SAO PAULO, Brazil — Decasa Acucar & Alcool employed 1,200 workers last year at a mill in Maraba Paulista, Brazil, that crushed cane to make sugar and ethanol. Today, all that's left are 22 employees, a security guard and his dog.
The mill fell victim to inflation-control policies in Brazil, the world's largest sugar maker and the top producer of ethanol made from cane. Government subsidies for gasoline reduced domestic demand for biofuels and compounded a global surplus of sweeteners. Decasa, which shut down its mill and agreed to sell all its sugar cane production to Odebrecht Agroindustrial, is seeking to pay off about 262 million reais ($112 million) in debt, court documents show.
"It's sad," Rubens Germano, a union leader for the mill's workers, said in a telephone interview from Presidente Prudente, Brazil. "The place was full of people all the time, and now it's a ghost house."
President Dilma Rousseff caps gasoline prices through a controlling stake in state-run Petroleo Brasileiro to limit a 5.77 percent inflation rate that is the third-highest in Latin America. Only 24 percent of Brazil's flex-fuel cars fill up with ethanol, down from 82 percent in 2009, said researcher Datagro Ltd.
At the same time, sugar futures are heading for the longest slump in two decades. Since 2007, 51 mills closed, or 12 percent of the nation's total, according to Itau Unibanco Holding, a Sao Paulo-based bank, and Unica, a trade group.
Investors are fleeing. Yields on bonds issued by sugar and ethanol maker Grupo Virgolino de Oliveira surged 12.34 percentage points this year to 22.313 percent as of Dec. 17, compared with an average gain of 0.7 percentage point for high- yield emerging market corporate bonds. Yield gains for Aralco SA Acucar & Alcool bonds issued this year were almost 16 times more than the average increase for emerging market bonds, while Tonon Bioenergia was almost six times more.