GOOGLE GUYS TRAVEL TO BRAZIL TO CHECK OUT BRAZILIAN ETHANOL

Note: the following story was adapted and translated from an article that appeared originally on www.uol.com.br, the electronic version of "Folha de Sao Paulo", Brazil's leading daily newspaper, on February 3rd, 2006.
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Somewhat belatedly, I report on Larry Page and Sergei Brin’s trip to Brazil in early February 2006. Several Brazilian mainstream media carried the news, including “Folha de Sao Paulo” and Computerworld.

As is becoming increasingly the norm, a blog broke the story, which was subsequently picked up by the MSM. H.O.
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It all started on “Blue Bus”, a Brazilian blog. In a post, the blog’s owner, Julio Hungria said, “The Google guys came to a restaurant next door for dinner. Can you believe that?”

“They displayed a local’s familiarity with Ipanema. But I’m sure the two guys were really Larry Page and Sergey Brin. The went inside the Gula Gula restaurant on Anibal Street, wearing jeans and a t-shirt. And you know what? Nobody noticed.”

Mr. Hungria added, “On the mezzanine, they tried to make sense of the menu. ‘What is picadinho?’, they asked. They thought it was some kind of fish, when, in reality, it is a Brazilian dish made of small pieces of chopped beef. Their reaction: ‘No, no red meat’”.

Soon a blogger from the state of Minas Gerais chipped in, saying, “I also ran across the Google guys in the hallways of UFMG”, one of Brazil’s top universities.

The statement was backed up by a picture on the university’s web site, which showed the two entrepreneurs with the university’s president, under the headline, “Google Wants to Boost Partnerships”.

Meanwhile, on Blue Bus, two comments had been added by readers. One speculated whether "the rwo men weren’t actually look-alikes who had been hired to transit around Brazil’s major cities”, part of a viral marketing campaign. The other reader, Marco Chiaretti, noted, “Soon, someone’s going to say, ‘Here come those two nerds from Google.’

Being a Google guy in Brazil isn’t always fun.

The Dow Jones News Service, on yesterday’s electronic edition of “The Wall Street Journal”, said that the search engine company’s numbers for the last quarter of 2005, which led to a sharp drop in stock prices, “demonstrated the risks of international expansion”.

The figures that gave the company’s stock a tumble came out of Great Britain, but the news service focused on investment risks in China, then Brazil, Mexico, Japan, and India.

By phone, from Brazil, one of the Google guys, Sergey Brin, said that, “We will intensify our efforts to raise our infrastructure abroad and develop products designed for each market”.

And the Google guys’ interest in ethanol, which led them to the interior of Sao Paulo state,
proved, in the end, to be genuine. An interest which is shared not only by them and George W. Bush, but by others as well, according to a headline from “Globo Online”: “Bill Gates, Bush, and Goole Eye Brazilian Ethanol”.

The story goes that the founder of Microsoft “plans to invest in the Brazilian fuel”. And there’s more. In analyzing the repercussions of Mr. Bush’s State of the Union Address, the print version of the WSJ spoke of a new “technological fever” in Silicon Valley: investing in alternative energy companies.

Among others, the WSJ quotes Vinod Khosla, one of the co-founders of Sun Microsystems, a company from which he has departed, who, over the past few years, has invested in “half a dozen” new companies in “clean fuel”, such as ethanol.

By the way, the cover story on the national ethanol program that Mr. Bush dreams about, the WSJ underscored difficulties, praised the initiative, and hailed Brazil as a “success story”.
On another note, “The New York Times” highlighted the “lack of enthusiasm” shown by Mr. Bush’s Republican Party, and, in particular, by Saudi Arabia.

Toward the middle of the article, an independent researcher remarked, “It is remarkable that we do not impose tariffs on Saudi fuel, when we tax fuel from Brazil”.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

BLOOMBERG: INDIA'S BAJAJ HINDUSTHAN PLANS $500 MILLION SUGAR INVESTMENTS IN BRAZIL

Bloomberg.com

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By Pratik Parija and Thomas Kutty Abraham

Aug. 22 (Bloomberg) -- Bajaj Hindusthan Ltd., India's biggest sugar company, plans to invest $500 million in Brazil, the world's largest producer of the sweetener, to tap the growing market for alternative fuels.

Chief Executive Kushagra Nayan Bajaj wants to acquire mills in South America that can produce sugar and ethanol, helping the Mumbai-based company repeat a 10-fold increase in crushing capacity that has driven four years of record profits.

"If I need to grow exponentially I need to be in Brazil,'' Bajaj, 29, said in an interview on Aug. 17. "If an investor expects another 10-fold increase out of me in the next five years, or three years, I can't do it in India.''

Bajaj Hindusthan is expanding in the world's No. 1 ethanol market, where production costs are half the global average, as record-high crude oil prices boost the alternative fuel's appeal. Cargill Inc. is increasing ethanol exports from Brazil by a fifth this year, while Societe Generale is backing a $500 million fund that aims to acquire sugar mills in the nation.

"Sugarcane area can't be increased in India and whatever expansion Bajaj Hindusthan had to do in India it has done,'' Vinit Birla, an analyst at Pranav Securities Ltd., said in Mumbai. He has a "buy'' rating on the company's stock.

Bajaj said he expects the 75-year-old sugar producer to meet its annual profit target this year as it releases stocks built up in the past quarter. Four years of profit growth have lifted shares of Bajaj Hindusthan 23-fold in the past three years, valuing the company at $1 billion.

Bajaj is the great grandson of Jamnalal Bajaj, founder of the Bajaj Group, which has companies that make scooters to sugar to hair oil to electric bulbs.

Brazilian Push

Brazil added 19 new cane-processing mills this year as rising global demand for the sweetener encouraged investments, according to data from the Center-South Sugarcane Industry Association.

Ethanol costs about 19 cents a liter to produce in Brazil, compared with a world average of 40 cents, according to KPMG International.

Cargill, the largest U.S. agricultural company, expects to export 600,000 cubic meters (159 million gallons) of ethanol from Brazil in the crop year ending April, 20 percent more than in the previous year, Luiz Pretti, financial director of the company's Brazil unit, said in May.

Societe Generale, France's third-largest bank, holds a 7.8 stake in a fund set up by Patrick Funaro, a former sugar broker at the bank's Fimat USA unit in New York, to acquire mills.

Alternative Investments

Slower expansion in the area planted to sugarcane in India, the world's second-biggest sugar producer, and curbs on exports of the sweetener by the Indian government are also encouraging Bajaj to enter the South American nation.

"I can own land in Brazil and expand my capacity,'' said Bajaj, who's briefed morning and evening by the 11-strong team he's set up in Brazil. "Ninety-eight percent of my time, energy and life is focused on Brazil.''

Shares of Bajaj Hindusthan have fallen 16 percent since India, the world's biggest consumer of sugar, on July 4 banned exports of sugar through March 2007 to all countries except the U.S. and the European Union.

"There is a negative sentiment in the market because of the government ban on exports,'' Soumendra Nath Lahiri, who helps manage about $2 billion in Indian equities at DSP Merrill Lynch Fund Managers Ltd. in Mumbai.

Profit Target

Bajaj said the sugar maker expects to meet its annual profit target of 2.66 billion rupees for the year ending Sept. 30. That indicates fourth-quarter profit of 1.13 billion rupees, according to Bloomberg calculations, compared with 557.9 million rupees a year earlier.

Indians, the world's biggest sugar consumers, are buying more colas, chocolates, pastries and biscuits as economic growth boosts wages. That's encouraging companies to expand.

The sugar maker, along with its unit, is more than doubling sugarcane crushing capacity to 150,000 tons a day in India from 59,000 tons by November 2007, Bajaj said. That compares with 14,000 tons in 2002.

Bajaj Hindusthan is expanding its ethanol-making capacity to 800 kiloliters a day from 320 kiloliters a day. It's also boosting power generation capacity to 270 megawatts from 151 megawatts. Ethanol and power are produced from byproducts of sugar -- molasses and bagasse.
The company is also spending 2.4 billion rupees through its new unit BHP Agro Products Pvt. to make medium density fiber board and particle board by using bagasse as the key raw material. The boards will be used to make furniture, Bajaj said.

"They have expanded in the domestic market quickly,'' said Anoop Bhaskar, who helps manage $1.2 billion at Chennai-based Sundaram BNP Paribas Mutual Fund, including Bajaj Hindusthan shares. Rising profit "will help the company acquire plants overseas and make it a big player in the world market as well.''

To contact the reporter on this story: Pratik Parija in New Delhi at pparija@bloomberg.net ; Thomas Kutty Abraham in Mumbai at Tabraham4@bloomberg.net

Last Updated: August 21, 2006 18:48 EDT


Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

ETHANOL PRICES IN BRAZIL DOWN, EXPECTED TO RISE AGAIN

Valor Online

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Prices for ethanol fuel closed dropped last week in Sao Paulo, the main consumer state in Brazil, according to a survey carried out by the Center for Advanced Studies in Applied Economics (CEPEA). However, strong demand by fuel distribution companies and robust exports have slowed the decline in prices, says Mr. Marcelo Andrade, director of Ecoflex Trading.

Anhydrous ethanol prices closed at R$ 0.92458 (~US$ 0.42026) per liter on Friday, August 18th, 2006, a 6.5% drop in relation to the previous week, a slide which contributed to a 10.2% slip in August. Over the past twelve months, however, prices are still up by 21.6%. The liter of hydrous ethanol closed Friday at R$ 0.78904 (~US$ 0.35865), a retreat of 7.3% compared to the previous week. Overall, prices presented a devaluation of 11.9% this month. Over the past twelve months, however, they are up by 20%.

The recent price drops have warmed up demand, according to Valor Economico’s sources. Ecoflex has released a report that says that distribution companies have stopped buying “from hand to mouth”, and carried out expressive acquisitions last week. Mr. Andrade, from Ecoflex, believes that the market may stabilize or even start to rise, due to the strong demand for ethanol, both in Brazil and abroad.

Ecoflex's report states that the “distribution companies have returned to the Center-South markets, with deals closed in the states of Sao Paulo, Minas Gerais, and Goias, serving the states of origin and meeting demand from Brazil’s northeastern states”.

Ms. Marta Marjotta Maistro, a researcher with CEPEA, believes the distribution companies’ more aggressive purchasing has picked up again precisely because of the falls seen in ethanol prices.

According to information supplied by Mr. Andrade, the harvest in Brazil’s Northeast, scheduled to come in at the end of this month, should reduce pressure on the port in the city of Santos, in the southeastern state of Sao Paulo, where ethanol is boarded for export. “There is no more tanking capacity (in Santos)”, she says.

Brazilian ethanol production is estimated at 17 billion liters, with exports projected to reach 3 billion liters. Initially, refineries operated with expectations for shipments equal to those of last year, which totaled 2.5 billion liters. But strong demand in the U.S. has led the industry in Brazil to review its numbers upward.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

THE WASHINGTON POST: "BRAZIL'S ROAD TO ENERGY INDEPENDENCE"

Alternative-Fuel Strategy, Rooted in Ethanol From Sugar Cane, Seen as Model

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By Monte Reel
Washington Post Foreign Service

August 20, 2006

SAO PAULO, Brazil -- Record oil prices have made the world's energy landscape a darkly foreboding place this year, inhospitable to optimism and celebration. Except in Brazil.

It has been something of a banner year here, full of milestones. The government predicts that for the first time in its history, Brazil will achieve energy equilibrium, exporting as much oil as it imports. The production of sugar cane-based ethanol is expected to reach an all-time high. And just three years after the introduction here of flex-fuel vehicles -- cars that run on either ethanol or gasoline -- several major automakers predict that such vehicles will represent 100 percent of their production by the end of the year, eliminating gas-only models.

Pull up to most service stations in this country of 185 million people and you will find fuel pumps offering three choices: ethanol, gasoline or premium gasoline. The labels are slightly misleading: The gasoline varieties are blends that contain at least 20 percent ethanol. The pure ethanol is usually significantly cheaper -- 53 cents per liter (about $2 per gallon), compared with about 99 cents per liter for gasoline ($3.74 per gallon) in Sao Paulo this past week.

"I buy gasoline only if I can't get anything else," said Alexandre Rigueirra, 28, a Sao Paulo taxi driver who modified his flex-fuel Chevrolet to also use natural gas, which is sold at many locations throughout the country. "Gasoline is always the last option."

Since President Bush this year emphasized ethanol as one possible solution to U.S. oil dependence, Brazil has become a destination of choice for curious U.S. lawmakers and venture capitalists searching for a crystal ball in which to glimpse America's future. Ethanol is not solely responsible for Brazil's newfound energy independence -- domestic oil exploration has exploded in recent years -- but it has replaced about 40 percent of the country's gasoline consumption, according to Caio Carvalhal, an analyst with Cambridge Energy Research Associates in Rio de Janeiro.

"It's amazing how sharply the level of interest in our experience here has jumped in recent months," said Eduardo Pereira de Carvalho, president of Sao Paulo's sugar cane producers union. "We receive visiting politicians from the U.S., and we get invitations to speak to the Senate Foreign Relations Committee and to leaders of investment funds. They know that Brazil's ethanol program exists, but beyond that, most of them have very little information about our actual experience."

That experience has been a sometimes painful 30-year evolution, marked by plenty of foresight and numerous false starts. It was born of a uniquely Brazilian political and economic environment, but industry analysts say it nevertheless provides lessons for a fledgling U.S. ethanol program that is already on pace to dethrone Brazil's as the largest in the world.

Subsidies and Mandates

Brazil's military dictatorship launched the national ethanol program in 1975, when about 90 percent of its fuel consumption depended on foreign oil. The government offered subsidies to sugar cane growers and forced service stations in every town of at least 1,500 people to install ethanol pumps. By the early 1980s, almost all new cars sold in Brazil ran on 100 percent ethanol.

But as the decade progressed and the military government was replaced by democracy, oil prices plummeted and the subsidies granted to ethanol producers were eliminated. Sugar processing plants turned from ethanol to edible sugar, creating a shortage of supplies at service stations. The auto industry, which had dedicated itself to ethanol-only cars, stopped producing them almost entirely.

"It was as if from one day to the next, the people who had ethanol cars had a problem on their hands, because no one wanted to buy them," said Henry Joseph Jr., head of the engineering program for Volkswagen of Brazil. "Ethanol cars went all the way from more than 90 percent of sales to less than 1 percent."

Through it all, the Center for Sugarcane Technology in Sao Paulo state -- a research facility created in the early 1970s and funded by the sugar industry -- continued working to improve efficiency in ethanol production by tinkering with almost everything from the genetic structure of sugar cane varieties to the industrial components of extraction. By the time oil prices began to rise steadily in the early years of this decade, ethanol producers had reduced production costs of a liter of ethanol from about 60 cents to about 20 cents.

Surrounded by fields of sugar cane that stretch in all directions, the center today boasts nearly 300 scientists, led by a research and development manager, Jaime Finguerut. Although he said the sugar growers recoiled when their subsidies were taken away, the move ultimately forced the industry to become more efficient. The subsidies offered U.S. farmers might be their own worst enemy, he suggested.

"A protected agriculture industry doesn't mean it's an efficient one, but if you have lots of money available for research, you can find good solutions," said Finguerut, who began working at the center in 1979. "We didn't have that investment money, and we went through some very tough steps to eventually arrive at a better situation."

Because most service stations still offered ethanol at the pumps to serve the remaining ethanol-burning cars from the industry's early days, ethanol suddenly seemed economically viable again by early 2003. That's when Volkswagen introduced the first flex-fuel vehicle to the Brazilian market, and other companies -- including General Motors and Ford -- eventually followed suit.

Some of those same companies are preparing to attempt a similar, though perhaps less extensive, transformation in the United States. Ford announced this year that it was scrapping plans to expand its fleet of gasoline-electric hybrids to focus instead on increasing flex-fuel production.

"Today, we're living in the moment between the internal combustion engine and a future of electric engines, and how to best get from here to there is difficult for any country to decide," said Joseph, the Volkswagen engineering manager. "Flex-fuel is one of a thousand ways to do that. It's simple to implement because it uses the same distribution model for supplying the market with fuel, and if you ever have supply problems, you can simply switch from one fuel to another."

In Brazil, the transition to the new fleet has changed the habits of many drivers and, in many cases, sharpened their math skills. Many drivers are keenly aware that ethanol has about 70 percent of the fuel efficiency of gasoline, which means they perform quick, pump-side calculations to determine whether the price of ethanol is at least 30 percent less than the price of gas. Some plot the distance of their trips and choose gasoline if it means the difference between filling up once or twice.

Facing Challenges

The rapid increase in the use of ethanol already has stretched existing resources thin, and that stress has highlighted environmental threats that represent some of the industry's most daunting challenges.

Earlier this year, Brazil's Agriculture Ministry dropped the mandatory content of ethanol in all gasoline products from 25 percent to 20 percent because of concerns about shortages. The growing season for sugar cane lasts seven months, leaving a production gap between December and April. But this year, some producers began harvesting immature sugar cane as early as late March. The result was a less efficient crop, and evidence that demand was threatening to overtake supply.

To compensate, about 40 to 50 new production plants are to join the existing 340 within the next year. That means more land likely will be cleared for growing sugar cane, exacerbating the already divisive issue of land preservation in Brazil.

Recent studies in the United States have suggested that the entire American corn crop would provide enough fuel to replace only about 12 percent of U.S. gasoline demand. To help plug that potential gap, some in the United States have advocated importing ethanol from Brazil. Though Brazil currently provides about 5 percent of U.S. ethanol, a duty of 54 cents per gallon -- a measure designed to protect American farmers -- makes a large-scale trade relationship unlikely.

"We would never be able to supply the United States with any substantial quantity of ethanol," said Carvalho, of the producers union. "But we could offer an equilibrium supply if the consumers in the U.S. had a voice in the matter. But it's the Midwest corn producers that are holding it up."

Comparing sugar cane ethanol with corn-based fuel in terms of the reduction of carbon dioxide and greenhouse gases is one that Brazilians such as Carvalho love to make. The ethanol extracted from corn yields only about 15 to 25 percent more fuel than the fossil fuels that were used to produce it. In Brazil, according to industry studies, the sugar-based ethanol yields about 830 percent more.

However, many experts in all aspects of Brazil's industry agree that the future of ethanol resides neither in sugar nor corn, but in cellulosic ethanol, a biofuel that theoretically could be extracted from almost anything from switch grass to scrap paper. The United States is leading research into developing cellulosic technology, and the Energy Department this month announced it was dedicating $250 million for two new research centers dedicated to the cause.

At the sugar plants in Brazil, operators say they believe the future is already on display: Most of the plants burn bagasse, the leftover tissue from the sugar cane stalks, to power the production facilities. Because Brazilian cane has been genetically bred to yield more sugar throughout the years, the stalks are particularly weak -- which makes them easy to break down, and ideal for converting to energy.

"I believe that if cellulosic ethanol becomes accepted as the best idea for the future," said Finguerut, the research manager, "Brazil will be the best place to demonstrate that, as well."

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

COPERSUCAR EXPERT: LARGE EFFICIENCY GAINS IN SUGAR CANE ETHANOL PRODUCTION EXPECTED

This chart was used by Mr. Isaias Macedo, from Brazil's CTC/Copersucar, during a presentation at the "Seminar on Fuel Ethanol" in Washington, D.C., in December, 2001.

It analyzes expected efficiency gains (as of 2001) in the production of ethanol as a fuel in Brazil.

On the agricultural side, gains of 12% were expected in the number of tons of sugarcane per hectare (tc/ha), while improved milling processes were expected to improve production by 7% (pol/tc).

Mr. Macedo projected that mechanization would advance from 3% to 50% in the planting phase; from 27% to 70% in the harvesting stage; and from 30% to 90% in the transportation stage (taking into consideration equipment, systems, and operations management).

On the industrial side, Mr. Macedo forecast an improvement in industrial conversion from 86% to 89%, while process automation would be elevated to 85%, from its current level of 50%.

Addressing the energy concerns behind these processes, Mr. Macedo projected that bagasse (crushed sugar cane) would power up to 25% of ethanol production from sugar cane, with the use of foliage and straw providing extra power.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

ANOTHER BRAZILIAN ETHANOL COMPANY CONTEMPLATES IPO

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By Monica Magalhaes, from Sao Paulo

The Board of Directors of Brazil’s Vale do Rosario company has approved studies to open up the company’s capital. With headquarters in Morro Agudo, Sao Paulo state, Vale do Rosario has 109 shareholders.

Vale do Rosario's decision to open its capital reflects the company’s intention of financing the purchase of the equity of smaller shareholders interested in abandoning their positions. It is also a move that will allow the company to expand its operations.

Vale do Rosario has commissioned other studies, to be delivered within the following weeks. Based on these studies, the company's management will hold a series of presentations and discuss priorities throughout the IPO process.

One of the most traditional refineries in Brazil, Vale do Rosario controls 50% of the MB plant, 53% of the Jardest plant, and 24.5% of Crystalsev, a trading company that negotiates sugar and ethanol production in nine plants in the interior of Sao Paulo state.

The company is investing R$ 150 million (~US$ 68.18 million) in the construction of a unit that will produce sugar and ethanol in the city of Frutal, in the west of Minas Gerais state. The company also has a project underway to co-build a plant with the Maeda group, through the MB plant.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

SINCE 2003, ETHANOL AT TOP OF LULA ADMINISTRATION'S PRIORITIES

Three years ago, when the world still hadn’t woken up to the need for biofuels, oil cost under thirty dollars a barrel, and Brazil was synonymous only with soccer and samba, BNDES, Brazil’s federal national development bank, held a major seminar on the ethanol industry.

The 2003 event, called “Ethanol – Potential Producer of Capital and Jobs”, was held on August 25th and 26th, in the city of Sao Paulo.

The seminar anticipated the current optimistic mood in Brazil toward the ethanol market and indicated the industry’s importance to Brazil and the (then new) Lula administration.

Its purpose was to “discuss the necessary measures to boost Brazil’s great potential (in the ethanol business), so that the country might become a relevant world supplier of renewable fuels, particularly ethanol”.

Important agents from the sugar and ethanol industry, equipment manufacturers, fuel distribution, agricultural technology, government, financial institutions, and investors participated in the seminar, whose aim was to act as a catalyst for business related to ethanol exports.

The event was attended by, among others:

Marcio Fortes de Almeida - Minister of Development, Industry, and Foreign Trade
Anderson Adauto – Minister of Transportation
Roberto Rodrigues – Minister of Agriculture, Cattle, and Food Supply
Dilma Vana Roussef – Minister of Mines and Energy
Roberto Amaral– Ministro of Science and Technolgy
Carlos Lessa – BNDES, President
Clayton Campanhola – Embrapa, President
Ildo Luis Sauer – Director of Gas and Energy, Petrobras
Professor José Walter Bautista Vidal

Several panels were presented, including:

Brazilian ethanol and its capacity to compete in foreign markets
Agricultural frontiers in Brazil
Foreign demand for ethanol
Multilateral negotiations: Kyoto, FTAA, and WTO
Industrial expansion
The effects of co-generation of electricity on ethanol production
Logistics for ethanol transportation

This event was not a watershed in the Brazilian ethanol business - it was simply one more in a long series of events that have been held routinely in Brazil since the 1970s. These include seminars, conferences, and conventions, which discuss several issues related to ethanol.

It is interesting to note how the ethanol market overlaps what used to be distinct fields, such as agriculture, energy, and transportation, as demonstrated by the diversity of government authorities that attended the event.

American producers, before spending lavishly on R&D for ethanol, would do well to examine the Brazilian case more closely and learn from the country's 31-year experience with a sizable ethanol-powered fleet.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

PANORAMA BRASIL - A New Column by Henrique Oliveira

This is the first in a series of columns that will track what several Brazilian players (including corporations, growers, associations, and the media) are saying on their web sites.

UNICA, the powerful Association of Sugar Cane Growers of Sao Paulo State, presents an article by Brazilian Congressman Antonio Carlos Thame, which highlights the recent technological developments in the field. Mr Thame mentions the tendency to integrate sugar and ethanol-producing plants and to use straw and bagasse (crushed sugar cane) to produce the energy that powers the process. Brazilian plants, in fact, have been producing excess power, which is, in turn, sold to the national electricity grid.

Mr. Thame says that “the sale of energy by sugar and ethanol refineries, until a very short time ago considered a 'subproduct', represents today 8% of revenues for sugar plants, with the investment cost for generating energy from sugarcane bagasse varying between US$ 1 and US$ 1.2 / kilowatt. A single initiative, by Brazil’s COSAN, scheduled to commence operations in 2009, with total investments of around US$ 700 million, will produce 700 MW, an amount large enough to supply a city of 3 million people. Others may come”.

Dedini, the world's largest manufacturer of equipment for sugar and ethanol production, calls itself a "factory of factories" on its site. It draws attention to some of its more important feats, such as the development of a giant mill for USSC (United States Sugar Corporation) in Florida and the construction of the world's first biodiesel plant integrated into a sugar and ethanol-producing unit. It also announces the construction of a plant that will process biodiesel from animal fat, and the development of plants for Grupo Moema, Grupo Santa Elisa, and several other groups in the Brazilian Northeast.

"Jornalcana", an online publication that covers the Brazilian sugar and ethanol industry (Portuguese version here), carries an article that discusses the recently-held Simtec fair, during which numerous issues related to the sugar and ethanol field were discussed in Piracicaba, Sao Paulo state, from July 18th to July 21st, 2006. It also says that registration is already open for the 2007 edition of the event.

In addition, Jornalcana announces that the Banco do Nordeste ("Bank of the Northeast") has set aside R$ 800,000 (~US$ 365,000) for R&D in the sugar and ethanol industry in that region of Brazil. Jornalcana also talks about the Infocana seminar, to be held on September 21st. in the city of Ribeirao Preto, Sao Paulo state. During the seminar, issues related to labor, occupational safety, and sustainable development will be debated.

Henrique Oliveira

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

SUGAR PRICES STEADY IN BRAZILIAN DOMESTIC MARKET

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Even with the high volatility of sugar prices in the international market and the close of the harvesting season in Brazil's South-Central region, prices held steady on the Brazilian domestic market in July.

A survey carried out by the Center for Advanced Studies in Applied Economics (Cepea) shows that sugar prices dropped 4% over the past month, as the harvest period came to an end. The decrease could have been larger, if demand for ethanol in the international market hadn’t remained equally steady.

The 50-kilo sack closed the month of July (7/31) at R$ 48.38 (~US$22.00), according to the Cepea/Esalq index. During the same time period last year, a sack sold for approximately R$ 30 (~US$ 13.64).

Over the past weeks, sugar sales have had the objective of raising cash and reducing inventory, according to Cepea. The organization says that, last week, factoring in parity of sugar prices on the Brazilian domestic and international markets, domestic sales brought in 6% more revenues than did exports.

Market analysts say that sugar is also proving itself more profitable than ethanol. Plants in the Center-South are anticipating their export commitments.

The international market has worked, for the fourth successive year, with no production surplus. Market experts expect sugar crops in Thailand and India to recover, a fact that should put pressure on international prices.

Ethanol prices also remain steady, reflecting strong international demand and the current tendency in Brazil to direct production toward sugar.

In the last week of July (ended 7/28), the liter of anhydrous ethanol closed at R$ 1.032 (without taxes), an increase of 35.7% over the same period last year. In January, the price had been R$ 1.22.

Brazilian shipments of ethanol remain strong and are expected to pass the initial forecast by industry experts. Brazilian ethanol exports should reach 3.5 billion liters in 2006-07, 34.6% more than what was shipped during the same period of time in 2005, according to UNICA, the Union of Sugar Cane Growers of Sao Paulo state. Initial expectations had shipments repeating last year’s performance, of 2.6 billion liters.

The expansion can be credited mainly to robust demand in the United States, where new legislation requires oil companies to switch the additive MBTE for ethanol in the production of gasoline.

In July, shipments hit a record 500 million liters – 84% of this amount went to the U.S.; the rest was shipped to the Caribbean, which, under the Caribbean Basin Initiative, can re-export it to the United States, tariff-free.

According to UNICA, the good performance should not repeat itself next year, as the U.S. is speeding up its program to set up corn ethanol refineries. There are currently 90 projects underway.

Even with the good volumes that have been exported, supply to the Brazilian domestic market is guaranteed, as the internal market shrank, due to an increase in ethanol prices at the pump. Consumption is expected to remain between 13 and 14 billion liters, with production at 17 billion.

The refineries have a production capacity for about 18 billion liters per year. There are currently 89 projects for new refineries, 31 of which are already being built. 16 will be located in Sao Paulo state; 4, in Goias state; 3, in Minas Gerais state; 3, in Mato Grosso do Sul state; 3 in Mato Grosso state; one, in Parana state; and one in Rio Grande do Sul state.

Total investments are expected to exceed US$ 13 billion.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

BRAZIL SUGAR CANE BREAKDOWN: WHAT'S REALLY IN ONE TON?

This chart was produced by BNDES and is avaliable on the organization's web site (.pdf format - see page 6).

BNDES, the Brazilian Development Bank, is a federal public organization associated with the Brazilian Ministry of Development, Industry and Foreign Trade. Its objective is to finance endeavors that contribute to the development of Brazil.

The data in the chart above were presented by Mr. Luiz Carvalho, President of the Sugar and Ethanol Production Chain Chamber (Câmara Setorial da Cadeia Produtiva do Açúcar e do Álcool). His source was the CTC/Copersucar report of May 2002.

The three columns in the chart compare Sugar Cane Production, Equivalent Energy (in MCAL), and Equivalent Ton of Oil.

The second line in the chart compares 75 liters of ethanol with the other variables, while the third line compares 280 kg of bagasse (with 50% humidity), and the fourth line, 280 kg of straw, also at 50% humidity.

Note (1) says that best results yielded up to 90 liters per ton of sugar cane, while note (2) states that sugar cane has superior caloric power.

The yellow box at the bottom of the chart is an interesting summary of results:

(1) One ton of sugar cane equals approximately one barrel of oil;
(2) One hectare of sugar cane yields approximately 85 tons/year;
(3) 5 million hectares of planted sugar cane represent 300 million barrels of oil/year, or 820,000 barrels/day. Brazilian oil consumption is at 1.7 million barrels/day.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

LEARNING CURVE: ETHANOL PRODUCTION COSTS DECREASE 75% IN 25 YEARS

by Henrique Oliveira

The chart, titled "Learning Curve - The Example of Brazilian Ethanol as a Base for Biofuels", prepared by BNDES, Brazil's federal development bank, shows how ethanol production costs decreased significantly between 1980 and 1998.

The vertical (y) axis shows the amount of US dollars spent to produce one cubic meter of ethanol; the x axis shows ethanol cumulative consumption in Brazil over the same time period, measured in millions of cubic meters.

As the chart indicates, between 1980 and 1998, the cost of producing one cubic meter of ethanol went from approximately US$ 680 / cubic meter of ethanol to US$ 200 / cubic meter. A projection to 2006 points to a further decrease in the dollars-to-volume ratio of ethanol output; the actual cost today is likely to be about 1/4 of what it was just 25 years ago.

The graph is important because it indicates at what stage ethanol producers elsewhere in the world may find themselves right now.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

GEOPOLITICAL AND NATURAL EXPLANATIONS FOR RISE OF BRAZILIAN ETHANOL

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Sugarcane is a very efficient production unit: every ton has an energy potential equivalent to that of 1.2 barrels of petroleum.

Brazil is the largest world sugarcane producer, followed by India and Australia. On average, 55% of Brazilian sugarcane becomes alcohol and 45% sugar.

Sugarcane is grown in Brazil's South-Central and North-Northeast regions, which allows two harvest periods. Production therefore continues during the whole year. Depending on when it is planted, sugarcane takes between one year to one year and a half to be ready for harvesting and processing for the first time.

In Brazil, on less than 1% of the land suitable for farming, 4.5 million hectares of sugarcane have been planted (this is 19% of the United Kingdom's area and 8% of France’s territory), to obtain a raw material that allows the production of a natural, clean and renewable energy.

This same plantation can be harvested up to five times, although significant investments must be made at each cycle to maintain productivity. Sugarcane is the power that supports the 307 existing ‘energy powerhouses' in Brazil, 128 of which are in São Paulo.

The sugarcane, sugar and alcohol production process in Brazil, that uses sugarcane covering 4.5 million hectares of land shows an important difference to that of other countries: from the plantation to the sale of the final product, everything takes place without government intervention or subsidies, an even more significant fact when the complexity of the area's production chain is considered.

The sugarcane raw material generates sugar, anhydrous alcohol (a gasoline additive) and hydrated alcohol for the internal and external markets, with different price and demand dynamics. Supplying these markets without significant variations requires planning and management efforts.

Over centuries, this had been carried out by the government; starting in 90's, in a process that was concluded in 1999, responsibility was totally transferred to the private sector, and what exists today is a free market system without subsidies, where sugar and alcohol prices are set according to variations in supply and demand. Sugarcane prices are set according to raw material quality, to prices effectively obtained by the final producers and their percentage participation in the products' final price.

In order to carry out this management and create stability for production/demand of the industry's products, the private sector has sought to create market tools, such as futures’ operations, and to open new markets for sugar and alcohol, by breaking down protectionist barriers, besides striving to transform alcohol into an environmental commodity.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

SUGAR CANE GROWERS ASSOCIATION PRESIDENT LAYS OUT PLANS

An editorial written by Mr. Eduardo Carvalho, president of UNICA, the largest association of sugar cane growers in Brazil, shines light on the road ahead for Brazil. The article was published on the organization's web site and can also be read here.
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Due Dilligence

The current sugarcane, sugar and alcohol production situation in Brazil is strong and balanced. It is part of the private sector's due dilligence to preserve this strength and balance, projecting them into the next ten years. This requires a series of discussions with the various agents that interact in this process: spheres of government and Congress, the automotive industry, fuel distributors and resellers, financial institutions, private and governmental sectors of other countries, etc.

This task consists in guaranteeing that the supply of the area's products follows the consumption curve. I refer to the sustained growth of an activity essential to the country's development, related to quick investments without recourse to public funds, to the intensive use of manpower, to a propagating influence in economic activity, to a powerful environmental appeal and to investments made in Brazilian Reais, with a return in US dollars.

The industry currently crushes 310 million metric tons of sugarcane, from which 20 million metric tons of sugar and 12.5 billion liters of alcohol are produced. Of the sugar produced, about 13 million metric tons are shipped to foreign markets, representing an income of about 2 billion US dollars for the country. In alcohol production, anhydrous alcohol (used in gasoline blends), now at 6.5 billion liters, is on a rising curve, while hydrated alcohol, now at a 6 billion liters production level, has shown an inverse trend, with an annual consumption dropping by about 300 to 500 million liters.

The current level of sugarcane crushing can be increased quickly, as the crop only occupies 4.5 million hectares in the country, while in the Brazilian "cerrado" region alone there are more than 90 million hectares for planting. Working on the premise that every metric ton of sugarcane generates four jobs, it is easy to imagine the potential for creating decentralized jobs in rural areas that the industry can offer.

The fact that the sugarcane crop is semi-perennial, with a five-year cycle, indicates a natural expansion. In the current harvest, there will be an increase of in a 10%, order of magnitude. It is therefore critical to secure markets for this growth and to plan faster development, which would be healthy and fundamental for the Brazilian economy.

All the private sector's efforts will be aimed at: breaking down protectionist barriers for sugar and alcohol in the international market, increasing production and sales of alcohol vehicles in the domestic market, and increasing the participation of fuel alcohol and electric energy cogeneration from sugarcane bagasse in the Brazilian energy matrix. A series of concrete actions are derived therefrom: actions at the WTO against the European Union, use of the Kyoto Protocol's clean development mechanism resources, lowering of the IPI tax for alcohol vehicles, treatment equal to that received by alcohol engines for the so-called flexible engines, unification of the ICMS tax rate for hydrated alcohol at 12%, and creation of the CPR – Rural Producer Card for alcohol. Other important steps are: inventory financing for seasonal alcohol (warrants), since production occurs during 6 months and sales take place during 12 months; by contract with exporter companies consign part of the alcohol production to fill spaces that open in the international market, purchase guarantee, and a regulatory value for electric energy generated from sugarcane waste.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

BRAZIL RUSHES TO BUILD, EXPAND ETHANOL PLANTS

(Picture: An advertising piece for Dedini. The copy reads, "Dedini Inc. Heavy Industries - 85 years)

InvestNews Online
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Brazilian experts believe that, between 2006 and 2014, 73 new refineries will be necessary to meet the growing worldwide demand for ethanol.

According to Mr. Jose Luiz Oliverio, president of Dedini, the largest manufacturer of equipment for sugar and ethanol processing in the world, US$ 4.64 billion will be necessary to build these new units.

Additionally, many existing refineries already have expansion plans. Taken together, new units and the expansion of the ones that are already operational are expected to elevate annual sugar cane milling capacity to an extra 74 million tons by 2010. Expanding existing facilities will demand US$ 1.87 billion over the same period.

“It’s a market that is beginning to grow at a fast clip. Generally speaking, traditional processing plants, whether for sugar or ethanol, have invested very little in the past few years. They didn't start to think about expanding production until 2004, when ethanol gained prominence as a potential world-class fuel,” says the executive.

In 2006 and 2007 alone, 27 new ethanol plants are scheduled to begin operating. In 2008 and 2009, 29 new plants are expected to become productive. “Judging from the number of proposals we are currently processing, we believe that 2006 and 2007 will be very good for business”.

According to Mr. Plinio Nastari, president of Datagro, a private consulting company, current trends in the sugar and ethanol business reveal a dynamic market. “We are talking about extraordinary growth, taking into consideration the risk factors faced by farmers. Once sugar cane is planted, the producer has to wait 18 months for the first harvest”.

Mr. Nastari also points out that it takes some time to set up a processing plant. “You need approval from the Brazilian government’s environmental agency, you depend on local authorities, you need to structure the project financially. Not something that can be done overnight," he says.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

DEDINI’S GIANT MILL BEGINS TREK TO U.S.

The world’s largest sugar cane mill, built by Brazilian sugar and ethanol equipment giant Dedini, has just begun its trip to Florida, where it will be delivered to USSC (United States Sugar Corporation).

The equipment weighs 260 tons and was manufactured by Mecanica Dedini (Dedini Mechanics).

Since September 30^th, 2005, company technicians have been preparing the mill’s several components for shipping. It is scheduled for delivery within sixty days.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

INFINITY BIOENERGY INCORPORATES EVERGREEN FUND

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Infinity BioEnergy will invest in two new sugar and ethanol plants in Brazil. The plants will be built in the city of Montanha, in the coastal state of Espirito Santo, and in Lajeadao, in the northeastern state of Bahia. Infinity was created in May 2006 and opened its capital in the London bourse.

The company has announced that it incorporated the Evergreen investment fund, which began investing in sugar and ethanol in Brazil in 2005, with the acquisition of the Alcana plant, in Nanuque, state of Minas Gerais. One month ago, Infinity bought Cridasa, a plant in the state of Espirito Santo.

According to Sergio Thompson-Flores, president of Infinity, the company has raised US$ 526 million abroad. “These funds will be used for sugar and ethanol in Brazil”, he says.

International investors, including American fund Kidd & Company, are betting on Infinity BioEnergy. The fund negotiated, on Infinity’s behalf, the purchase of Coopernavi, in Navirai, Mato Grosso do Sul state.

With these recent operations, Infinity now controls the Nanuque, Cridasa, and Coopernavi sugar and ethanol plants. The three units have a joint processing capacity of 3.5 million tons of sugar cane and are scheduled to receive further investments to mill 5 million tons on site. Along with the units in Montanha and Lajeadao, they represent an investment of US$ 182 million.

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

SUGAR CANE INSIDER WORRIES ABOUT SKILLED LABOR BOTTLENECK IN BRAZIL

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Luis Montanini, editor of “ProCana”, a Brazilian site and newsletter aimed at cane growers and ethanol and sugar producers in Brazil, has put out the following alert in the newsletter's July 2006 edition. It deals with the lack of qualified industry workers, workers that an expansion of the Brazilian ethanol industry wil require.

I would also list inadequate infrastructure (roads, railways, port terminals, etc.), less-than-perfect governmental institutions, and sky-high capital costs as other significant obstacles to the development of an ethanol market capable of meeting a sizable portion of energy needs in the U.S., the E.U., and Asia. H.O.
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TO OUR READERS:

The sugar and ethanol business is going through a great phase, it is true. The entire productive chain is being directly or indirectly benefited. But we have to put out an important, timely alert, an alert that has to do with the increase in demand for high-level professionals and for skilled technicians, brought on by the expansion of the sector.

To the same extent that the sector grows, qualified professionals become harder to find. Brazil has very few specialized courses to develop technicians for the sugar and ethanol industry, especially for the industrial area. What generally happens is that technicians are formed inside their own units, in the “mentor-mentee” style, and so forth. But there is only a very small amount of knowledge can be transferred this way.

Finding alternatives is extremely urgent, and that can be done with companies creating intensive courses to develop technicians, perhaps with the massive training of people who operate in similar functions.

An illustrative example comes from Alcopar, in the Brazilian state of Parana, and its local association of sugar and ethanol producers. At Alcopar, director Adriano Dias has established an agreement with the Rural University of Rio de Janeiro: the university supplies the students and the sugar and ethanol companies offer field training to these dedicated resident engineers, in order to acquaint them with the industry and to teach them that the “field”, in practice, has quite another meaning.

The natural tendency of a project of this scope is for students to choose to work for the company that offered him or her the opportunity in the first place. That way, part of the problem is solved.

In short, the sector needs to start to prepare skilled people. It is not simply a matter of addressing turnover, but of creating countless other qualified laborers to fill the many new positions that will be created in the coming years.

The time to act is now. There are numerous young men and women eager to walk in through these doors of opportunity. And it is necessary to train them, fast – well before the next World Cup, in South Africa, which seems just around the corner.

Luis Montanini

Follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.