EXAME MAGAZINE: SMALL AND MEDIUM BUSINESSES THRIVE AROUND BRAZIL ETHANOL

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This is the second installment in a three-part series about small and medium companies in Brazil that have seized opportunities related to the need to modernize sugar and ethanol plants. By supplying technology and new services to a growing sector, they have achieved extraordinary growth. H.O.

Exame Magazine (the Brazilian equivalent of "BusinessWeek")

August 24th, 2006

by Juliana Borges

For centuries, sugarcane, the first great crop to act as a major driving force behind the Brazilian economy in colonial times, was grown in the same basic fashion: covering extensive areas, with low yields, no mechanization, and, oftentimes, with laborers toiling away under degrading conditions. However, over the past ten years, this landscape has been changing radically. The plants have abandoned their archaic practices and have become modern, profitable enterprises. In order to accomplish this goal, they have been making sizable investments in everything from technology and genetic research to logistics and outsourcing.

That’s where small and medium companies fit in. The plants cannot lose their focus on their core business: producing sugar and ethanol. “We need people who can supply technology and innovation, both in the agricultural and in the industrial areas”, says Rodrigo Sanches, the heir to the Sao Domingos refinery in Catanduva, in the interior of Sao Paulo state. Sao Domingos has a list of eighteen small and medium services contractors. Among these smaller firms, there is a consultancy in quantitative research, hired to optimize the management of the hundreds of variables involved in the technology of production and logistics. “We need to know how to apply the best possible combination to achieve maximum profits”, says physicist Aguinaldo Ricieri, who is responsible for the plant’s modernization project.

One of the fields that offers the best opportunities for small and medium companies is advanced research. Companies that develop new strains of sugarcane, through genetic manipulation, study alternatives to better use bagasse (crushed sugarcane), and enhance the techniques connected to precision agriculture, among other activities, are innovating in the field and finding room for growth.

That is precisely what is happening with CanaVialis and Alellyx, companies that, over the past three years, have received US$ 40 million from Votorantim Novos Negocios (VNN), a subsidiary of Brazilian giant Votorantim, dedicated to investments in start-ups. “The potential for growth of small businesses in areas related to technological development is very big”, says Fernando Reinach, a director at VNN. “In the sectors in which Brazil is a leader, as is the case with ethanol, the potential is even bigger.”

Based in Campinas, in Sao Paulo state, where Unicamp, one of Brazil’s leading universities, is located, CanaVialis conducts R&D to genetically enhance different species of sugarcane, in addition to providing consulting services in planting and production management. This kind of knowledge is extremely valuable for the strategic planning of refineries. The value of a sugarcane plantation is determined by its sugar content – the more sugar per ton, the more the sugarcane is worth, because it has a greater energy value. Genetic manipulation in labs allows for the development of news species that contain more sugar and are, therefore, capable of producing more ethanol or sugar.

(to be continued)

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