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.

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