Decentralizing ethanol distribution in southeastern Brazil

A renewable energy source, sugar cane ethanol, fuels many Brazilian automobiles. The authors demonstrated the economic advantage of decentralized distribution directly from the producing mills over the federally mandated practice of centralized, multi-product (ethanol plus fossil fuels) distribution in the producing region of Southeastern Brazil. In the investment analysis, they evaluated logistics costs using a transshipment model. The quantitative results of the present study influenced the client organization, Grupo COSAN/Bom Jesus, to begin lobbying efforts to change federal regulations. The government approved deregulation in July 1993. This changed a Brazilian paradigm; instead of fuel distribution being concentrated in a few big companies, there would be increased competition in the ethanol arena. Currently, Grupo COSAN/Bom Jesus has begun a joint venture with a fossil fuel distributor to invest in this new distribution scheme.