Jamaica's latest hope for the survival of sugar-cane farming is diversification from sugar to ethanol production. This should blunt the erosion of preferential markets in Europe for Jamaican sugar.

But there are lurking dangers with the potential to challenge, if not totally undermine, these ambitions. The Government, therefore, needs to begin to pay attention to a likely problem that is coming from a country to which Jamaica has turned for help: Brazil.

This past week, as The Gleaner reported, the Brazilian government warned that should Washington not meet its demands, there was a strong possibility it would go to the World Trade Organisation (WTO) with a complaint about the tariff the Americans charge on ethanol imported from Brazil.

The United States is the world's largest consumer of ethanol, mostly used as a blend for gasolene, the same thing that Jamaica hopes to do with its proposed E10 mix. Brazil is the world's biggest and most efficient producer of the stuff, for which its raw material is sugar cane.

The Americans mostly produce domestic ethanol from corn, which, in recent times, has helped to cause a shortage in the grain as a source of food, pushing up its price globally. Using expensive corn to make ethanol has another effect on an inherently less-efficient use of the grain: It makes the manufacture of ethanol in the United States even more expensive, than would otherwise be the case, than in Brazil.

So, to protect their corn farmers and ethanol producers, the Americans maintain a tariff of US54 cents a gallon on ethanol imported from Brazil. The Brazilians have long lobbied against duty, but have done so mainly via bilateral discussions.

recent failure

The Americans, though, insist that their ethanol sector is outside the disciplines of the WTO, and want to keep it that way. But with the recent failure of the latest round of global trade negotiations in Geneva, Brazil is inclined to test this.

Why should this be of concern to Jamaica? Simple!

For more than two decades, ethanol producers in Caribbean Basin countries, including Jamaica, have been able to export the product tariff-free to the United States, up to a cap of seven per cent of US market demand. Jamaica is nowhere near as efficient a sugar-cane producer as Brazil, and in the absence of the US tariff on Brazilian ethanol, it is hardly likely that it could compete in the American market. It is the same principle that applies to bananas, the preferential market for which Europe has faced a running a challenge at the WTO by Latin American producers.

Indeed, we suspect that Jamaica's preferential market in America for its ethanol helped to inform the decision by the US/Brazilian firm Infinity-Bio-Energy to bid for a larger, state-owned portion of Jamaica's sugar industry. And before Infinity, there was interest from other Brazilian companies, including Coimex, which helped to finance an ethanol plant here.

Last week's development seems to raise questions about the certainty of the Infinity deal and what would happen if Brazil can mount a successful challenge against America's tariff. Would Jamaica remain in play for Brazilian investment?

It may all mean nothing. The Government, however, should be thinking through the issues - and its options.