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National

Lower fuel prices push by Brazilian president Jair Bolsonaro hurts Aussie farmers

President Jair Bolsonaro has introduced a raft of measures to reduce the cost of fuel in Brazil.

Brazilian politics might be half a world away but that hasn't stopped a president's populist push from putting pressure on Aussie farmers.

While it might seem unlikely, Australian sugar cane growers, the world oil price, volatility in commodity markets and President Jair Bolsonaro's bid to be re-elected are all connected. 

Here's how.

In Australia sugarcane is used mostly to make sugar but it can also make ethanol, a renewable fuel used in vehicles and manufacturing. 

Brazil is the second-highest producer of ethanol in the world, and when oil prices are high, demand for ethanol increases, so traditionally more cane gets made into fuel instead of sugar.

That tends to raise the world price of sugar, which benefits Australian farmers who export most of the sugar they make. 

Right now, the war in Ukraine and the long-term effects of the pandemic are pushing up oil prices, but Brazil isn't making more ethanol.

That's largely to do with politics, as editor-in-chief of agricultural e-commerce and news website Agrofy News Brazil Daniel Azevedo Duarte explained. 

Daniel Azevedo Duarte says the Brazilian president is intervening with his country's fuel prices. (Supplied: Daniel Azevedo Duarte)

"[Domestic fuel] prices rose more than 30 per cent in Brazil last year, and a further 10 per cent this year," he said. 

"President Bolsonaro proposed a constitutional amendment, a kind of budget exception to congress, to create a state of emergency.

"Now the government has billions of dollars to pay the state's [fuel] taxes ... to reduce fuel prices and mitigate inflation." 

In effect it's a tax cut for fossil fuels, widely viewed as a populist move to secure support ahead of the election on October 2, that could have far-reaching implications for biofuels and free markets. 

Volatility creates pressure

In a sign of the volatility in sugar markets, prices dropped about $50 a tonne at the start of the week but then rallied on Thursday after reports Brazil's sugar production was lower than expected. 

But sugar could come under pressure again with speculation Petrobras, a 51 per cent state-owned oil company, will cut gasoline prices again this week.

Greenpool commodities analyst Tom McNeil said other global factors would normally make sugar attractive to speculators, but that had been damaged by Mr Bolsonaro's policies.

"It dampened the market's enthusiasm for ethanol and so there's been a small swing to sugar out of that, but it's also taken overall values down" he said.

"Things generally remained tight globally ... it has really been the change in fuels in Brazil that have counteracted all those positive numbers.

"The hedge funds and the speculators have decided that commodities aren't really the best place to be at the minute and have taken some of their money out of the markets generally."

Profitability is an issue for Australian sugar farmers exposed to volatile world markets.  (Supplied)

It is a stressful daily game watched closely by Queensland Sugar Limited chief executive Greg Beashel.

"The question is how much ethanol is Brazil going to produce from sugarcane and how much sugar is Brazil going to produce from sugarcane?" he said.

"The answer to that is unknown — if we know the answer, we know the sugar price going forward."

Aussies on watch

Mr Beashel said Australian cane growers could guard against the volatility by locking in prices through agreements for future supply, sometimes two or three years in advance. 

But that could be risky.

A wet start to the harvest this year means some growers might not produce the volume they forward-sold, and that can cost them in the long run. 

"There's an opportunity, but it's also frustrating and a little bit stressful for people like me to be frank," he said. 

Australian farmers mostly export their sugar, which leaves them exposed to volatility in commodities. (Supplied)

"We're watching this every day and seeing the really big movements and some of them have been quite unpredicted as well."

And with skyrocketing input and energy prices to contend with, even at good prices profitability is a concern. 

"The break-even price is different for everyone but it's certainly gone up a lot, particularly with the increase in fertiliser and diesel costs," he said. 

The uncertainty makes a tough harvest tougher, and while it's unlikely customers will see the impact of that on the price of sugar they buy because most of Australia's sugar is exported, it adds to the pressure many farmers feel about the future of the industry. 

Big biofuel questions

Back in Brazil, the switch between sugar and ethanol doesn't normally disadvantage farmers, but Mr Azevedo Duarte said the political intervention in the market did have them worried.

"The sugar cane sector is very unhappy ... because the federal government is interfering with some pivotal aspects of biofuels," he said.

Mr Bolsonaro's pressure on oil company Petrobras to reduce prices is widely seen as a populist move. (AP)

Canegrowers in Brazil can sell CBIOS, a kind of carbon credit, to companies wanting to lift their sustainability credentials.

It's linked to the ethanol they make, but while cheaper fossil fuels were favoured, Mr Azevedo Duarte said it directly cut the benefits available to farmers. 

"They are suffering because without this benefit, running their business is more expensive," he said.

"People are very worried about the government interference in the market, because it's difficult when you don't know what the rules of the game are."

Whether it will be enough to get Mr Bolsonaro re-elected will be a matter for Brazilian voters in October.

Mr Beashel said while Australian growers would be watching closely, they were mostly focused on this year's crush. 

"The main thing on sugar millers' minds is let's get stuck in and start crushing the crop and hope for some better weather," he said. 

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