ETHABLOG INTERVIEWS LEADING BRAZILIAN BIOFUELS CONSULTANT

Marcelo Coelho is one of Brazil’s leading consultants in the sugar and ethanol industry.

Operating out of Ribeirao Preto, Brazil’s main producing region, Mr. Coelho has witnessed, firsthand, the boom in the sector. He has advised many of the delegations and foreign investors that have visited Brazil in recent months. He can be reached by clicking here.

Ethablog: You chose to leave a successful law practice in the city of Sao Paulo and set up shop in Ribeirao Preto, in the interior of the state. What led you to that decision?

Marcelo Coelho: The Ribeirao Preto region is the “agribusiness capital” of Brazil. It has the highest concentration of sugar and ethanol refineries, the largest production cooperatives, such as Cosan and Crystalsev, industrial-equipment manufacturers, which produce mills, cauldrons, and other heavy pieces of equipment. The Ribeirao Preto area is also home to several important services firms and universities that carry a lot of weight in the sector, such as ESALQ (Escola Superior de Agricultura Luis de Queiroz). And, finally, the biggest fairs in the sugar and ethanol industry in Brazil are held here, such as “Fenasucro” and “Agrishow”. This all makes establishing an extensive network and conducting business significantly more profitable.

Ethablog: What are the main differences between the sugar and ethanol business in Brazil today and that of ten years ago?

MC: I would say that scale and applied technology are the main differences. Planted area has more than doubled, due to internal demand, which surged because of Brazil’s adoption of flex-fuel cars. With growing foreign interest in adding ethanol to the energy matrix of other countries, sugarcane planted area grew exponentially. As to technology, we have adopted new varieties of sugarcane, developed by local universities. Sugarcane, as you often point out on Ethablog, yields a lot more energy than corn, and the new varieties are even more productive. They newest ones have been specially tailored to specific kinds of soil. Another fundamental difference is that the planting and harvesting processes have become much more mechanized, while plant and farm managers have developed better managerial skills.

Ethablog: What does the foreign investor coming to Brazil typically look like? What is he looking for? Greenfields, equipment, smaller companies, inventory?

MC: That is a very good question. Americans generally want to acquire units that are already operational, here in Brazil. They then seek to expand in a continuous and sustainable manner, in order to ship ethanol to the U.S.

Countries like China and India are intent on acquiring technology to use in their own countries. We also see Indonesia starting to head that way.

The Germans, on their turn, who are one of the leaders in biofuels technology and have solid public policies geared toward reducing dependence on foreign fossil fuel, have strengthened their ties with Brazil, in order to firm agreements that will address gaps in the energy matrixes of both countries.

Investors from other parts of the world are mostly interested in studying how Brazil transformed ethanol into a viable fuel, and how we have been using it in a commercially-feasible manner for over thirty years.

It is important to point out that the most conscientious investors come from Europe, who attach a lot more importance to the climate crisis and to the unstable nature of oil-producing regions.

Ethablog: Do you see any strong correlation between the price of oil and the price of ethanol?

MC: In Brazil, the price of ethanol is still adjusted by supply and demand, both for the domestic and the foreign market. Factors that might shift the supply and demand curves one way or the other include domestic income, Brazil’s population growth, the use of substitutes, the exchange rate, foreign income, weather conditions, and production costs.

Ethablog: Are there any assets on the local market that are often overlooked by foreign investors, but that could be of interest?

MC: We find investors to be willing to acquire only production units that are completely balanced, both tax-wise and financially. However, those that have significant tax and financial liabilities are often overlooked. I believe these companies represent the greatest opportunities for investment. Debts are negotiable – in many cases, they can be significantly reduced. Because of these debts, the amount to be paid is a fraction of what is normally charged on the market, and the terms surrounding the deal are much more attractive. After the liabilities are taken care of, and through the adoption of professional management, mindful of market conditions, the units pay off very quickly.

There is also the opportunity to acquire vast amounts of straw and bagasse (crushed sugarcane). These sugarcane byproducts allow for the production of synthetic fuels. Using gasification, we can produce carbon monoxide and hydrogen. It is important to point out that any biomass that contains carbon can be used for this process.

In Brazil, these byproducts are piled outside a plant, or sold at low prices to be burned, or used to cover the soil. All in all, a worthwhile investment.

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