Examining the Relationship Between the Gasoline A Market and the Prices of Hydrous Ethanol and Sugar to the Producer in Brazil

Objective: The aim of this article is to discuss the relationship between the gasoline A, sugar and alcohol markets in Brazil from May 2003 to February 2018. Theoretical Framework: The sugarcane-alcohol sector has been affected by various policies, such as the Proálcool program, the intervention in ethanol blending in gasoline, and more recently, RENOVABIO. Thus, the market structure, in which gasoline and the sugarcane-alcohol sector are embedded, has shown a strengthening in the correlation of commodity prices, as highlighted in the literature. Materials and Methods: Prices of gasoline A, hydrous ethanol and producer sugar were used to estimate an autoregressive vector model (VAR). Dummies were included in the system to determine the following events: the crisis of 2008, the interventionist policy of restraining gasoline prices in Brazil (between April 2011 and June 2014) and the time when flex-fuel vehicles became the largest part of the car fleet in the country (from 2012). Results: The results suggested that there are links between the gasoline market and the sugar and alcohol sector, mainly with hydrous ethanol, which is a substitute for fossil fuel in consumption. Research Implications: Therefore, it is crucial that the federal government consider the consequences that gasoline price controls can generate in the sugar and ethanol industry, so that producers do not suffer from greater business risks, as it has been in recent years. Value: The literature extensively explores the price relationship between sugar and ethanol with gasoline C (common gasoline). This article innovates by observing in greater depth the price of gasoline A and its dynamics with the sugarcane-alcohol sector.