces the highest amount of sugarcane in Brazil, and accounts for almost 60% of total production of sugarcane (Bergquist et al. 2012). It has increased to 80 tons/ha in 2003 from 66 tons/ha in 1977. The overall productivity of sugarcane in Brazil also followed the same trend and reached 73 tons/ha (Chum et al. 2014).

There also an increase in the level of quality of the sugarcane, as there is a rise in the rate of augmentation of sucrose to 14% in 2003 from 14% in 1988 (Cannella and Jørgensen 2014). These improvements can be characterized as a result of the extensive investments in the agronomic sector of the country. The major part of this research, has been conducted by Embrapa, which is an agricultural research centre situated in Brazil. This research institute is responsible for developing almost 140 varieties of sugarcanes (Chum et al. 2014).

Research questions

During the time period of 1980 to 1990, the cost associated with the processing of biomass had fallen significantly. This was because the process and rate of conversion had improved. Over the past five years, it has been seen that there is a stable trend in the production of ethanol as the technology achieved its maturity level (Zingaro and Papoutsakis 2013).

Up to 1997, the government was responsible for controlling the price of ethanol. To determine the fair price of ethanol in this sector, the costs associated with the production of ethanol had been investigated by an autonomous research organization. After, the liberalization of the prices of ethanol, there was no systematic estimation of cost involved (De Castro et al. 2014).

According to de Gorter et al. (2012), the Brazilian Ministry of Science and Technology estimated the average cost of production of ethanol in 1990 was found to be $0.23. This study was used by the international Energy Agency as reference. After that, almost every study suggested that the average cost of ethanol around every part of Brazil was almost the same, in spite of the variations in the exchange rates, price of sugarcane and the cost of the oil products (Ferreira Filho and Horridge 2014).

Presently Brazil has achieved an enhanced security of its energy and this is a result of the commitment of the country towards building and developing a competitive sugarcane industry and thereby making ethanol as the key portion of the energy mix it uses. Brazil has created a benchmark by replacing 42% of its gasoline needs by using ethanol. Moreover, it  has made gasoline an alternative fuel. A number of researchers pointed out, that the Brazil’s experience can be treated as a case study by the other countries in order to enhance the use of renewable resource.

  1. Ethanol from Sugarcane:

Brazil is the world’s largest producer of ethanol and it has pioneered using ethanol as a fuel that can be used in motors. In the year 2013-14, Brazil produced 27.5 billion litres (7.3 billion gallons). The maximum amount of this ethanol was used domestically and it was either sold in the domestic market in the form of pure ethanol or blended with gasoline. All of the gasoline that is sold in Brazil amalgamates a blend of 18 to 27 percent of ethanol (Chum et al. 2014).

  1. Implementation of Flex Fuel Vehicle:

In the earlier stages of 1920, the country started using ethanol in vehicles as fuel. This trend had gained a major level of urgency during the oil shocks of 1970s. However, Galdos et al. (2013) argued that the importance of ethanol as a fuel increased after the introduction of flexi fuel vehicles in the year 2003, these cars runs either on gasoline or on pure ethanol. In accordance with the increase in consumer demand, more than 90 percent of the cars produced in Brazil are flexi fuel cars (Janda et al. 2012). The users of such cars, now have a choice in fuels, when they visit the pumps for refuelling their cars. It is quite evident that most of the customers will opt for sugarcane ethanol for its lower price, efficiency and environmental benefits.

Literature review

There are a number of advantages and disadvantages which are involved with the use of ethanol as a fuel. The advantages and disadvantages are stated below,

Advantages:

Clean air: Ethanol includes oxygen with gasoline, which in turn helps to reduce emissions from the tail pipe, and also reduces air pollution that is harmful for the environment.

Reduction in the emission of green house gases: The use of ethanol reduces the emission of carbon dioxide by 90 percent on an average in comparison to gasoline (Chum et al. 2014). This is far better than any other biofuel produced at the industrial standards (Langeveld et al. 2014).

Lower Usage of petroleum: Ethanol reduces the dependence on petroleum and thus is a better substitute of petroleum.

Disadvantages of using ethanol:

Affecting biodiversity- A significantly high amount of cultivable land is consumed in order to produce the crops.

A fuel versus food debate- There is an increasing concern about the fact that, due to the prevalence of lucrative prices, most of the farmers may want to sell their products for the production of bio ethanol. This will in turn increase the price of the food products (Langeveld et al. 2014).

Another major issue that may be raised in the context of production of ethanol is that, during the production process, it increases the level of green house gases in the environment substantially, and this could be a major concern.

The main driver behind the new trends in the biofuel market is the significant reduction in the emission of the green house gases. A number of studies have estimated the potential reduction in the level of green house gas emission. These studies have used a framework in which these have incorporated. The production of all fuels and their use cycles and have shown that there is an important decline in the emission of green house gases with the use of ethanol.

However, Lee and Lavoie (2013) argued that drawing a comparison between these different fuels is a tricky task. To do this, it is essential to take into account all of the energy processes that are involved in the process of fuel production, transport and communication process as well. Moreover, the three levels of energy consumption should also be taken into account in this regard and they include: i) direct use of fuel and other energies during the process of production, ii) consumption of energy in order to produce the raw materials and finally iii) energy that is consumed for the production and maintenance of the machineries and equipment.

Additionally, it is also important to note that if no fossil fuel is involved in the process of biofuel production, the consumption of this fuel does not contribute to the emission of CO2. This is because, it will be captured by the environment to form a new bio mass. Leoneti et al. (2012) argued that it is also necessary to take into account the other emissions, which take part in the green house effect as well.

On another aspect, Liew et al. (2014), pointed out that, Brazil is solely responsible for 3% of the total emissions of the Green House Gases. However, Margeot et al. (2012), states that 75% of the total Brazilian emissions are mainly CO2 and this is strictly due to deforestation. The Amazon region where the percentage of consumption is 23% contributes to this emission of CO2 largely (Chum et al. 2014).

However, it is pointed out that there is no significant relationship between the expansions of the production of sugarcane in Brazil with deforestation. The plantation fields of sugarcane are concentrated in the southern and northern region of the country while the Amazon forest is situated in the northeast and southeast corner of the country. However, Mattos et al. (2012) opined that the main reasons behind the deforestation process include timber exploration and raising of cattle raising.

If viewed from the social perspective, the production of ethanol has a significant impact on the social dimension of Brazil. This dimension is one of the main reasons for which the government supports the production of ethanol. The industry associated with the sugarcane and ethanol production plays an important role in the economy of Brazil, contributing a total of 3% of GDP (Monteiro et al. 2012). It is estimated that this sector contributes in creating 700 thousand of direct jobs and 200 thousands of indirect jobs. These figures may be impressive but it does not cover a crucial underlying question. Most of the jobs created in this field are related to the plantation and harvesting. However, these are mainly low quality jobs and are mainly seasonal. As the season for plantation of sugarcane occurs for 6 to 7 months in a year, the workers tend to remain unemployed for the rest of the time (Moreira et al. 2014).

Another factor that should be addressed in this regard is that a large share of these workers, come from different regions of the country. It is estimated that around 200000 workers in Sao Paulo sugarcane plantations are migrated labours (Chum et al. 2014). Therefore, it is quite evident that these workers leave their families back at the place of origin. Moreover, payment of these workers are dependent on the per day productivity of harvesting measured, in terms of tons per day. Therefore, in order to maximize payments, it is quite evident that some of the workers will try to increase their payments by choosing a long working hour. Mussatto et al. (2012) found that some of the workers consumed drugs during their working hour. Moreover, the high temperature during the harvesting season was also responsible for the health issues of the workers.

In order to take control over the situation, the Ministry of labour has strengthened the legal framework about the working condition of workers involved in ethanol production. According to Nogueira and Capaz (2013) it has been found that the working condition has developed significantly during the last decade, though there is a lot to be done in order to improve the adverse working condition. From the producer’s viewpoint, they argue that the working environment and benefits that are associated with the production of ethanol are better than any other agricultural sector. As per the statistics provided by the representatives of the producers, almost 92% of the workers in Sao Paulo are hired formally while the average hiring of formal labour in entire Brazil is only 46%. The workers associated with the production of sugarcane get better payment compared with the other sectors that require the same set of skills (Palacios-Bereche et al. 2014).

Presently it is a well-known fact that Brazil produces ethanol at the cheapest rate in the world. According to Pu et al. (2012), it can be clearly seen that low prices of Ethanol gave the Ethanol industry of Brazil a competitive advantage. The main underlying reason that helps the country to maintain this competitiveness in prices, is the lower cost associated with raw materials. The cost associated with the production of sugarcane is also very low. This is because irrigation is not required in Brazil for the production of sugarcane. The estimated cost of production of sugarcane in Brazil is near about $140 per ton, while on the other hand, all the major producers

When the comparison is done in accordance with the sugarcane based ethanol and ethanol produced from other feedstock like corn, beat and wheat (Palacios-Bereche et al. 2014). In this case, the advantage of Brazil is higher. According to a study by Quinn et al. (2014) it has been calculated that the cost associated with sugarcane for producing 1 litre of ethanol is around US $ 0.10 to US $ 0.12, while producing ethanol from other raw materials like beat and corn could around US$ 0.20 to 0.35 for 1 litre of ethanol approximately. Other factors that are involved in the production process like, labour, machineries were found to be available at a cheaper price in Brazil in comparison to USA and Europe.

It is an undeniable fact that the cheap labour cost is another important factor, which contributes largely to the competitiveness of Brazil ethanol. Rocha et al. (2014) pointed out that, the sugarcane production process in Brazil is more labour intensive and the availability of cheap labour has helped the country to maintain a lower cost of sugarcane production. However, Sims et al. (2012) stated as the production of sugarcane is limited to a particular season; an effective storage capacity should be building.

Now to summarize it can be said that the study has successfully investigated the almost all the facts associated with the production of ethanol in Sao Paulo, Brazil. This has helped the researcher to gain a broader insight about the key factors associated with ethanol production, its uses, social and environmental impacts. On the basis of the gained knowledge the study has shed light on these factors and tried to determine its effects and impacts in the context of Sao Paulo. The researcher has also reviewed a wide range of literature relevant to these issues particularly based on Sao Paulo. This have gave rise to a number eye opening factors such as the reason behind the low price of ethanol in Brazil. However, the situation of the labours should be improved. In order to do this the government should strengthen the legal structure in a more efficient manner.

Introduction

In this chapter, a suitable research method has been selected in order to conduct this research work in an appropriate manner. According to Bryman and Bell (2013), a research method refers to various schemes, procedures, and algorithms that can be used to conduct a study. All the research methods need to be value-neutral, planned and scientific. Research methodology is a systematic approach to solving a problem. A research work can be conducted in various methods. Hence, it is required to select an appropriate methodology that can help to meet the research objectives. It includes the selection of relevant research philosophy, research approach, and research strategy and data collection method.

  • How did the evolution of Ethanol take  place in Sao Paulo, Brazil?
  • Why did Government of Sao Paulo put their efforts in promoting Ethanol?
  • What are the challenges faced by the Ethanol industry of Sao Paulo in Brazil?
  • How can the Government deal with the issues plaguing the industry?

According to Bergh and Ketchen (2012), there are mainly two types of research philosophies used in any research work. They are the interpretivism philosophy and positivism philosophy. Positivism research philosophy helps to examine the research problems based on real facts and truths (Bernard 2013). On the contrary, interpretivism philosophy contributes to developing research works depending on the perception that most of the people have related with a particular situation (Bryman and Bell 2013). Both these research philosophies are highly used to conduct business related research works. Under positivism philosophy, relevant examinations have been performed to ensure that all the research problems are dealt with the help of real facts and truths. Positivism philosophy is the world alleged as objective. On the contrary, according to interpretivism philosophy, the world in socially subjective and constructed (Cameron 2012). In positivism philosophy, the observers are considered independent, while in interpretivism, observers are identified as a part of the object under observation. Positivism philosophy is the value-free approach of science. On the other hand, interpretivism philosophy is a human interest drived science. The aim of the interpretivism philosophy is to find out the meaning of events. However, the objective of positivism philosophy is to check the facts and truths behind the subject.

(Source: Cameron, 2012)

After scrutinizing both the research philosophies, it has been analyzed that the positivism philosophy is best suited for this kind of an investigation. This research work is about evaluating ethanol in Sao Paolo, Brazil. It needed to be conducted depending on real facts and truths. The positivism paradigm is based on the positivism phenomena (Mitchell and Jolley 2013). In this, the philosophy information is derived from sensory experience, which is interpreted with the help of logic and reason. Hence, positivism philosophy is best suited for this research work.  Using this philosophy contributed to gathering empirical evidence related to the research topic.

There are mainly two types of research approaches, used in order to conduct a research work in an appropriate manner. They are the deductive and inductive approach. As mentioned by Ellis and Levy (2013) the deductive approach concentrates on getting hold of information. The stages of research approach include checking theory, hypothesis, observation and confirmation and rejection of the hypothesis. It uses the top-bottom approach that helps to gather the desirable outcome depending on the existing theories. On the contrary, the inductive approach is advantageous to those research works, which intends to develop new theories on the present topic.

(Source: Harrison and Reilly 2013)

After examining both the research approaches, it has been analyzed that the deductive approach is most suitable for this research work. As there was not adequate time to proposed new theories or models related to this research topic, inductive research approach is inappropriate for this research work (Freshwater 2012). The deductive approach is highly suitable to examine research hypothesis depending on the existing theories. Implementation of an appropriate research methodology helps to find out whether the devised hypothesis is relevant or not.  Hence, it can be mentioned that the deductive approach is the most suitable for this research work.

As Salaberry and Comajoan (2013) mentioned that there is various research strategies can be used to conduct a research work. They include surveys, interviews, experimentations and case learning. Depending on the type of the research topic, an appropriate research strategy needed to be selected. Survey is the method, in which data can be gathered from a large population (Harrison and Reilly 2013). Surveys can be conducted both via online and offline methods. On the other hand, interview is the strategy to gather indepth knowledge from individual who have adequate knowledge about the research topic (Huxham. and Vangen 2012).  The case study strategy provides secondary information to the researcher. This information can help to gather ample knowledge about the research topic. It can be to conclude the research work (Harrison and Reilly 2013).

After analyzing all the research strategies, surveys and case study has been selected to conduct this study. Interviewing different managers and experienced people helped to gather indepth and skimmed information about the Ethanol production in Sao Paolo. Reviewing cases studies related to the evolution of ethanol has helped to get a better understanding about the research topic. Hence, depending on the topic of this dissertation, it can be stated, that interview and case study analysis are the appropriate strategies for this research work. 

There are mainly two type data sources available for a research work namely the primary and secondary source of research (Huxham and Vangen 2012).  The secondary source of information can be gathered with the help of updated journals, books and research papers. Secondary research helps to acquire indepth knowledge about the research topic. The primary research work contributes to collecting data from an enormous amount of population. There are mainly two types of primary data collection methods available for research works. They are known as the quantitative data collection method and secondary data collection method (Salaberry and Comajoan 2013).   

In quantitative data collection method, information is received from a large population. This information is then represented with the help of table, figures and charts.  As Freshwater (2012) opined, the quantitative data collection technique is a cost-effective method of data collection. Under this, the survey is considered as a primary quantitative data collection technique. On the other hand, under qualitative data collection method, well-structured data can be gathered from individuals who have ample knowledge about the research topic (Huxham and Vangen 2012). In this respect, interviews are considered as qualitative data collection method.  There are mainly two strategies to gather qualitative data. They include face-to-face interview and telephonic interview (Mitchell and Jolley 2013). 

For this particular research work, both primary and secondary source of data had been gathered. The primary source of information was gathered by interviewing 5 managers of different ethanol producing firms of Sao Paolo. In addition, the secondary information was collected by studying various updated journals and books related to the evaluation of Ethanol.

In this research work, the qualitative research methodology approach is used. The major strength of this method is that it provides a view of harmonized exploration (Freshwater 2012). It helps to raise issues with the help of open-ended inquiry. It also contributes to understand the values, assumptions, behaviors and beliefs of people. In order to examine the evolution of ethanol in Sao Paolo, it requires evaluating the behavior of people of that area about Ethanol. Qualitative data collection method helps to explore the point of view of diverse groups of people (Harrison and Reilly 2013).   It also provides people the opportunity to raise issues related to the research topic. It also provides researcher the opportunity to examine those matters related to the research topic.

The major limitation of the qualitative research methodology is that this process is a highly time-consuming one (Ellis and Levy 2013). There is a certain chance that important issues related to the research topic can be overlooked. On the other hand, the researcher may have limited capability to interpret the received data that can distort the quality of the research study.  According to Salaberry and Comajoan (2013), interpretation skills of researchers depend on their personal experience, knowledge about the subject and observation skills. Researchers need to assess the behavior and voice tones of interviewees to interpret their information appropriately. In addition, lack of financial resources and time constraints can also reduce the quality of this research work.

Conclusion

After conducting this chapter, it had become clear that this topic of research work required logical and scientific approach. For this purpose, positivism research philosophy had been used to conduct this research. Om the other hand, as a research approach, deductive research approach will be used. Both primary and secondary source of data sources has been used to gather information for this study.  The appropriate research strategy adopted for this study is interview and secondary data collection method. Five managers have been selected to conduct interview. Their point of views and perceptions helped the researcher to get an overview of the Ethanol industry of Sao Paolo, Brazil. In addition, the secondary source of information has been gathered by studying various updated journals and books about ethanol industry.

Introduction

In order to continue the research effectively and efficiently, it is necessary to undertake a proper analysis of the prevalent theories with the help of the data obtained directly from the market reports. In order to continue the assignment the qualitative information associated with the evolution of ethanol in Sao Paulo should be analysed efficiently. The portfolio is based on the evolution and various aspects of ethanol production in the context of Brazil. Therefore, it is quite evident that the researcher will have to focus on the market structure, production procedure and the cost associated with production. Thus, the researcher will perform a thematic analysis and conduct interview of three managers from three different ethanol production firms in order to get a better insight of these facts.

Theme-1: Use of Ethanol as a Biofuel

Ethanol is a biofuel that is produced from different agricultural and organic materials. It is considered as one of the best alternatives to petroleum as a transportation fuel. As (Sementa et al. 2012) mentioned that, Ethanol has the capability to reduce the amount of carbon dioxide and carbon monoxide emissions as compared to other fossil fuels. Tropical sugarcane is the most effective feedstock for ethanol production (Cherevko et al. 2012). It is found that the use of sugarcane-based ethanol helped to reduce more than 500 million tons of Carbon dioxide in Brazil since 1975 (Singh et al. 2014).  It is equivalent to 9% of the total Carbon Dioxide emission of Brazil. The Environmental Protection Agency mentioned that as an advanced biofuel sugarcane ethanol has reduced the amount of Green House Gas Production by 61% compare to GHG emission of gasoline (Gu et al. 2014). The amount of energy produced by the sugarcane-based ethanol is 4 to 6 times greater than corn-based ethanol (Sementa et al .2012). For this reason, there are many country governments have implemented various energy policies to increase the use of ethanol in their transportation system.

Ethanol is blended with gasoline, which is used as fuel in 100% dedicated ethanol vehicles. As He et al. (2012) mentions, ethanol is produced from the feedstock of sugarcane, wheat, sugar beets and corns.  This type of Ethanol is produced from different kinds of crops such as poplar, mixed-spices grass, straw, and various plant wastes (Dragosits and Mattanovich 2013). In Brazil, there are mainly two varieties of Ethanol which are produced. They are hydrous and anhydrous ethanol (known as pure ethanol). According to Boretti (2012), for modified engines 10%  of anhydrous ethanol is blended with gasoline and used as fuel. On the other hand, Hydrous Ethanol is used for dedicated Ethanol engines. There is also another type of engine that is developed recently, which is known as “Flex-fuel” engine. Any proportion of mixture of gasoline and ethanol is capable of running this kind of engine (Singh et al. 2014).

There are more than 400 ethanol-producing plants that have been developed in Brazil in the year of 2010 (Beck et al. 2012). It includes distilleries and mills for processing sugar and ethanol. The large plants in Brazil produce more than 4 million tons of Ethanol.   Most of those big ethanol-producing plants are located in the state of Sao Paulo. There are more than 65% middle size plants that produce more than 2 million Tons and 13% small plants produce less than 2 million tons of Ethanol per year (Acourene and Ammouche 2012).

Production process of Ethanol

(Inputs in million ton)

2009

2008

2007

2006

2005

Sugarcane

728

643

550

475

420

Juice of Sugarcane

172

181

140

106

98

Molasses

16

16

16

14

12

Bagasse

149

144

133

121

107

Ethanol (in billion liters)

Anhydrous

Hydrous

26

7

19

27

9

18

23

8

15

18

8

10

16

8

8

(Source: Caravaca et al. 2012)

The Ethanol plants of Brazil are located mainly in the Southeast and southern region of Brazil. There are more than 50% distilleries located in Sao Paulo, Brazil. The main reason behind development of a large number of Ethanol producing plants in Sao Paulo is that the people of this state have a higher per capita income compared to other states of Brazil (Chen et al. 2012). Many large automobile industries have been developed in this state. This again has been able to attract both foreign and domestic investment into this region, which has helped to develop Ethanol producing mills. From the year of 2006, more than 130 new ethanol plants have been mushroomed in Brazil. More than 90 of such Ethanol producing plants are located in Sao Paulo (Devineni and Heberlein 2013). The amount of Ethanol production has been increased by 11% from the year of 2000. (Gärtner et al. 2012).  Sao Paulo has produced more than 10 billion liters of Ethanol, which holds more than 55% of the total ethanol production in Brazil.

The States of Brazil

Number of plants

 

Amount of Ethanol Production

(Billion Liters)

Espiritu Santo

6

230

Rio de Janeiro

9

112

Minas Gerais

258

15,000

Sao Paulo

310

17,600

(Source: Maricq 2012)

In order to make Ethanol acceptable to people as a biofuel for their vehicles, the government of Brazil has lowered the price of Ethanol than Gasoline (Viikari et al. 2012). The Government has taken initiatives to reduce the tax rate on using anhydrous ethanol. However, the tax rate is inapplicable for flex-fuel vehicles. Over the last few years, the price of both gasoline and Ethanol has been increasing sharply (Melchert et al. 2012). However, the price rate of gasoline is more stable than the price of Ethanol. The regional variation of Ethanol prices indicate the production costs, tax rate variations and supply conditions of different states in Brazil. Considering the lower energy efficiency of Ethanol as compared to gasoline, it can be analyzed that the price of Ethanol has to be below 60% of the rate of gasoline (Melchor-Hernández et al. 2013). The price ratio of Gasoline differs across states due to the difference of tax rate.  Sao Paulo has the lowest tax rate, which is the major reason behind the lowest price of Ethanol in this state Sementa (et al .2012). For this reason, Sao Paulo serves as the benchmark of success for the Ethanol industry in Brazil. A comparison of Ethanol price between Sao Paulo and the national average of Brazil has been given below.

Price of Ethanol (Dollars per Liter)

State

2009

2008

2007

Sao Paulo

0.70

0.72

0.69

National average of price

0.84

0.90

0.83

(Source: Sementa et al .2012)

Figure 3: Chart to compare the price of Ethanol

(Source: Created by Author)

The environmental impact of using ethanol is significantly low. It is a well-known fact that using ethanol has significantly reduced the emission of green house gases. However, in the context of CO2 emission, it can be said that the burning of biofuel does not contribute to the emission of CO2. The net emission of carbon dioxide has been depicted with the help of a chart below.

106 TC/ Year

Value of CO2 that is mitigated (US$ millions)

Replacement of gasoline by ethanol

-7.41

Replacement of fuel oil by bagasse

Burning oil for generating heat and sourcing other industries heat requirement

-3.42

Utilization of fossil fuels in sugarcane industry

1.20

Net contribution

-9.45

94.5

(Source: Vizcaíno et al. 2012)

Another environmental impact of the ethanol industry is that of deforestation. Srirangan et al. (2012) argues that deforestation is directly related to the expansion of the ethanol industry. Tsao et al. (2012) proved that this deforestation has been occurring mainly occurring due to raising cattle.

Why the production of ethanol is important in Brazil?

In response to the above question, the first manager responded that to put thrust on the environmental issues it is beneficial to use ethanol. As the demand for ethanol is showing up an increasing trend therefore, it will definitely be beneficial for the organizations to produce ethanol. Presently, almost every person is concerned about the environmental hazards as well as the government are implementing newer rules to ensure environmental stability. Now, even the car manufacturing companies in Brazil are producing flexi fuel vehicles that run on both gasoline and ethanol. Thus, production of ethanol will remain beneficial with this ever-increasing demand.

The second manager opined that the production of ethanol provides job opportunities to a large number of potential workers. Being a developing country, Brazil had experienced a higher rate of unemployment, but with the emergence of ethanol producing plants, the rate of unemployment is decreasing. Therefore, it is beneficial for both, the workers as well as the economic situation of the country.

The third manager in this regard replied that the cost of production of ethanol in Brazil is significantly low. This is because the harvesting of sugarcane does not require irrigation and the availability of cheap labour. The production cost of corn ethanol and ethanol from any other raw materials are found to be higher than that of sugarcane ethanol in Brazil. Therefore, it can be expected that this cost will remain lower and Brazil will remain at a competitive position regarding ethanol production. As this gives Brazil a comparative advantage, it becomes able to export cheaper ethanol to other countries and thereby increase its income. The demand for exports will be high as the cost of production in any other countries will be much higher than Brazil. Thus, it will be beneficial for Brazil to produce sugarcane ethanol.

What are the major reasons behind the increasing trend of the production of ethanol, in Sao Paulo?

In response to this question, the first manager said that, the production of ethanol would increase as the demand for ethanol is increasing both domestically and internationally. Maximum amount of the produced ethanol is consumed within the country. This leads the country to face a short fall while catering to the international demands.. Therefore, it has become necessary for the country to increase the level of production. Moreover, with the process of development, people are left with increased disposable income and with enhanced buying capacity; which they are utilizing for buying cars and other vehicles. As the car manufacturers are now producing cars that run on both gasoline and fuel, people are choosing ethanol because of its efficiency and cheap price.

The second manager stated that the major reason behind the increasing trend is the availability of cheap labour and the favourable environment and availability of land for harvesting sugarcane. A large number of persons are employed in this sector and most of them come from different parts of Brazil. Therefore, these labours are available at a cheaper price and this helps to produce sugarcane at a comparatively lower cost. The harvesting of sugarcane also involves a significantly low cost, as this does not require any irrigation. These are the main reasons for the increase in the level of production of ethanol. As the product will be produced at a cheap rate, its demand will rise and to meet this rising demand, the level of production needs to be increased.

The third manager almost agreed with the first manager’s opinion. However, according to the third manager, the employees of this sector are underpaid and they are sometimes deprived of several facilities.

What are the major issues that are being faced by the ethanol producing industry?

The first manager said that the most effective issue that is faced by the ethanol industry of Brazil is the lack of government policy that focuses on the industry for a long term. As per the manager’s view, the government tries to address the issues associated with the industry superficially and that hardly solves the problem. If the government focuses on the problem more effectively, the growth and consolidation of the industry will be established more easily.

The second manager stated that the producers of sugarcane are now more inclined towards selling the sugarcane to the sugar producers as they are getting higher price. This major issue is being faced by the industry. Another factor because of which biofuel has lost its importance is the discovery of the layer that is enriched by oil located in the coastal area of Brazil;. Therefore, it is necessary to promote the use of ethanol as well as spread awareness about the good effects of using ethanol.

According to the third manager, the global financial crisis that took place in the 1990s also hit the Brazilian economy too hard. The financial crisis had increased the cost of production of sugarcane, increasing the cost of the machineries and other related factors. This crisis has led to the shutdown of a number of firms during the time period of 2008-20012. Thus, it is quite essential for the government to deal with these issues and impose a controlling measure over the pricing of the raw materials and other related factors, to establish the industry in an efficient manner.

In order to summarize it can be stated that in this section, the researcher has conducted the qualitative research based on the vast range of literature available relevant to this topic and also depending on the interviews of the managers. The price, production, use and the environmental impacts of ethanol are discussed in this regard. It has been found that different opinion prevails regarding the environmental impact. . On the other hand, the opinion of the managers in the context of importance of ethanol production, their justification behind the increasing trend of production and the current issues has also been discussed. The industry is currently suffering from a few issues but, the intervention of the government will usher the industry towards prosperity.

Conclusion and Recommendation

Introduction

In the end, it can be concluded that Ethanol industry in Sao Paulo, Brazil had many reasons behind its success. According to Wang et al. (2012), the major reasons behind its success are the availability of sugar cane in the country. However, according to Mattos et al (2012), the main reasons behind the growth of Ethanol industry in Brazil is its environmental benefits. From the data analysis part, this fact is again reiterated  and proved as the first manager stated that the environmental benefits of Ethanol is the only reason for which the industry is growing and getting full support from the Government. However, the second manager stated a different reason for the growth of Ethanol industry in Sao Paulo. According to Wang et al. (2012), in the year of 2002, almost 650,000 workers were employed in the Ethanol industry, which is a major help for a country where the rate of unemployment is higher than any other country in the world. Therefore, the Government decided to promote the industry to decrease the rate of unemployment in the country. On the other hand, the third manager said that as the production cost and processing cost of sugarcane Ethanol is lower than any other Ethanol such as corn Ethanol. Besides, Brazil is the top country that produces sugarcane more than any other country in the world. The Government decided to focus on sugar cane Ethanol in the country. However, Brazil is currently facing some issues in their Ethanol industry that might affect their productivity and productivity in the near future.

Environmental benefits of Ethanol bio-fuel

From the data collection part, it is clear that Ethanol has the capability to reduce carbon dioxide and carbon monoxide emission compared to the other fossil fuels. From the previous surveys, it is found that using sugarcane based Ethanol has helped the country to reduce more than 500 million tons of Carbon dioxide emission since 1975. Therefore, it can be said that the biggest environmental benefit of using Ethanol is that it reduces the amount of Green House Gas (GHG) production by 61% as compared to GHG emission of gasoline. Another environmental impact of the Ethanol industry is deforestation. According to Acourene and Ammouche (2012), because of Ethanol industry deforestation is increased in Brazil. However, Bergquist et al. (2012) stated that deforestation is not related to the Ethanol industry. He also stated that deforestation is taking place because of raising cattle. To find out the plants and regional production of Ethanol in Brazil

From the data analysis part it is clear that more than 400 Ethanol producing plants have been introduced in Brazil till 2010. It includes distilleries and mills for processing sugar and ethanol. According to Cannella and Jørgensen (2014), 18% large plants are in Brazil that produces nearly 4 million tons of Ethanol. Sao Paulo holds the most number of big Ethanol producing plants that produce more than 2 million tons of Ethanol. Besides, it also has 13% small plants that produce less than 2 million tons of Ethanol per year. Moreover, the data  analysis part also shows that most of the Ethanol plants of Brazil are located in their southeast and southern region. Sao Paulo also holds more than 50% distilleries of Brazil. Sao Paulo has become the number one Ethanol manufacturing state in Brazil as the citizens of that state has higher per capita income than other citizens living in other states of Brazil. However, the main reason of Sao Paulo’s supremacy is their current position related to Ethanol producing plants. More than 90 out of 130 Ethanol producing plants are located in Sao Paulo. As a result, Sao Paulo alone produces more than 10 billion litres of Ethanol which is the 55% of total Ethanol manufactured in Brazil (Cannella and Jørgensen 2014).

To find out the issues faced by the Ethanol industry

Data collected by the managers shows three major issues faced by the Ethanol industry in Sao Paulo, Brazil. According to the first manager, the production of Ethanol is quite high in Brazil. The country holds the third position in Ethanol manufacturing. However, despite this Brazil is still facing issues as they are not able to meet the demands of Ethanol in the international markets. The first manager stated, as the maximum amount of Ethanol is consumed within the local markets, they could not provide ample amount of Ethanol to the international markets. However, the second manager did not state anything related to this issue. He said that the most effective issue that is faced by the Ethanol industry is the lack of Government policy. Not a single policy is available in Brazil that can help the Ethanol industry in the future. The third manager provided information on another issue faced by the Ethanol industry, which is the financial crisis in the country. Brazil is still recovering from the global financial crisis that took place in the year of 1990. As a result, the cost of producing sugarcane has increased. The cost of machineries and other related factors has also increased because of the financial crisis. Due to this crisis, some firms were forced to shut down their business during the time period of 2008-2012. 

To find out the probable solutions for the issues faced by the Ethanol industry

According to the first manager, only the Government can provide a solution for the problem of Ethanol industry by implementing policies that will help the Ethanol industry in times of crisis. However, the Brazilian Government also can solve the second issue. In Brazil, more than half of the transports are using Ethanol fuel. As a result, the country is unable to supply ample amount of Ethanol in the international markets, which is reducing the amount of profitability. Therefore, the Government must introduce some rules and regulations that will limit the use of Ethanol in the country. If the Government can introduce such rules and regulations, the third issue will be removed automatically. The third, issue that comes from the economic crisis of the country will be gone once the country will start supplying more Ethanol in the international markets.

Some recommendations are hereby discussed so that the Ethanol industry of Brazil can deal with the current issues.

As the Government is currently facing several issues because of their economic condition, it can join hands with multinational companies who will provide financial support to the Ethanol industry.

The Government of Brazil will have to come forward in order to implement rules and regulations that will allow the companies to supply more Ethanol in the international market.

Sugarcane producing companies are now focusing more on supplying sugar in the international market as the prices of sugar has increased in the last five years. Therefore, it is highly recommended that the Ethanol producing companies must focus on rural areas to develop their own sugarcane fields.

Recently an enriched layer of oil is located in the coastal areas of Brazil. As a result of this finding, the Ethanol industry has lost its importance. Therefore, it is highly recommend that the Government promote the Ethanol fuel among the people by exhibiting its benefits.

The research was conducted based on the data collected from the previous researches. Therefore, it can be said that the whole research was done based on the old data and no recent data was collected. Besides, interviews were conducted with the three managers to find out their responses related to the Ethanol industry in Brazil. Therefore, it can be said that the chances are high that the collected data is biased and the managers did not provide something, which is classified.

After the research, it can be said that, there is a huge possibility of conducting the research in the future. Ethanol industry in Brazil is one of the largest industries in the world. It takes much more time and resources to conduct a research on such a huge industry. However, the time and resources were limited and only probability sampling method could be sued to collect data from three managers. It was important to collect non-probability data from a larger population to collect relevant and accurate data. Therefore, it can be said that there is a chance to conduct a research in the future with ample amount of time and resources.

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