The role of productivity and efficiency gains in the sugar-ethanol industry to reduce land expansion for sugarcane fields in Brazil

During the 2000s, the development of flex-fuel automotive vehicles in Brazil and rising international com-modities prices allowed the Brazilian sugar-ethanol sector to grow at higher rates and expand area planted to sugarcane relative to levels verified in the 1990s. However, this land expansion increases the pressure on land -use change and management. This paper seeks to estimate the technical efficiency and decompose the total factor productivity (TFP) in the sugar-ethanol industry using a stochastic frontier framework. Primary data was ob-tained from an unbalanced panel of 90 sugar and ethanol producers for the harvest years from 2012/2013 to 2016/2017, providing 209 valid observations. Results suggest that mills have a small gap to increase their ef-ficiency under the current technology, and the industry's TFP has been primarily impacted by the efficiency effects, on the other hand, SE mills might improve TFP rising their scale of production. Therefore, the results in this paper suggest that small SE mills may benefit from merging with other mills to explore economies of scale to enhance their TFP and strengthen economic competitiveness, contributing to the Brazilian environmental policy agenda.

Automated summary

During the 2000s, the Brazilian sugar-ethanol sector experienced growth due to the development of flex-fuel vehicles and rising international commodity prices. However, this growth also increased pressure on land -use change and management. This study examines the efficiency and productivity of the sugar-ethanol industry and suggests that small SE mills could benefit from merging with larger mills to improve their productivity and contribute to environmental policies in Brazil.