Ethanol demand in Brazil: Regional approach

Successive studies attempting to clarify national aspects of ethanol demand have assisted policy makers and producers in defining strategies, but little information is available on the dynamic of regional ethanol markets. This study aims to analyze the characteristics of ethanol demand at the regional level taking into account the peculiarities of the developed center-south and the developing north-northeast regions. Regional ethanol demand is evaluated based on a set of market variables that include ethanol price, consumer’s income, vehicle stock and prices of substitute fuels; i.e., gasoline and natural gas. A panel cointegration analysis with monthly observations from January 2003 to April 2010 is employed to estimate the long-run demand elasticity. The results reveal that the demand for ethanol in Brazil differs between regions. While in the center-south region the price elasticity for both ethanol and alternative fuels is high, consumption in the north-northeast is more sensitive to changes in the stock of the ethanol-powered fleet and income. These, among other evidences, suggest that the pattern of ethanol demand in the center-south region most closely resembles that in developed nations, while the pattern of demand in the north-northeast most closely resembles that in developing nations.