Interregional assessment of socio-economic effects of sugarcane ethanol production in Brazil

Abstract

Brazil is the largest producer of sugarcane ethanol worldwide (28 billion litres in 2013) and its production is expected to increase substantially in the coming years. As the sugarcane ethanol sector contributes significantly to the national economy, an expansion of production impacts GDP, employment and trade; these impacts are not equally distributed throughout the country, nor between income classes. These differences between regions and income classes are not well understood since previous studies on socio-economic impacts used high aggregation levels. The objective of this study is to compare the distribution of socioeconomic impacts of sugarcane ethanol production expansion in Brazil, including the interregional effects, across three microregions in the Centre South and different income classes. The spatial distribution of sugarcane for the supply of 54 billion litres of ethanol in 2030 was used as input for an interregional input-output model. Three scenarios for the quantity and location of sugarcane production are studied, based on measures to limit land use (i.e. second generation ethanol, higher agricultural yields). The results show that expansion of sugarcane ethanol production in Brazil in 2030 could increase the national GDP by 2.6 billion USD and employment by 53,000 fte. In general the microregional benefits of sugarcane expansion outweigh the downsides from displaced production of other crops and livestock. The microregions also benefit to varying extents from sugarcane ethanol expansion outside their borders. Additional employment is primarily generated in lower income classes. There are considerable differences in the impacts across the regions, these are related to the structure of the local economy and the scenario and not only dependent on the local potential for sugarcane expansion. Socio-economic impacts of biofuel production should thus be studied on lower aggregation levels to include these differences in benefits across regions and income classes.