SALON.COM CONFUSED BY BRAZIL'S STRATEGY, GAME

Andrew Leonard, from Salon.com, noted, in his review of one of my last posts, that the failed states of Central Asia tell a cautionary tale that Brazil would do well to heed. Mr. Leonard rightly indicates that the prostrate position of states like Afghanistan is hardly something to aspire to; I contend that Brazil’s own three hundred years of colonial rule by Portugal make that much pretty clear.

In my post, I used the “Great Game” of the XIX century as an analogy for the intense global interest in Brazil and ethanol today, an interest that places the country in a peculiar geopolitical situation. I talk of Brazil as an extension of the chessboard in the “New Great Game” (an expression that has been used since the fall of the Soviet Union, when the scramble for Central Asia's oil and gas resources began).

However, in this New Great Game, Brazil would occupy not the place of Afghanistan or other smaller countries, as Mr. Leonard implies, but that of India, the “Crown Jewel” of Imperial Britannia.

Even though India is hardly a role model for Brazil, the parallels are there: in other times, it, too, attracted the same covetous scrutiny that Brazil encounters today, when scores of European (previous post), American (previous post), Japanese (previous post), Chinese (previous post), and even Indian (previous post) delegations visit Brazil, in official and unofficial capacities, on “learning expeditions”.

In a context of exponentially-declining resources and exponentially-growing economies, Brazil stands out as a key supplier of commodities, thanks to its 8.5 million sq. km. – an area larger than the continental United States.

Brazil has no foreign enemies, is bereft of any kind of major natural catastrophe (including earthquakes, hurricanes, volcanoes, and tornados), has no insurmountable racial or religious divisions, and is among the most geopolitically-stable countries in South America, with nary an ideologically-driven movement to threaten with the occasional revolution.

Its woes are largely of its own making and can be remedied the old-fashioned way: with lots of money. Want to guarantee the integrity of the Amazon Forest amidst the ongoing expansion of Brazil’s agricultural frontier? Want better schools and living conditions for the legions living in Brazil’s teeming shanty towns? More security in Brazil’s metropolitan centers? A more efficient, better-equipped Judiciary? Simple. “Pay-to-play” is the requirement Brazil should make of those who would like a piece of the action.

If ever there was a problem that could be solved by simply throwing money at it, this is it. As the choices facing industrialized nations narrow themselves to include little else except oil and gas from volatile regions and ethanol from Brazil, the latter should act as a vigilant landlord or shopkeeper, taking precise stock of what it owns and of what customers are doing.

Competent public servants, an educated middle class, and an unfettered press are all prerequisites for winning the game and avoiding the sad fate of many Central Asian states. If in Brazil they have functioned less-than-perfectly, it is not because they don’t want to, but because they lack the resources.

So let the game go on. And pay up.

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

AFTER 11 YEARS, BRAZIL TO CARRY OUT NEW RURAL CENSUS

CUT (Central Unica dos Trabalhadores) is a lynchpin organization in the coalition behind President Lula’s power, gathering several of the extreme-left ideological labor movements from which Lula himself hails.

Since Lula’s rise to power in January 2003, however, CUT has by and large supported the president, even as he has strategically shifted to the right, allying himself with the U.S. to develop "an ethanol OPEC" - a move that has been vociferously protested by Hugo Chavez and Fidel Castro (previous post).

On April 13^th, 2007, a news service started by CUT carried a piece on its web site stating that, “After 11 years, Brazil will once again take a snapshot of its farmland. On Monday, April 16^th, the Brazilian Institute for Geography and Statistics – IBGE (Instituto Brasileiro de Geografia e Estatistica) will dispatch 68,000 researchers to appraise the situation on Brazil’s six million agricultural units, recounting the population in 5,414 municipalities, out of a total of 5,564.

“In all, over R$560 million (~US$290 million) will be spent on the survey, but the funds weren’t enough to include all the municipalities in Brazil, forcing IBGE to exclude all the municipalities with a population of over 170,000 – places that are less prone to migratory changes.

“The last snapshot taken of the Brazilian countryside took place in 1996. It showed the way land in Brazil is used, and how its ownership is highly concentrated: 11% of the establishments accounted for 81% of the land used in Brazil for agriculture. According to Antonio Florido, a manager at IBGE, this situation is not expected to have changed drastically, although he believes that the survey will show whether the situation of small farmers has improved after the inception of family-based farming with the implementation of Pronaf, ten years ago.

“Another important question that should be cleared up by the census is whether there has been a slowdown in migratory traffic from the countryside to the cities. The last data on employment in agriculture show that, since 2004, there has been an increase in the number of jobs in Brazilian agriculture.

“According to data from PNAD (Programa Nacional de Amostra por Domicilio – National Program of Sampling by Households), executed by IBGE in 1996, the last canvassing showed that 17.9 million people were employed in rural activities. This number, which in 1985 stood at 23 million, dropped to 16.8 million in 2000. In 2005, the number of workers in the field totaled 17.8 million, in a reversal of the descending trend.

The study by CUT goes on to address an issue fundamental to the ongoing expansion of the Brazilian biofuels market:

“The new agricultural frontier, which is making inroads into Brazil’s North, will also be in the crosshairs of the study. Ranchers are advancing into the south of Maranhao and Para states.

“In the last canvassing, there was little ranching activity. Annual cattle surveys, carried out by IBGE, however, have started to show a greater penetration in the south of the state of Para. In the city of Sao Felix do Xingu, for example, the previous census showed 700,000 head of cattle; now the number stands at 5,000,000.

“According to Mr. Florido, this expansion indicates that a forest area of 3 million hectares has been cleared, since each animal requires one hectare of grazing land. He compares the size of the new forest clearings to an area larger than Belgium and the Netherlands combined.

“The population recount is used by the TCU (Tribunal de Contas da Uniao – an entity similar to the U.S.’s GAO) to pay out the share to which each Brazilian municipality is entitled under the Fundo de Participacao dos Municipios (FPM – Municipal Participation Fund).”

Historically, cities have strived to make their populations appear as large as possible, to snatch the largest possible slice of federal funds.

But the pie of federal moneys could be significantly larger if the labyrinthine tax structure in Brazil were simplified, thereby reducing the very high rate of evasion and lessening the burden on those individuals and companies who, out of honesty or because they have no means to escape the taxman, do end up paying.

According to Agencia Estado, “Brazil is losing investments of up to R$ 20 billion (~US$ 9.5 billion) a year because of its complex tax system, which is confusing and has increasingly unstable rules. The warning was issued by the Executive Secretary of Brazil’s Finance Ministry, Bernard Appy, when he talked about the new proposal currently being sponsored by the Lula government to overhaul the tax system, a proposal that should follow on to Congress in July or August 2007.

Undoubtedly, a simplified tax structure will make it easier for foreign investments to navigate the choppy waters of Brazilian business, increasing the flow of direct investments in the country.

Among those who have shown an interest in investing in Brazil, confusing tax rules or not, is Chicago-based mega-investor Samuel Zell, who, according to this Washington Post article, just beat Ron Burkle, the California supermarket magnate, in a bid for publisher Tribune Co., which includes the Chicago Tribune and the Los Angeles Times.

Mr. Burkle is also investing in Brazil through the Brazilian Renewable Energy Company, known as “Brenco”. The company is led by former Petrobras chief executive Henri Phillipe Reichstul and has just committed US$200 million to its initial stage.

Mr. Burkle's venture partners include James Wolfensohn, former World Bank president; Steve Case, of AOL fame; and Vinod Khosla, Silicon Valley venture capitalist and founder of Sun Microsystems.

In a sign of how business and politics are increasingly coming together to explore opportunities in Brazil, Mr. Burkle is a longtime Democratic fund-raiser who has also been a major contributor to the Republican governor of California, Arnold Schwarzenegger. At the same time, Mr. Burkle is a close friend of former President Bill Clinton, who calls Burkle's Boeing 757 private jet "Ron Air." Mr. Burkle is also on close terms with Al Gore, according to the British online magazine "The First Post".

Furthermore, according to Wikipedia, "It has been suggested that Tony Blair may take up a seat on the board of one of Burkle's companies when he stands down as Prime Minister of the United Kingdom[3]".

Mr. Burkle's recent offer to buy the Tribune Co., however, was turned down in favor of that of Mr. Zell. According to this Washington Post article, "Mr. Zell (...) just sold his real estate empire to the Blackstone Group in a deal valued at $39 billion, (and will) use $315 million of the proceeds to buy the ailing Tribune Co. in a complex deal valued at $13.2 billion."

Valor Economico, Brazil’s premier financial daily, states that "Mr. Zell now intends to stake a position in Brazilian real estate, along with “managers such as Prosperitas, banks like Merrill Lynch and Morgan Stanley, and the Hines development agency”, all of which are focusing on finished housing, on the development of new projects, or even on the purchase of areas that may be developed in the future”.

It is reasonable to suppose that “areas that may be developed in the future” include farmland.

Mr. Zell is effectively following the advice of Dr. Marc Faber, Hong Kong-based Swiss banker of Drexel Burnham Lambert fame, and currently director of Gloom, Boom & Doom (Dr. Faber is a long-time markets bear).

In a TV interview to Bloomberg TV in February, 2007, Mr. Faber advised investing in farmland in Argentina and Brazil as a hedge against overvalued property in financial services hubs such as Mr. Zell’s Chicago and New York, where the real estate bubble could see a rapid deflation in the case of a capital market meltdown, which he believes imminent. Such a meltdown would force many currently employed in finances to relocate, thereby increasing the stock of available houses and apartments and greatly reducing their price.

Such an event would probably exacerbate the land grab currently going on in Brazil - yet another reason for the Brazilian government to take stock of exactly what lies within its borders.

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

BRAZIL, ETHANOL JOIN “NEW GREAT GAME”

The “Great Game”, which unfolded between Great Britain and Russia in the XIX century in the deserts, mountains, and steppes of Central Asia, has made a comeback – with old and new players alike dueling for supremacy in a field that now includes not only the oil and gas fields of that region, but also resource-rich South America.

With Chinese (previous post), Japanese (previous post), Indian (previous post), American (previous post), and European (previous post) delegations crisscrossing Brazil to size up the country’s potential as a supplier of strategic materials, not least of which is ethanol, it is hard not to draw an analogy with the fight for hegemony that took place in Asia between Tsarist Russia and the British Empire, from the end of the Napoleonic Wars in 1815 to the beginning of World War I almost a century later.

The armies, spies, mercenaries, and agents provocateurs that played the game in Asia have now been replaced by investment bankers, consultants, and lawyers, at the service of governments and corporations, private and state-owned, vying for control over the most lucrative sectors not only of the Brazilian sugar and ethanol industry, but of other commodities as well. Iron ore, bauxite, orange juice, soy, corn, chicken, and beef, all of which have in Brazil a major producer, are at the top of the list.

Over the last month, France’s Louis Dreyfus bought all the sugar and ethanol refineries belonging to the Tavares de Melo Group, becoming the second-largest producer of ethanol in Brazil, “with significant capacity for growth”, as reported by Jornal Cana (previous post). Meanwhile, Tereos, also from France and formerly known as Beghin-Say, has announced that it plans an IPO for its Brazilian subsidiary Guarani on BOVESPA, the Sao Paulo stock exchange. Tereos is the third-largest producer of sugar in Brazil.

China, on its turn, has been aggressively pursuing deals throughout South America, clearly aware that it is operating in a territory the U.S. believes firmly planted in its sphere of influence. “The Economist” reports that ‘China's energy policy is now focused on securing a steady supply in the medium to long term. This means looking beyond traditional suppliers in Asia and the Middle East and seeking new alliances with potential suppliers in Africa and Latin America.

“Because the U.S. is still a much more valuable trade partner to Brazil than is China (‘In 2005 Latin America sent 47% of its total exports to the US, 14% to the EU and just 4% to China’, says the same article), ‘Latin America's importance to China is growing, (but) it will never become a core energy supplier. Further, relations are likely to remain of a commercial nature, and China is not apt to become a committed political ally for Latin America.’”

The Chinese are also pursuing an ambitious economic agenda in other South America countries. “The Economist” further reports that, “This investment policy has been implemented through China's two major oil firms, the China National Petroleum Corp (CNPC) and the China Petroleum and Chemical Corp (Sinopec). Although both these firms were opened up to private investment through Initial Public Offerings (IPOs) in 2000-02, the Chinese government retains a majority stake in each.

“Among CNPC's first ventures was a US$200m purchase of a 45% stake in an Argentinian-owned Peruvian unit, PlusPetrol Norte, in February 2004. PlusPetrol Norte is the main crude oil producer in Peru, and produced approximately 17.8m barrels in 2006. In September 2005 a CNPC-Sinopec-led consortium, Andes Petroleum, agreed the US$1.42bn purchase of the Ecuadorian assets of a Canadian oil firm, Encana. This deal gave Andes Petroleum control of five blocks, producing in total approximately 75,000 b/d, and with proven reserves of 143m barrels. The consortium also acquired a strategic 36% stake in Ecuador's Oleoducto de Crudos Pesados (OCP, the new heavy crude oil pipeline), which pumps 450,000 b/d, and as such CNPC will be able to exert some control over direction of exports through the OCP pipeline. A year later, Sinopec formed a consortium with India's ONGC Videsh to spend US$850m on a 50% stake in Colombia's Ominex de Colombia, a subsidiary of US-based Ominex Resources. Ominex de Colombia's oilfields produce 20,000 b/d and have proven resources of 300m barrels.

Most of this activity is fairly recent and can be traced back to a visit to Latin America by a Chinese legation in 2004. The April 5, 2007, online edition of “The New York Times” reports that, “Expectations ran high three years ago when Hu Jintao, the president of China, visited South America and toasted a ‘strategic partnership’ with his Brazilian counterpart, Luiz Inacio Lula da Silva, predicting trade between the two countries would double to $20 billion. China pledged $10 billion in investments, mostly in infrastructure.

“To some extent, Brazilians have been disappointed in the follow up. The Chinese have struggled with red tape in Brazil and hesitated while waiting for Brazilian rules to activate public-private investments. ‘Very little has happened,’ said Pedro de Camargo Neto, a former official in the Agriculture Ministry in Brazil who is now an agribusiness consultant.”

Just as the players of the Great Game in nineteenth-century Asia had to deal with searing desert heat and blistering mountain cold, investors in the Brazilian sugar and ethanol industry have to contend with impossibly-complex tax structures (excised at the national, state, and municipal level), a labyrinthine labor legislation calibrated to favor workers over capital (on account of the dire human rights record in Brazilian industry and agriculture in general), and a growing legion of NGOs and political agents that can, and often do, interfere with the conduction of business (Via Campesina, or “Peasants’ Way”, for instance, occupied the Cevasa mill, albeit somewhat peacefully, on March 7^th, 2007, the same day that President George Bush arrived in Brazil to sign an “ethanol memorandum” with President Lula. Cevasa had been purchased just last year by Cargill, the U.S. agribusiness giant whose grain terminal on the banks of the Amazon River was shut down by Greenpeace last March 21^st – previous post).

On the bright side, investors in Brazil gain access to 8.5 million sq. km of geopolitically stable land (an area larger than the continental United States), with very favorable conditions for agriculture, unified under a single government and a single language – advantages that companies used to doing business in Africa and Asia can appreciate.

Bringing the Great Game narrative full circle, on April 10^th, 2007, “The International Herald Tribune” carried a report from the Associated Press stating that, “Venezuelan president Hugo Chavez ‘pledged to undermine a U.S.-Brazil ethanol agreement, but denied any conflict with his South American neighbor and ally. In a televised speech on Tuesday, Chavez said he plans to ‘knock down’ the ethanol proposal in the same way he lobbied against a U.S.-backed hemispheric trade pact (the Free Trade Area of the Americas), reports the Associated Press.

‘We are working on an alternative proposal,’ he said without elaborating. ‘Just as we overthrew the Free Trade Area of the Americas, we will now overthrow’ the ethanol plan.

‘President Bush and his Brazilian counterpart, Luiz Inacio Lula da Silva, signed a memorandum of understanding (in March) to promote international ethanol use and production. The two countries are the world's leading producers of the alternative fuel.

‘Chavez has accused the United States of trying to promote an ethanol cartel to divide the region, and warned that ethanol production will end up destroying the environment if the aim is to replace U.S. gasoline consumption with fuel from industrial agriculture.’”

Mr. Chavez’s attacks signal a widening rift between Brazil’s Lula, a one-time rabidly ideological union leader and still head of the left-leaning Workers’ Party (PT), and Brazil’s oil-rich neighbor to the north (previous post).

In speaking out against the “ethanol alliance”, Mr. Chavez is apparently channeling the voice of Fidel Castro, who, according to this report from the April 13^th, 2007, online edition of The New York Times, “lashed out against American plans to increase use of renewable fuels, mainly ethanol, in a front-page article in the Communist Party newspaper, Granma, warning that food stocks for millions of people would be threatened. The article, titled ‘Condemned to Premature Death by Hunger and Thirst -- More Than 3 Billion People of the World,’” used the strongest terms to criticize the development of the “ethanol alliance” between the U.S. and Brazil.

Mr. Castro was, presumably, in turn channeling the voices of his Marxist-Leninist allies from Russia, who traded with Cuba on generous terms until the Soviet Empire fell and left the island energy-hungry in the late 1980s. With Mr. Castro’s peculiarly-timed intervention (he has been hospitalized for eight months now), the world sees Russia, or at least a Russian proxy, reintroduced into the Great Game, this time on the other side of the world.

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

BRAZILIAN AUTHORITIES, CARGILL, GREENPEACE SCUFFLE ON BANKS OF AMAZON

Cargill’s grain shipping terminal in the northern state of Para was closed down on March 24^th, 2007, by the Brazilian federal police, at the behest of Greenpeace International and of the Federal Attorney of the State of Para (“Procuradoria da Republica”) (previous post).

The entire scuffle centers on relatively small legal issues stemming from the appropriateness or not of the necessary environmental licenses for Cargill to operate at the location. But the incident also underscores the perils of building anything related to biofuels (or grain) in or near the Amazon region. I discussed the incident with a Cargill energy specialist here at Michigan and his first reaction was to lament the fact that Brazilian farmers would have their shipments of grain halted.

Among those affected are Blairo Maggi, the governor of Mato Grosso state, an area to the south of Para state. Mr. Maggi is also the largest individual soybean grower in the world, as reported today by The New York Times and in an earlier post on Ethablog.

According to Wikipedia, “Mr. Maggi owns the Amaggi Group, a large company that harvests, processes, and exports soybeans. Mr. Maggi’s group is also involved in the infrastructure projects that are necessary to sustain the soy industry, notably soy terminals, highways, and waterways.

"Mr. Maggi is nowadays considered the world’s largest soybean producer.[1] He is also renowned for causing devastating environmental damage, deforesting enormous areas of forest. Mr. Maggi received the Golden Chainsaw Award in 2006 from Greenpeace for being the Brazilian who most contributed to the destruction of the Amazon.[2]"

The official web site of the Governor of the State of Mato Grosso (which occupies an area equal to Texas and Kansas combined) says that “Mr. Maggi has an undergraduate degree in Agronomy from the Federal University of Parana. He moved to Mato Grosso in the 1970s with his parents, small farmers of Italian extraction who decided to invest in the agricultural potential of the Brazilian Cerrado (grasslands), which, until then, was a sparsely-populated, inhospitable region.

“In 1973, the Maggi family started Sementes Maggi (“Maggi Seeds”), to produce soy seeds, a crop that started to gain the Brazilian Cerrado.

“The business prospered, giving origin to the Amaggi Group ('Grupo Amaggi'), the largest producer and exporter of soybeans in Brazil, with businesses in several industries, including transportation, cattle, and electricity generation.

“Having inherited his father’s entrepreneurial vocation, Blairo Maggi rose to become the main executive at the Amaggi Group, and, as the largest planter of soybeans in the world, gained fame in business and politics.”

Mr. Maggi also made friends with people in high places. On July 27^th, 2006, Archer Daniels Midland, the American agribusiness giant, “announced plans to build a biodiesel production facility in Rondonopolis, Mato Grosso state, with an annual capacity of 180,000 metric tons.

The plant will use soybean oil as its feedstock and is competitively positioned to meet the large anticipated demand from soybean producing farmers, as well as from the Brazilian road and rail transport industries. Additionally, it will be strategically located adjacent to ADM’s existing soybean crushing plant in Rondonopolis to maximize synergies between ADM’s Brazilian origination, transportation and processing capabilities.”

ADM’s new biodiesel plant is also strategically located close to the Amaggi Group’s main office: 4269, Presidente Medici Ave., Rondonopolis.

However, ADM’s new biodiesel plant has yet to commence operations. In the same communiqué, ADM goes on to state that “construction on the plant is dependent on final engineering and permit approval”, which is given by the Instituto Estadual de Florestas (“State Forestry Institute”), the head of which is, amazingly enough, appointed by the state governor.

Louis Dreyfus’ acquisition of a refinery in Mato Grosso (previous post) will certainly add to the synergies that determine the dynamics in that state’s biofuels industry, perhaps leading eventually to a railway over the Andes and to a port on the Pacific – an undertaking that could conceivably be financed by bedfellows as strange as the Chinese, the Indians (previous post), the Japanese (previous post), and American grain producers.

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

CHINA, FRANCE CLAIM STAKE IN BRAZILIAN ETHANOL, SUGAR INDUSTRY

The Chinese have been making aggressive inroads into the Brazilian sugar and ethanol sector, with the promise of substantial funds to invest in much-needed infrastructure. The April 5, 2007, online edition of The New York Times reports that, “Expectations ran high three years ago when Hu Jintao, the president of China, visited South America and toasted a ‘strategic partnership’ with his Brazilian counterpart, Luiz Inacio Lula da Silva, predicting trade between the two countries would double to $20 billion. China pledged $10 billion in investments, mostly in infrastructure.

“To some extent, Brazilians have been disappointed in the follow up. The Chinese have struggled with red tape in Brazil and hesitated while waiting for Brazilian rules to activate public-private investments. ‘Very little has happened,’ said Pedro de Camargo Neto, a former official in the Agriculture Ministry in Brazil who is now an agribusiness consultant."

For others, however, things have been moving along at a relatively quick pace. Last February, France’s Louis Dreyfus bought all the sugar and ethanol refineries belonging to the Tavares de Melo Group. With the acquisitions, Louis Dreyfus became the second-largest producer of ethanol in Brazil, “with significant capacity for growth”, as reported by Jornal Cana.

The units purchased by Louis Dreyfus are scattered around Brazil: they are Usina Estivas (Rio Grande do Norte state), Agroindustrial Passa Tempo (Mato Grosso do Sul state), and Usina Maracaju (Mato Grosso state), in addition to the autonomous ethanol refining unit at Giasa (Paraiba state), and Usina Esmeralda, in Mato Grosso do Sul state, which has just broken ground.

The interesting thing about the refineries in the thinly-populated states of Mato Grosso and Mato Grosso do Sul is that they are located right in the geographic center of South America, in a position that makes them equidistant to the Atlantic and Pacific Oceans – and to the Amazon River, on whose banks Cargill built a grain shipping terminal shut down by Brazilian authorities just last March 24^th (previous post), at the behest of Greenpeace International and of the Federal Attorney (“Procuradoria da Republica”) in the northern state of Para.

Greenpeace gave the event ample coverage on its web site (see “Blockade on the Amazon”).

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

U.S. WANTS PETROBRAS OUT OF IRAN

The U.S. has expressed concern over the ventures in Iran of Brazil's state-owned energy company, Petrobras.

The Financial Times, through MSNBC, reports that Clifford Sobel, the American ambassador to Brazil, warned the company that its forays into the country might “’create complications’ for Petrobras' operations in the Gulf of Mexico”.

MSNBC goes on to say that “NIDC, the Iranian oil company, said last month it had begun exploratory drilling in the Persian Gulf in collaboration with Petrobras and Repsol YPF, the Spanish oil company. It also said it was preparing to sign a $470m contract with Petrobras on exploration and production in the Caspian Sea.”

Petrobras' move into Iranian territory is hailed on its web site as “its return to the Middle East”. According to the site, “(the) initial contractual investment will be around US$ 32 million, over three and a half years. If the contract is extended – for a further 18 months – the Company will invest another US$ 10 million. The plan is to drill two independent exploratory wells in the Tusan block of the Persian Gulf”.

The Mendes Junior experience is certainly a lesson that Petrobras will take into consideration when planning future moves in the region. Photius.com reports that, “Mendes Junior, the largest Brazilian construction company in the 1970s and 80s, had several hundred workers and technicians, as well as several million dollars worth of equipment, in southern Iraq working on railroad and irrigation projects. The Iraq-Kuwait conflict, which resulted in Operation Desert Storm in early 1991, placed Brazil in a very delicate position. United States congressional subcommittees accused Brazil of exporting technology and expertise to Iraq to develop a missile based on the Piranha missile (MAA-1). Retired Air Force Brigadier Hugo Oliveira Piva had taken a private group of Brazilian technicians to Baghdad to complete this project; under pressure, the Collor government ordered the group's return to Brazil.

"Thus, Brazil, unlike Argentina, did not participate in the Allied operation. The Brazilian government had to dispatch its key negotiator, Ambassador Paulo de Tarso Flecha de Lima, from his post in London to negotiate the release of the Mendes Junior personnel from Iraq and the disposition of the equipment. Brazil had won a US$5 billion price and performance competition to supply its Osorio tank to Saudi Arabia in 1990, but the Kuwait conflict changed the decision in favor of the United States Abrams tank.”

VISIT BY GERMAN PRESIDENT TO BRAZIL IN MARCH UNNOTICED

German President Horst Kohler’s visit to Brazil in early March 2007 was eclipsed by the simultaneous arrival of U.S. President George W. Bush. In spite of the short shrift given by the Brazilian and international media to Mr. Kohler’s visit, Agencia Brasil, the Brazilian government’s news agency, reports that the German president’s presence prompted Lula to “invite German businesses to invest in energy and infrastructure in Brazil”.

Agencia Brasil goes on to specify that “President Lula invited German businessmen to participate in the Growth Accelaration Program (“Programa de Aceleracao do Crescimento” – PAC).

During a reception for President Kohler at the Palacio do Planalto, in Brasilia, Lula said that German businesses should invest in the PACs because these companies have proven competence in the energy field.

According to Lula, the Germans, who invest US$ 9 billion yearly in Brazil, are the sixth-largest national group of foreign investors. He also pointed out that 1,200 German companies have a branch on Brazilian territory and, together, represent 8% of Brazil’s GDP.

Germany is Brazil’s largest European trade partner. In 2006, trade between the two countries totaled over US$12 billion. Brazil exported US$ 5.5 billion to Germany, while the latter imported US$ 6.5 billion from Brazil.

The state dinner offered to the German President had to be rushed, so that he could return to Sao Paulo one hour before the arrival of President George Bush in that city. The following day, Mr. Kohler remained in Sao Paulo and followed the intense activity around the signing of a bilateral ethanol agreement between the U.S. and Brazil.

Brazil and Germany have a long history of shared traditions. The country received a large influx of German immigrants in the second half of the nineteenth century and the first decades of the twentieth.

The immigrants established themselves mainly in the south of Brazil, in the states of Sao Paulo, Parana, Santa Catarina and Rio Grande do Sul.

Figures such as Jorge Bornhausen, Lauro Muller, Adolfo Konder, and Filipe Schmidt have left their mark on the Brazilian political landscape. Other German descendants were closely involved in the development of the Brazilian ethanol automotive fuel industry: Col. Ernesto Stumpf invented a special Venturi carburetor for ethanol-powered internal combustion engines in the 1950s (earlier post), and President Ernesto Geisel (1974-78) started the Pro-Alcool (Pro-Ethanol program) in 1974.

More recently, David Zylberstajn and Henri Philippe Reichstul, directors of the newly-established Brenco (Brazilian Renewable Energy Company – earlier post), have sealed alliances with international organizations to further develop the Brazilian sugar and ethanol industry.

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