Elasticity of demand for sugarcane, sugar and ethanol

Abstract

Alcohol is a major product of sugar cane, which can be used as a source of renewable energy and fossil energy and used for fuel purposes to replace petroleum. The objective of this study is the estimation of the demand for sugarcane, the main raw material for ethanol and sugar from the perspective of elasticity. The methodology consists of analysis of price elasticity and income elasticity for sugarcane, sugar and ethanol in Brazil in the first quarter of 2000 the period the fourth quarter of 2015 observing whether structural break in the relationship between the variables through the Bai Perron test newly available in statistical packages. The results showed that there are structural breaks in all series. Thus, the authors emphasize the importance of considering structural breaks in the calculation of elasticities given that the values change depending on the period considered.