Brazil – Page 3 – artdiamondblog.com

Doha Tariff Cuts Would Save Global Economy About $100 Billion; France Objects

Source of graphic: online version of the WSJ article cited below.

(p. A1) The so-called Doha round of talks, which began in 2001, were designed to boost developing nations; among other things, they want lower barriers to their agricultural exports. France has vowed to veto any deal that doesn’t protect its farmers. A pivotal missed deadline April 30 has led to predictions the talks could die by summer if countries including France don’t change their stance.

The standoff shows how cultural and emotional factors can combine with politics to stifle free-trade goals that most economists believe would provide a net benefit to the world. The tariff cuts envisioned by Doha would not only help developing countries sell their minerals and food products, but would also lower barriers to the industrialized world’s exports of goods and services. The World Bank calculates that Doha would boost the global economy by around $100 billion.

Overall, France itself likely would be a major economic gainer from a global (p. A10) deal. Though it’s the world’s second-largest agriculture exporter after the U.S., farming accounts for just 2.5% of the French economy. World-class manufacturing and service companies, such as car maker Renault SA and insurer AXA SA, are larger engines of the French economy. France could gain more income than it would lose in opening its agricultural markets to budding farm superpowers like Brazil.

Even in agriculture, France can be a formidable competitor, notably in products such as wine and cheese. Its brand is well-known the world over. And its farms are increasingly home to capital-intensive agribusiness companies, not just small family producers. Most of the $11.5 billion in European Union subsidies that France receives each year goes to the largest, most commercially viable farms.

WTO chief Pascal Lamy, a Frenchman, says he doesn’t understand France’s position. "As an efficient farm producer, the strategy should be to reduce subsidies and prices, because others won’t be able to compete with you," he said in a recent interview.

. . .

The French rural tradition, however, is changing. Between 1993 and 2004, the number of arable farms fell by nearly a third. Wide swaths of neglected land are now home to unsightly scrub, and the farms people see as they drive down France’s immaculate highways are often parts of major business enterprises. Oxfam says as much as 60% of subsidies went to the richest 15% of French farmers in 2004, the latest figures available.

Oxfam believes the EU’s tariffs and farm subsidies, which total over €40 billion annually, are harmful to the world’s poorest countries. High customs duties keep products from poor nations out of the wealthy EU market. At the same time, EU farmers overproduction is dumped cheaply abroad, driving down global prices and harming farmers in the developing world.

For the full story, see:

SCOTT MILLER. "Food Fight; French Resistance To Trade Accord Has Cultural Roots; WTO Talks Promise Benefits But Farmers Retain Hold On the Nation’s Stomach; ‘Politicians Are Frightened’." The Wall Street Journal (Tues., May 16, 2006): A1 & A10.

Taxpayer Pays $120 to Displace a Barrel of Oil With Ethanol

John Deutch served as Undersecretary of Energy under President Jimmy Carter. He also served in the Clinton administration, and is now an MIT chemistry professor. In the selection below, he explains why corn-based ethanol in the United States, is not an efficient way to produce energy. In a later section of his commentary, he is more positive about the economics of producing ethanol from switch grass. (The main difference, he says, is that switch grass can be cultivated using much less petroleum than is used for corn.)

Today, we use corn to produce ethanol in an automobile fuel known as "gasohol" — 10% ethanol and 90% gasoline. Generous federal and state subsidies, largely in the form of exemption from gasoline taxes for gasohol, explain the growth of its use; in 2005, over four billion gallons of ethanol were used in gasohol out of a total gasoline pool of 120 billion gallons. Politicians from corn-states and other proponents of renewable energy support this federal subsidy, but most energy experts believe using corn to make ethanol is not effective in the long run because the net amount of oil saved by gasohol use is minimal.

In the U.S., cultivation of corn is highly energy-intensive and a significant amount of oil and natural gas is used in growing, fertilizing and harvesting it. Moreover, there is a substantial energy requirement — much of it supplied by diesel or natural gas — for the fermentation and distillation process that converts corn to ethanol. These petroleum inputs must be subtracted when calculating the net amount of oil that is displaced by the use of ethanol in gasohol. While there is some quarreling among experts, it is clear that it takes two-thirds of a gallon of oil to make a gallon equivalent of ethanol from corn. Thus one gallon of ethanol used in gasohol displaces perhaps one-third of a gallon of oil or less.

A federal tax credit of 10 cents per gallon on gasohol, therefore, costs the taxpayer a hefty $120 per barrel of oil displaced cost. Surely it is worthwhile to look for cheaper ways to eliminate oil.

The economics are not the same in other countries. Brazil is a well-known example, where sugarcane grows in the tropical climate and conventional fermentation and distillation readily yields ethanol. Ethanol is said to provide 40% of automobile fuel in Brazil and compete with gasoline without government subsidy. Depending on the future world price of sugar and the lessening of trade restrictions on both sugar and sugar-derived ethanol, Brazil could become a net exporter of this biofuel.

For the full commentary, see:

JOHN DEUTCH. "Biomass Movement." The Wall Street Journal (Weds., May 10, 2006): A18.

Expecting Nationalization, Companies Held Off Investing in Bolivia

Bolivian President Morales announcing the nationalization of Bolivia’s energy industry. Source of image: http://www.nytimes.com/2006/05/03/world/americas/03bolivia.html

Bolivia’s nationalization of its energy industry, announced Monday by President Evo Morales, was a vivid illustration that the populist policies, championed most prominently by Venezuela, were spreading.

. . .

. . . while Brazil might feel tremors from Bolivia’s decision, it is Bolivia that may be risking its potential as a major natural gas exporter.

Companies had been holding off on investments in Bolivia for some time, unnerved by growing talk of precisely the kind of step that Mr. Morales took this week. Foreign direct investment, much of which goes to energy and mining, fell to $103 million in 2005, from $1 billion in 1999.

What is more, unlike oil, natural gas is not easily exportable, with costly liquefaction facilities, customized tankers or pipelines needed to take the fuel to markets. Chile, a potential market for Bolivian gas, may choose instead a project to import the fuel from as far away as Africa.

Even Brazil, while now reliant on Bolivian gas, has recently discovered large offshore gas reserves of its own. Thus the window of opportunity for Bolivia to become a leading gas exporter may be closing, even as it grows more courageous in its dealings with foreigners.

"If Brazil decides to give the cold shoulder to Bolivia," said Carlos Alberto López, an independent consultant for oil companies in La Paz, "Bolivia will be left with its gas underground."

For the full story, see:

SIMON ROMERO and JUAN FORERO. "Bolivia’s Energy Takeover: Populism Rules in the Andes." The New York Times (Weds., May 3, 2006): A8.

Bolivian soldiers after seizing natural gas facilities. Source of image: http://www.nytimes.com/2006/05/03/world/americas/03bolivia.html

“Damn it Fidel! What are you going to do about this lousy, piece-of-**** island of yours?”

Source of image of book: http://www.amazon.com/gp/product/1586483242/qid=1145298612/sr=2-1/ref=pd_bbs_b_2_1/104-9985403-1047968?s=books&v=glance&n=283155

Fernando Cardosa is the former Brazilian President who is best known for having temporarily tamed Brazil’s runaway inflation. Although not a principled believer in the free market, Cardoso made some efforts to reduce the damage the Brazilian government was doing to the economy. The following startling passage is from a useful review of a new memoir by Cardoso:

. . . , Mr. Cardoso mentions a telling moment at a 1999 summit meeting in Havana. When the heads of state were alone at a luncheon, one said to Castro: "Damn it Fidel! What are you going to do about this lousy, piece-of-**** island of yours? We’re sick of apologizing for you all the time, Fidel. It’s getting embarrassing." The anecdote shows how disingenuous Latin governments can be when they remain silent about the Cuban dictatorship.

For the full review, see:

MARY ANASTASIA O’GRADY. "A Leader Who Got Real." The Wall Street Journal (Thurs., April 6, 2006): D8.

(Note: ellipsis added.)

Here is the full reference to Cardoso’s memoir:

Cardoso, Fernando Henrique. The Accidental President of Brazil: A Memoir. PublicAffairs, 2006. [with Brian Winter; 291 pages; $26.95]

Ethanol Serves Agricultural Lobby

The U.S. imposes a 54-cent-a-gallon tariff on Brazilian ethanol, to discourage competition with domestic ethanol, which receives a 54-cent subsidy from taxpayers. The European Union just slapped new duties on Pakistani ethanol.

This should lay bare the fraud that what’s going here has anything to do with energy security. It has only to do with the agricultural lobby masquerading its interests behind foolish and misleading rhetoric about energy security.

Take the pressure for flex-fuel mandates, requiring auto companies to build cars capable of running on 85% ethanol. Unmodified cars can already burn fuel comprised 10% of ethanol. If we were honestly keen on diversifying supply and squeezing out imported oil, we’d throw open our dense coastal markets to ethanol producers in Brazil, India, Pakistan, Nigeria and Thailand, displacing perhaps 10 billion gallons of current gasoline use without any vehicle modification or taxpayer subsidy at all.

For the full story, see:

HOLMAN W. JENKINS, JR. "BUSINESS WORLD; What’s Wrong with Free Trade in Biofuels?" The Wall Street Journal (Weds., February 22, 2006): A15.

Nebraska Congressman Opposed Government Supporting Agricultural Prices

(p. 85) ". . . in March 1911 Nebraskan Representative George W. Norris sponsored a congressional resolution asking the Attorney General to investigate "a monopoly in the coffee industry." Wickersham replied that he indeed was conducting an ongoing investigation.

(p. 86) In April, Norris lambasted the coffee trust from the floor of the House, summarizing the valorization loan process. He concluded that "this gigantic combination [has been able] to control the supply and the sale of coffee throughout the civilized world. [They] sold only in such quantities as would not break the market." Frustrated by Brazil’s involvement, he observed that when a conspiracy to monopolize a product involved a domestic corporation, it was termed a trust and could be broken. "But if the combination has behind it the power and influence of a great nation, it is dignified with the new term ‘valorization.’ Reduced to common language, it is simply a hold-up of the people by a combination."

Source:

Mark Pendergrast. Uncommon Grounds: The History of Coffee and How It Transformed Our World. Basic Books, 2000. (ISBN: 0465054676)