Ethanol production in Brazil: An assessment of main drivers with MCMC generalized linear mixed models

This paper analyses the production of ethanol in Brazil using an extensive, plant-based, ethanol and sugar production database, including multiple variables involved in the ethanol production chain. To this end, a generalized mixed model was used with the Markov Chain and Monte Carlo methods by applying the MCMCg1mm package in the R software environment. The results obtained not only confirmed the expected signs between ethanol production and its major drivers or contextual variables, but also shed light in terms of their relative importance and their nature: whether structural, conjunctural or exogenous. The main conclusions of this paper are that the contextual variables that contribute the most to the increase in ethanol production in Brazil were, in order of importance, sugarcane milling, sugar production, and the price ratios between ethanol and sugar. Policy implications to the sector are derived.