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The study assesses the viability of ethanol fuel considering both private and social costs and benefits. Ethanol costs are calculated for different production scales, locations, and government subsidies. The results show that without government financing subsidies, ethanol fuel would be privately economical (at May 1981 prices) only in Southeast distilleries of appropriate scale. Northeast distilleries are uneconomical even with a shadow wage for labor. Foreign exchange savings from ethanol production are calculated, with the fining that relatively small savings are achieved. However, Brazil gains greater flexibility in sugar export earnings by being able to alter the production mix of ethanol and sugar depending on international prices. Social benefits of ethanol production include greater rural employment, the creation of rural industrial development "poles," and national strategic considerations. yet ethanol from sugarcane has also displaced food crops, contributed to greater land concentration, and not reduced regional disparities.

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