Analysis of Hydrous Ethanol Price Competitiveness after the Implementation of the Fossil Fuel Import Price Parity Policy in Brazil

Abstract

Competition is a relevant element in any open economy. Public policies are necessary to induce economic efficiency and to create conditions to preserve or stimulate a competitive environment. This paper aims to assess the competitiveness of hydrous ethanol price in a period of political, social and economic crises, in 15 Brazilian state capitals between the years 2012 and 2019. We compared the ethanol–gasoline price ratio behavior in two different periods, before and after the import parity price policy implemented by Petrobras in 2016. Mann–Whitney and Levene’s tests, two non-parametric statistical methods, were applied to verify significant changes between these periods. The implementation of changes in Petrobras’ pricing policy from 2016 onwards caused a statistically significant increase in the ratio coefficient of variation in two-thirds of the distribution market and more than the half of analyzed retail markets. Second, overall, the cities that showed statistically significant changes in the median and coefficient of variation in the distribution market price ratio were followed by the retail market. Our findings suggest that government interventions in the fuel and byproduct final selling prices to distributors negatively impact competition between companies that are part of the fuel distribution and retail chain, also affecting the sale of biofuels in Brazil and discouraging the initiatives to use renewable fuels to reduce the emission of pollutants.

Relative Prices of Ethanol-Gasoline in the Major Brazilian Capitals: An Analysis to Support Public Policies

“…We analyze the correlation between the relative price of São Paulo versus other important Brazilian capitals of states that can produce and/or consume ethanol in greater volumes, which allows for inferences regarding the degree of predictability of prices in different Brazilian capitals, as well as the degree of correlation between relative prices in these capitals and in the city of São Paulo, the capital of the main hydrous ethanol producing state and with the largest automotive fleet in the country. This can determine the degree of persistence of relative ethanol prices, following [4,8], as well as whether this relative price has a national or regional character, in line with [5,9].…”

“…Here, we advance the investigation by [9] with a larger sample, which includes the period from the beginning of the launch of flex-fuel cars to the first impacts of the COVID-19 pandemic, with our sample extending from May 2004 to December 2020. In addition, we use a robust methodology of econophysics using sliding windows, which allows for the dynamic analysis of the price trajectory, in view of the static analysis between delimited periods.…”

“…Nascimento Filho et al [9] studied the behavior of the relative prices of ethanolgasoline within the scope of fuel distributors and dealers, comparing the pre-and postimplementation periods of the fuel import price parity policy in Brazil in the main capitals of the country between 2012 and 2019. This policy resulted in the end of the artificial control of gasoline prices, which allowed ethanol to become more competitive, especially in periods of high international oil prices.…”

“…To the best of our knowledge, the price behavior of relative prices of ethanol-gasoline in the main cities or regions of Brazil was only analyzed in the work of [5,9]. The work of [5] covers up to the year 2014, prior to the new import parity policy by Petrobras, which started in 2016.…”

“…The work of [5] covers up to the year 2014, prior to the new import parity policy by Petrobras, which started in 2016. The investigation by [9] starts in 2012 and reaches 2019, separating into the pre-and post-periods and setting up a static analysis. So, there is a lack of knowledge about the aspects of price behavior of ethanol-gasoline relative prices over a relatively extended period, from a dynamic point of view.…”