Global Success
Unknown to many outside Brazil, the cultural significance of cachaça, a distilled liquor, ranks among soccer, carnival, and samba. Although non-Brazilian’s compare cachaça to rum, their only similarity is that they both originate from sugarcane. Cachaça first gained popularity among slaves and peasants during Brazil’s colonial period but the spirit has recently become a favorite domestically and internationally regardless of the drinker’s class. Also, Brazilian cachaça exports to Europe and the United States have been aided by the trendy drink caipirinha. The cocktail’s global success has inspired other Caribbean and South American states to produce their own cachaça-like alcohols. Consequently, the Brazilian government has initiated protectionist measures at home and abroad to preserve cachaça’s foreign markets. These developments bring together cachaça’s trade, cultural, and environmental aspects.

Description
No one knows for sure who began cachaça production, but everyone agrees that it began somewhere between 1530 and 1550. Around this time, sugarcane had been introduced to Brazil as a cash crop by their colonial motherland Portugal. Slaves, who planted and harvested the sugarcane, were given leftover cane juice from the milling process and let it ferment to produce an alcoholic beverage. As an incentive, plantation owners often promised slaves this fermented cane juice once they had completed their work. Eventually, someone realized that by boiling the fermented juice a more potent libation was produced, marking the birth of cachaça. At this point, wealthy Brazilians regarded cachaça as a poor man’s drink and thus preferred European alternatives. However, this did not stop cachaça from becoming an integral part of Brazilian culture. It is estimated Brazilians consume close to 350 million gallons of cachaça per year – about two gallons per person.

There are roughly 30,000 small producers along with a few handfuls of large cachaça producers in Brazil. Because the distillation process is relatively easy compared to other liquors and because sugarcane is so abundant in Brazil, the business can be is open to anyone. Sugarcane is first milled to extract its juice, then fermented for about 24 hours, and finally boiled until it an 80-proof substance emerges. Cachaça is usually bottled soon after distillation but some have tried to fashion new varieties by aging cachaça much like whiskey. The Brazilian legislation indicates that cachaça must be aged for at least one year in barrels no larger than 700 liters for the legitimate use of the “aged” appellation. Brazilians aging their cachaça use a variety of woods for their barrels, including Brazilian woods such as imburana, cedar, freijó, and jequitibá and American and European oak, which give the liquor a smoother, rounder taste. In addition, a third type of cachaça, called “yellow” cachaça, is made by merely adding caramel or wood extracts directly into the drink without aging causing the cachaça to have a much sweeter taste. Regardless of the variety, cachaça should not be confused with rum, which is distilled from the molasses left over after sugar refinement. However, the mistake is made; cachaça imports into the United States are taxed as rum and cachaça is sometimes referred to as Brazilian rum.

Cachaça’s export capability was uncertain until the caipirinha became a bestseller in bars across Europe, United States, and Japan. The cocktail combines crushed limes, sugar, ice, and cachaça to produce a sweet and zesty flavor packed with alcoholic intensity. But since cachaça and caipirinha were associated with drunkness and the lower classes, not until recently when the drinks began to be marketed as fun, exciting, and tropical have exports grown. Germany has become the largest consumer of cachaça outside Latin America, constituting about one forth of the foreign market. In addition, only beer exceeds caipirinha sales in Germany. The Brazilian government has also helped promote cachaça by providing caipirinhas at social functions and facilitating exports through technical consultation. Ambitious export programs aim to increase cachaça exports to 40 million liters per annum by end of this decade. In addition, Brazilians hope that cachaça and caipirinha will become what tequila and margaritas have become for Mexico: an internationally recognized image associated with the Brazilian lifestyle. Though popular all year round, Brazilians also enjoy sipping cachaça during Carnaval, a festival similar to Mardi Gras.

Trade Clusters
Brazil is by far the largest and most important producer and exporter of cachaça. This is not surprising since the distilled liquor originated in the country and since the Brazilian government has declared the drink a national trademark and begun to press for its international protection. Over the last five years, Brazilian exports of cachaça have skyrocketed as a result of successful international marketing and export campaigns. According to the Brazilian Cachaça Development Program (PBDAC), 500,000 liters of cachaça were sent abroad in 1995, while 2003 estimates project exports at 20 million liters in over 60 countries around the world (see Figure 1). In 2001, the 11.1 million liters sold outside Brazil yielded $9 million in revenue. As its short-term goal, PBDAC hopes to increase cachaça exports to 38 million liters by 2010. However, Brazilian cachaça exporters must first overcome distribution problems. Unlike José Cuervo, Johnnie Walker, and Smirnoff, distributed by the well-established UDV, cachaça companies have trouble finding expert distribution companies.

The export explosion can be partly attributed to the success of the caipirinha, a cachaça-based cocktail with sugar and limes. Caipirinha enthusiasts enjoy the drink because of its exotic and tropical flavor as well as its association with Brazilian culture. But while caipirinhas and cachaça become more popular abroad, their real success lies at home. In 2002, of the 1.3 billion liters of cachaça were distilled in Brazil, exports represent only 1% of that figure. The industry generates about $5 billion and employs roughly 450, 000 Brazilians directly or indirectly. PBDAC claims that there are 30,000 cachaça manufacturers producing 5,000 different brands of the spirit. Of those producers, Industrias Muller de Bebidas ranks number one. Their most popular cachaça, Pirassununga 51, makes up 33% of the market share alone.

Besides Brazil as the primary consumer of cachaça, Paraguay is the largest importer of cachaça. This is not surprising since Brazil and Paraguay are among the four member nations that form Mercosur. One of the primary objectives of Mercosur is to eliminate all tariff and non-tariff barriers to trade within member states, which includes barriers to trade in beverages. Therefore, Paraguay is able to purchase cachaça at a lower rate. However, Germany might soon replace Paraguay as the leading importer of cachaça. Current estimates by PBDAC show that while Paraguay imports 28.19% of Brazilian cachaça exports, Germany imports 23.31%. All this cachaça is needed for caipirinhas at German bars; the cocktail is the second most consumed beverage in Germany after beer. As Mercosur countries negotiates with the European Union in a trade agreement to lower tariffs on spirits and wines, the amount of cachaça entering Europe will undoubtedly continue to increase.

However, Brazilian cachaça has run into several obstacles in the international market. One of these complications concerns cachaça’s classification as a distilled spirit. In the US, EU, and other countries, cachaça officially enters as rum. The US tariff schedules does not have a separate category for cachaça as it does for tequila, pisco, mezcal, Scotch whisky, and others, and lists the Brazilian spirit under the heading “Rum and Tafia.” Yet, cachaça exporters are not complaining about the tariffs themselves because under the Generalized System of Preferences of Title V of the Trade Act of 1974, Brazil qualifies for special status as a developing country. According to this provision, all Brazilian cachaça enters the US tariff-free. Therefore, the effort to create cachaça’s own classification seeks to increase its international recognition and earnings by highlighting cachaça’s uniqueness.

Since cachaça is technically Brazilian, information regarding other countries that have begun to export under the name is hard to find. Yet, we can still make some comparisons in relation to distilled spirit export. According to PBDAC, cachaça is the third most distilled liquor on the planet, falling behind to vodka and soju. Other drinks that followed were, in order, shochu (A Japanese liquor that can be distilled from sweet potatoes, rice, and even barley), gin, rum, Scotch whisky, Thai whisky, and brandy. Remarkably, production of cachaça was twice that of rum – geographic indication could really help this rising star.

Most Distilled Liqours Worldwide

1) Vodka
2) Soju
3) Cachaça
4) Shochu
5) Gin
6) Rum
7) Scotch Whiskey
8) Thai Whiskey
9) Brandy

Type of Measure
Direct v. Indirect Impacts: Direct

Relation of Trade Measure to Environmental Impact:
Directly Related to Product: Yes, Cachaça

Indirectly Related to Product: Yes, Sugar

Not Related to Product: No

Related to Process: Yes, Culture

Trade Product Identification: Cachaça

Economic Data: Impact of Trade Restriction: High Industry Sector:

Food Exporters and Importers
Largest cachaça exporter: Brazil and Many Top ten cachaça importers (as a percentage of all Brazilian exports):

1) Paraguay (28.19%)
2) Germany (23.31%)
3) Italy (6.09%)
4) Uruguay (5.94%)
5) Portugal (5.68%)
6) Bolivia (4.28%)
7) USA (4.13%)
8) Chile (3.69%)
9) Spain (3.60%)
10) Netherlands (2.39%)

Environment Clusters

The environmental aspects of cachaça begin with sugarcane, and thus the story begins in the early 1500s when sugarcane arrived in Brazil. According to the São Paulo Sugarcane Agro Industry Union (UNICA), explorers brought sugarcane into Northeastern Brazil for both economic and political interests. Sugar was a major luxury good at the time and therefore Portugal encouraged cane production in Brazil, its colony, to increase its own wealth and compete with Caribbean sugar production. With the Spaniards and other Europeans viciously conquering territory in the new world, the Portuguese also decided to settle and grow sugarcane on slave plantations in order to maintain a legal claim on the land. However, in 1630, the Dutch East India Company invaded the Northeastern Brazil, what is now the state of Pernambuco, and began to plant and export sugar to Amsterdam. After 24 years, the Brazilian colonists expelled the Dutch, who moved their enterprise to the Caribbean islands and took with them the knowledge, experience, and technology that would devastate Brazilian sugarcane production (these islands were closer to Europe than Brazil making transportation costs much cheaper) until a rebound during decolonization.

Today, Brazil is the largest producer of sugarcane and its derivatives. According to the Global Information Network, in 2001, one million Brazilians grew 291 million metric tons of sugarcane, distilled 16 billion liters of cane alcohol, and extracted 20 million metric tons of raw sugar. About 55-60% of sugar is used for ethanol production while 40-45% is used to make raw sugar. As the largest exporter of sugar, Brazil possesses considerable control over the international sugar market and the commodity’s price. However, because of overproduction both domestically and abroad, sugar prices have remained fairly low. In addition, sugar and the ethanol distilled from sugarcane are among the most heavily protected goods internationally. During the Mercosur negotiations, a dispute arose between Argentina, a less efficient cane producer, and Brazil over Brazilian subsidies to Northeastern sugarcane farmers. These subsidies have been encouraging ethanol production as an alternative fuel source. As oil prices increased during the 1970s, the Brazilian government launched a campaign to burn ethanol in cars and power plants. In the 1980s, about 80% of the cars manufactured in Brazil ran exclusively on ethanol. Now, this figure has dropped to about 1%, mainly because of an ethanol shortage in 1989 and 1990 that swayed car manufacturers to return to gasoline. Recenty, automakers have designed new vehicles about to run on enthanol, gasoline, or both, without corroding engine parts. To continue to stimulate further demand for ethanol, the Brazilian government requires a certain percentage of ethanol in gasoline, usually between 20% and 24 %, which is set by Presidential decree.

Sugar-Growing Regions of Brazil	Total Brazilian Sugar Cane Production	Total Brazilian Raw Sugar Export
Northeast	20-25%	70-75%
Center-South	75-80%	25-30%