Brazil’s president Dilma Rousseff has ordered ministers to look at ways of reducing volatility in ethanol prices that could include government intervention in the market.

The move follows a shortage in Brazil last month of ethanol, widely used in the Brazilian automotive industry, leading to a rise in prices and a surge in imports from the US.

The ministers, who include the energy minister Edison Lobao, finance minister Guido Mantega and agriculture minister Wagner Rossi, are preparing a report on the matter for Ms Rousseff. “We have 10 days to take it to her,” said Mr Lobao during a visit to an oil platform near Rio de Janeiro on Tuesday.

The rise in the price of ethanol has become a political issue after it threatened to drive up Brazil’s already high inflation rate this year.

Although Brazil is the world’s second-biggest producer of ethanol after the US, lower-than-expected ethanol production due to drought as well as a late harvest and soaring vehicle sales has contributed to shortages.

Ethanol prices hit five-year highs in recent weeks, forcing Brazilians to switch to using more gasoline-based fuel.

This in turn led state-controlled oil producer Petrobras to import more petrol.

Brazil also imported 70m litres of US ethanol in 2010, up from just 1m in 2009, according to the US commerce department.

Mr Lobao said that ministers were examining various options, including the buying and selling of ethanol by the government to help moderate price fluctuations.

The government is also looking at placing the market, which is not regulated, under the supervision of the oil industry watchdog, the National Oil Agency.

Nearly three-quarters of ethanol sales are made on the spot market, with little hedging of prices in contrast to petrol suppliers who have to sign 12-month contracts with distributors.

While the industry is likely to balk at too much intervention by the government, any attempt to smooth out price fluctuations is likely to be welcomed by millers.

In spite of its recent highs, average prices for ethanol last year were below production costs, dropping as low as R$0.80 ($0.49) per litre compared with highs of around R$1.60 reached earlier this month, Reuters reported.

The agriculture ministry also said on Tuesday that the government would offer cheap credit for the replanting of cane crops to help stimulate greater supply of ethanol.

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