The global sugar supply crunch is about to get worse amid a food-versus-fuel debate playing out in top exporter Brazil.The South American nation is seeing record prices for ethanol as consumers there take advantage of easing Covid-19 restrictions and travel again, increasing consumption of the biofuel. That means mills could start processing more sugar cane into ethanol, rather than into sweetener.The biofuel is “potentially more profitable, especially for those mills that are tight financially,” said Michael McDougall, managing director at Paragon Global Markets.Prices for ethanol at mills in Sao Paulo jumped 10% last week to the highest in data going back to 2000.Cane supplies are already tight due to a severe drought that’s been ravaging yields in Brazil. Cane-crushing dropped 31% in the first half of April compared to a year ago, according to industry group Unica.All of this is helping sugar to extend its scorching rally. Futures prices in New York are up 73% in the past 12 months. The staple’s rise means increasing costs for foodmakers at a time when food inflation and hunger are an increasing concern around the globe.Brazil can’t simply import ethanol to ease supplies, because prices are up in other exporting nations like the U.S., which is also seeing increased driving and travel as vaccinations progress. In fact, prices are so high for U.S. corn-based ethanol that Brazilian biofuel may start to look attractive. U.S. ethanol prices nearly doubled in the past 12 months.For now, sugar is still more profitable than ethanol in Brazil when it comes to exports. Producer BP-Bunge Bionergia said the sweetener will see a premium of as much as 3 cents per pound through October before narrowing to 1 cent, said Ricardo Carvalho, commercial director at the joint venture.Ethanol is also getting relatively more expensive than gasoline in Brazil, which means demand may taper. Brazilian drivers use both fuels, and usually pick whichever is cheaper.Another factor that could dampen the looming sugar shortage: most of Brazil’s current crop is already sold in advance in export markets. Before converting more cane into ethanol, mills would have to pay an expensive fee to cancel those contracts, said Bruno Lima, head of sugar at StoneX Group Inc. in Brazil. The cost could be more than 4 cents a pound, requiring Brazilian ethanol prices to rise to 21.8 cents a pound versus current levels of around 17 cents, Lima said.