The participation of foreign capital in the Brazilian ethanol industry should reach 50% in 10 years or less. The forecast was made by the president of the AgroEnergy and Bio-Fuels Committee of the Brazilian Rural Society (SRB), MaurÀlio Biagi Filho, given the expected boom in the global market for alcohol fuel.
"This is on the verge of happening," Biagi said. The sugar and alcohol industry generates 40 billion reais (US$ 18.9 billion) per year in Brazil and one million direct jobs, according to the Brazilian Ministry of Agriculture.
In 2006, according to Biagi, foreign participation in the sector was 3.4% and should reach 6% this year. In addition to the domestic market, where 80% of new automobiles sold are bi-fuel – that is, they run on alcohol, gasoline or any mix of the two -, investors are also eyeing the international demand created by high oil prices and concern over reducing pollutant gases. "Foreign investors will only enter the market if they notice an international trend regarding ethanol," he said.
And for this market to consolidate, alcohol must become an actual commodity, with large-scale production not only in Brazil and the United States, which are the two largest producers in the world, but in several countries, as is the case with soy, sugar and coffee.
"This opens up opportunities for partnerships in the field, allowing other countries to export too. The United States are not our competitors, because Brazil is not interested in being the sole producer, it is interested in the emergence of other players, so that ethanol can become a major commodity," said the general manager for Sugar and Alcohol at the Brazilian Ministry of Agriculture, Alexandre Strapasson.
The subject should be the focus of the visit that the president of the United States, George W. Bush, will pay to Brazil on March 09. Bush recently became a big enthusiast for agroenergy, leading the sector further into the spotlight.
In addition to a continental partnership to be discussed for the sector, involving production incentives in other American countries, Brazilian businessmen expect a debate over the rates imposed on Brazilian ethanol by the United States.
Despite being the world's largest ethanol producers, the United States must import in order to cater to the domestic market. Of the 3.4 billion liters exported by Brazil last year, 1.7 billion went straight to the United States, paying a 2.5% rate and an additional US$ 0.54 per gallon (one gallon is 3.785 liters).
Still, according to Strapasson, Brazilian alcohol reached the United States market costing US$ 1.75 per gallon, which is cheaper than the US$ 1.90 charged for ethanol produced in the United States, which is made of corn and receives "massive subsidies." In Brazil, the raw material for the fuel is sugar cane.
Capital from Abroad
Even before the anticipated transformation of ethanol into a big commodity, the sugar and alcohol sector attracted the interest of foreign investors, not only because of the fuel, but also for the international sugar market, which is quite heated.
Last year, Biagi himself sold the ownership of the Cevisa plant, in the interior of the southeastern Brazilian state of São Paulo, to multinational company Cargill.
Another company to announce recent investments was Louis Dreyfus, from France, which acquired four plants and a distillery from the Tavares de Melo group, based in the state of Pernambuco (northeastern Brazil).
One of these plants, Usina Esmeralda, in the state of Mato Grosso do Sul (midwest Brazil), is under construction. The company already owned three other plants, two in the interior of São Paulo and one in Minas Gerais.
Another example is that of company Açúcar Guarani, which currently belongs to French group Tereos. The company has three plants in operation and another under construction, all in the interior of São Paulo.
Regarding new investments, according to information provided by the government of the state of Tocantins (northern Brazil), a consortium consisting of natural gas sector giant Sempra Energy, from the United States, Man Ferrostaal, from Germany, and the Etanalc holding, from Brazil, announced its intention to invest US$ 4.2 billion in the construction of 12 alcohol distilleries in the state.
A second phase should include the establishment of 12 other plants, probably in the states of Mato Grosso, Mato Grosso do Sul and Maranhão, driving the investment up to US$ 8.4 billion. When all plants become operational, the output should be 5.7 billion liters of ethanol, according to a forecast of the government of the state of Tocantins.
Besides Brazil, alcohol is used as a combustible in the United States, Colombia and some European countries. Japan has already approved the use of the mix, China is conducting tests, and the entire European Union should adopt it in the near future. Other countries will tend to do the same. "Ethanol is the best oxygenator for gasoline, it pollutes less and improves the octane number (quality)," Biagi said.
In Brazil, 23% of alcohol is added to gasoline, in the United States the amount varies from state to state, and Biagi believes that in other countries it may reach 7%.
He highlights, though, that if the global average for use of alcohol as a combustible reaches 10%, an annual global production of 150 billion liters will be required, which is three times more than the amount produced in the world today. That figure can be achieved, but not overnight.
But Brazil is getting ready. According to Alexandre Strapasson, of the Ministry of Agriculture, 77 new plants should be ready to operate in the country by 2010. According to Biagi, within five years there will be 100 new plants. They will add up to the 360 existing ones, most of which are capable of producing both sugar and alcohol.
Strapasson believes the forecast for new plants to be a conservative one, since the Brazilian sugar and alcohol industry has been growing above 10% per year since 2001. He claims that the industry growth will probably remain at the same level over the next few years.
Besides, the planted area for sugar cane should leap from current 7 million hectares to 10 million by 2013. Currently, Brazil produces 425 million tons of cane, which yield 29.5 million tons of sugar and 17.25 billion liters of alcohol. At the same time, production, which is presently concentrated in the state of São Paulo, should spread out to other states, such as Minas Gerais, Mato Grosso do Sul, Goiás, Tocantins, Piauí, Maranhão and Bahia.
The amount of areas available in Brazil is a major advantage over other agricultural countries. In the United States, for instance, the area destined to corn planting should grow to cater to the demand for ethanol, thus leaving less room for soy plantations. That opens up new opportunities for Brazilian soy farmers in the international market.
Other advantages include the climatic conditions of Brazil, which is almost entirely a tropical country, a favorable feature for agricultural activity, as well as a 30-year experience in large-scale ethanol production.
"The Brazilian market is now mature, there has been a great deal of professionalization, companies are opening their capital and obtaining environmental certificates," Strapasson said.
Biagi points out, though, that ethanol will not replace petroleum. The only country that uses alcohol in large scale as a bio-fuel, in addition to mixing it with gasoline, is Brazil, and it should remain that way.
"Outside of Brazil, alcohol will always be an additive, and by adopting it as such, the countries will be prolonging the life of petroleum reserves," he said.
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