The country’s largest producer is Raizen, a joint venture between Cosan Ltd. (NYSE: CZZ) and Royal Dutch Shell PLC (NYSE: RDS-A). A company executive has told the Financial Times that the government plans to reduce the tax on ethanol by nearly 80% in a move to help prop up the industry. A back-of-the-envelope calculation yields a cut from the current tax of about $0.30 a gallon to around $0.06 per gallon.
The government will not eliminate the tax completely for fear of stoking inflation in the country, which is currently running at an annual rate of about 6.5%.
It is difficult to predict the impact on U.S. ethanol producers like Archer Daniels Midland Co. (NYSE: ADM) or Pacific Ethanol Inc. (NASDAQ: PEIX). But ADM, for example, ran negative margins on its ethanol production last quarter. A tax cut in Brazil could make matters worse for U.S. producers.
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