Sugarcane has been an important part of the Brazilian economy since the early 1600’s, being the most important Brazilian cash crop throughout its history. The innovation process started with the formation of the IAA (Sugar and Alcohol Institute) in 1933 to help the weak sugar economy by allocating resources to the sugar industry. Soon after the Brazilian sugar economy boomed and sugarcane-based ethanol started being blended with gasoline. Also during this time, the sugar industry concentrated around Sao Paulo due to the increased transportation cost of sugar in the northeast. This also increased the productivity of the sugar industry due to the increased proximity to industrial complexes and research institutions, such as the IAC (Campinas Institute of Agronomy) and Esalq (The Luiz de Queiroz College of Agriculture). In 1971, the government launched a program through the IAA called Planalsucar with the purpose to breed more efficient and disease resistant strains of sugarcane.
However, the Brazilian ethanol program started with the creation of Proalcool (The National Alcohol Program) in 1975 due to the harsh impact of the oil crisis. During this time, Brazil imported 80% of its oil and prices quadrupled. The aim of this program was to replace the gasoline consumed with ethanol produced from biomass, mostly sugar. Within 4 years the output quintupled from about 664,000 cubic meters in 1976 to 3.7 million cubic meters in 1980. This was enough to for a 20-25% (E20-E25) blend with gasoline.
As ethanol production continued to grow, and in the wake of the second oil crisis, the government wanted to create cars that ran exclusively on ethanol (E100). In order for this to be possible, the government issued tax incentives for these new vehicles and controlled prices to make ethanol cheaper than gasoline. A new infrastructure was needed to supply the new E100 vehicles. Once again the government financed storage of E100 fuel at gas stations and the distribution of fuel to these gas stations. To meet the growing demand for ethanol due to these policies, the government also financed the creation of more distilleries.
Andre Tosi Furtado, Mirna Ivonne Gaya Scandiffio, & Luis Augusto Barbosa Cortez. “The Brazilian Sugarcane Innovation System”. Energy Policy 39 (2011) 156-166.