AFTER IPO, COSAN, BRAZIL’S ETHANOL GIANT, RELEASES NUMBERS FOR 2006

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Last Friday (July 28th, 2006), the COSAN group, the largest sugar and ethanol company in the world, released its numbers for the 2005-06 production cycle, which ended in April 2006.

According to the company, the season was marked by a 30% increase in the company’s milling capacity, effected through the purchase of the Corona (Tamoio and Bonfim), Mundial, and Bom Retiro plants, and by the full incorporation of the capital of FBA (Franco-Brasileira de Acucar).

The company also highlights its entry in the business of renewable co-generation, marked by its participation in the “New Energy” (“Energia Nova”) auction of Brazil’s Ministry of Energy, and by US$ 403 million raised in its IPO, in addition to US$ 450 million brought in by the issuance of perpetual bonds.

According to the performance analysis issued by COSAN, the group closed the fourth quarter of the 2006 business year (February to April 2006) with net earnings of R$ 747 million (approximately US$ 340 million), 61% greater than earnings for the same quarter the previous year. The number raised the company’s net earnings for the entire year ending in 2006 to R$ 2.48 billion (approximately US$ 1.13 billion), a gain of 30% compared to the previous year.

EBIDTA also presented a significant gain in the last quarter, reaching R$ 168 million (approximately US$ 76.4 million), a 125% jump compared to the same period in the previous year.

The 2006 business year presented an EBIDTA of R$ 517.7 million (approximately US$ 253 million), 52% above what had been recorded for the previous cycle. The results reflected positively the international environment’s sentiment toward prices and the company’s growth strategy regarding volume.

Sales of sugar during the period reached 2.47 million tons, a 6% growth when compared to the 2005 business cycle. In the fourth quarter, sales of sugar reached 623 million tons, a growth of 12% in relation to the same period in the previous year. The volume sold in the last quarter includes sugar inventories purchased along with the Mundial and Corona plants, as well as part of the production of the month of April, as the harvest was brought in earlier than expected.

During the entire 2006 business year, 83% of the sugar sold was exported, and 17% was sold on the Brazilian market. The average price of R$ 764 / ton for sugar (~ US$ 347.27 / ton), above the mark of R$ 559 / ton (~US$ 254.1 / ton) recorded in the fourth semester of the previous year, reflects the large increment seen after the third semester of the year, yielding a small impact on the average price for the 2006 business year (R$ 603 / ton, or ~US$ 274.1 / ton).

Ethanol sales in business year 2006 totaled 1.02 billion liters, an expansion of 23% when compared to sales in the previous year. During the fourth quarter, ethanol sales totaled 240 million liters, an increase of 48% in relation to the same period in 2005. As was the case with sugar, inventories from Mundial and Corona were also included, as well as part of the production for April, due to the earlier-than-expected harvest.

The full consolidation of FBA also contributed to the significant increment in the volume of ethanol in 2006. This fact, however, did not impact sugar sales, as they had already been firmed by COSAN in previous years. During the entire business year of 2006, ethanol sales on the Brazilian market grew 29%, while exports were reduced 23% in order to improve supply to the domestic market. While the average price in the last quarter was R$ 1.02 / liter of ethanol (~US$ 0.46), the average price for the entire year was R$ 0.84 / liter (~US$ 0.38).

With the extraordinary results in the sales of sugar and ethanol, gross profits of R$ 240 million (~US$ 109 million) recorded in the fourth quarter (a 55% growth in relation to the same period in the previous year) were essential for COSAN to reach a total gross profit of R$ 757 million (~US$ 344.1 million) in the 2006 business year, a 35% increment over the gross profit for 2005.

The absence of net profit in the fourth semester led net losses in the year to R$ 65 million (~US$ 29.5 million) – net profit for 2005 had come in at R$ 17 million (~US$ 7.73). This number was heavily impacted by the extraordinary expenses associated with the company’s IPO (R$ 53 million, or ~US$ 24.1 million).

In addition to these non-recurring expenses, the unfavorable end result was compounded by the 6% increase obtained by sugar cane suppliers, with a retroactive effect on the entire harvest; administrative expenses in duplicity brought on by the acquisition of the Corona group; and the effects of the loss of a R$ 209 million (~US$ 95 million) hedge with the fixing of commercial prices in face of the sudden spike in the price of sugar.

Other items have been included in the composition of the final result, such as amortization expenses, with no impact on cash effect, of interest totaling R$ 143 million (~US$ 65 million) in the acquisitions that were carried out, as well as R$ 140 million (~US$ 63.64 million) in depreciation.

Investments carried out by the company during the 2006 business year totaled R$ 745 million (~US$ 338.64 million), significantly above the R$ 310 million (~US$ 140.9 million) for the previous year.

Total acquisitions reached R$ 536 million (~US$ 243.64, including the Mundial, Bom Retiro, and Corona – Tamoio and Bonfim – plants), and were the main factor behind this increase.

Another highlight was the sum of R$ 135 million (~US$ 61.36 million) allocated to sugar cane plantations, both for harvesting operations and for the acquisition of mature crops, in an effort to reduce the poor conditions of cane fields purchased along with previous acquisitions.

The rest of the investments, directed mainly toward the construction of warehouses at port terminals and plants to improve the management of stocks and minimize logistics expenses, totaled R$ 74 million (~US$ 33.64 million), the same levels seen in previous years.

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DUPONT’S RANGER® COMPLETES SUGAR CANE LINE

DuPont’s Agriculture and Nutrition Division has announced that it is about to launch Ranger®, a herbicide that complements the company’s line of products for the sugar and ethanol industry and is aimed exclusively at crops of sugar cane of the “soca” variety.

DuPont’s portfolio of defensive chemicals for use in sugar cane plantations, such as Velpar® K and Advance® herbicides and Curavial® and ZAZ® maturing agents, is now complete with the introduction of Ranger®.

According to agronomist Marcio Farah, marketing manager for DuPont for the sugar cane segment, the new herbicide was tested by the company over the past two years, and proved to be quite successful. According to Mr. Farah, it is a herbicide for use in pre-emergencies, recommended for the control of wide-leafed weeds.

“In addition to an excellent control spectrum, Ranger® is a new alternative, one that presents the best cost-benefit ratio in its segment”, says Mr. Farah.

Among the main benefits of the new herbicide, Mr. Farah points to the broad residual effect, the practicality, and the easy, safe use, in addition to the usage doses, which vary between 1.8 kg and 2.5 kg per hectare, “according to the type of soil, level of infestation, and weed that has to be brought under control”, notes the executive.

Mr. Farah also points out that Ranger® acts as an inhibitor of chlorophyll and photosynthesis; it is also selective as to sugar cane and presents a residual effect that may last up to 120 days, a fact which also reduces the so-called “picking” in sugar cane plantations.

The new herbicide will be sold in a wetting powder version, in hidrosoluble packages of 500 grams, inside aluminum-coated bags of 5 kg. The bags will be nested in shipping packages that weigh up to 15 kg.

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BRAZIL’S STATE-OWNED PETROBRAS HITS THE BIODIESEL MARKET

DINHEIRO RURAL MAGAZINE
By Fabio Stefano

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It’s like a shock between tectonic plates. This earthquake – a producer of good vibes – is being wrought by Petrobras and may very well revolutionize Brazilian agribusiness. After all, when the largest Brazilian corporation, with revenues of R$ 136 billion (approximately US$ 62 billion), moves in a certain direction, the effects can be felt miles away.

That is what is happening right now in a strategic area. On the one side, Petrobras has just presented H-Bio to the world. The process, invented by company engineers, produces diesel based on a mixture of oil and vegetable oil, made from several feedstocks, especially soy. The technology implies adding, in theory, up to 18% of the green product to the fossil material, to obtain a product that is identical to the one being sold today.

On the other side, BR Distribuidora (Petrobras’ distribution unit – H.O.), a subsidiary of Petrobras, has started selling biodiesel (a separate product) in 700 stations. It is a mixture that adds 2% vegetable oil to conventional diesel.

“We have taken a decisive step to create a new kind of economy around the world”, José Sérgio Gabrielli, the president of Petrobras, told “Dinheiro Rural”. “Soon, selling biodiesel will be a routine activity, just like selling gasoline or ethanol”, adds Graca Foster, president of BR Distribuidora. Ale Combustiveis (“Ale Fuels”), another Brazilian company, is a pioneer in this market. It already sells the product in 168 stations.

To get an idea of the impact caused by Petrobras’ entry in the agribusiness market, look no further than what happened in Araucaria, in Parana state (southern Brazil), at the end of June. To wrap up H-Bio tests at Petrobras’ own Getulio Vargas Refinery (Repar), 1.8 million liters of soy oil were used – an amount sufficient for only four days' production.

Initial production with the H-Bio technique, which will be carried out in only three company refineries, will demand 256 thousand cubic meters per year. This amount represents 10% of soy oil exports from Brazil this year.

On the other hand, using the vegetable-based product allows Petrobras to save 15% in diesel imports, generating US$ 145 million in savings a year. “The H-Bio technology, which complements the biodiesel technology, allows Brazil to move on further down the road of energy independence”, says Gabrielli.

(With a tip of the hat to Caio Heleno - H.O.)

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JAPANESE INVESTORS VISIT BRAZILIAN BIOFUELS CENTER

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July 26^th, 2006

The head of the Brazilian National Biofuels Units, Weber Amaral, will act today as host to a delegation of Japanese investors and researchers, who have traveled to the country on an information-gathering expedition.

The meeting will take place at the Escola Superior de Agricultura Luiz de Queiroz (School for Higher Studies in Agriculture) of the University of São Paulo (USP). Participants include Yasushi Ninomiya, director of the Research Department of Japan’s External Trade Organization (Jetro). Jetro is the Japanese governmental agency in charge of trade and foreign investment – and researcher Saori Miyake, from Tokyo's Advanced Studies Research Organization (Gendai), a private sector organization with ties to the automotive industry.

FROM US TO CHINA, BRAZIL’S COSAN FIRMS ALLIANCES

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Brazil’s COSAN, the country’s largest individual producer of ethanol, has been establishing partnerships with companies from different parts of the globe. In 1999, it established a partnership with Britain’s Tate & Lyle, to whom it sold 10% of its port terminal. In 2002, it allied itself with France’s Tereos and Sucden, and established FBA (Franco-Brasileira de Acucar e Alcool SA – French-Brazilian Sugar and Alcohol Inc.)

In 2005, the group sought partners outside of Europe and firmed a relationship with China’s Kuok, one the globe’s most dynamic and diversified conglomerates. In 2006, COSAN closed a deal with Teas to set up a port specifically designed for shipping ethanol (Terminal de Exportacao de Alcool Santos – Santos Alcohol Shipping Terminal), in tandem with America's Cargill, the Nova America Group, and Crystalsev.

According to COSAN, the new partnerships add resources and technology, and consolidate the group’s role of world-class player in the ethanol market.

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ARE SHELL, EXXON-MOBIL, AND TEXACO ALREADY DISTRIBUTING ETHANOL ON A WIDE-SCALE BASIS?

by Henrique Oliveira

Many of the major oil companies have been distributing and marketing E100 and E20 (and only E100 and E20, with the exception of diesel for trucks) since 1975 in Brazil.

The list of major ethanol distributors includes:

• Shell Brasil Ltda.
  
• Esso Brasileira de Petróleo Ltda.
  
• Texaco Brasil S.A.
  
• Petrobras Distribuidora Produtos de Petróleo S.A.
  
• Companhia Brasileira de Petróleo Ipiranga
  
• Flag Distribuidora de Petróleo Ltda
  
• Petronova Distribuidores de Petróleo Ltda

These companies make their money not only by selling E20 and E100 (the only kinds of automotive fuel in Brazil), but also by marketing the many other operations and products that surround the sale of fuels: lubricants, convenience stores, financial products, etc. (pictures below)

BRAZILIAN EQUIPMENT GIANT SELLS WORLD’S FIRST INTEGRATED BIODIESEL / ETHANOL / SUGAR PLANT

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Disclaimer: Ethablog is not affiliated in any way with any of the companies mentioned in the following paragraphs. H.O.

Dedini, the world’s largest manufacturer of equipment for ethanol and sugar refining, closed a groundbreaking deal with Usina Barralcool, a traditional producer in Brazil, a company spokesperson announced on Thursday. The new plant will be capable of using both the ethylic and the methylic routes to produce biodiesel. It is the first biodiesel unit in the world to operate integrated into a plant.

Barralcool expects to invest R$ 25 million (approximately US$ 11.4 million), with operations scheduled to begin in July ’06.

• Client: Usina Barralcool S/A
• Location: Barra do Bugres, state of Mato Grosso
  
• Capacity: 50,000 tons/year (57 million liters/year)
• Materials: vegetable oils and ethanol or methanol
  
• Process routes: ethylic or methylic
  
• Product: biodiesel as defined in ANP Law 11.097/05 or EN 14.214 or ASTM 6751-03
  
• Subproduct: glycerin with minimum 80% purity
  
• Opening date: July 2006

When the ethylic route is in use (i.e., when bioethanol is being used), the resulting biodiesel will be “100% ecological", as it will have used exclusively plant-derived products that come from renewable sources. This holds even for the energy that powers the process, during which bagasse (crushed sugar cane) is burned.

As the biodiesel plant will be installed adjacent to the bioethanol and sugar refineries, certain synergies begin to develop – part of the sugar cane juice (“garapa”) and all other raw materials will come from inside the plant itself. This kind of plant, incidentally, has lower operating costs than a stand-alone unit. Furthermore, Barralcool will grow its own soy beans, which will be cultivated while the sugar cane fields are being renewed. This will contribute to a reduction in the price of the oil to be processed; bioethanol produced on site will fuel the process. All of this adds up to lower costs for biodiesel.

Another of the project's highlights is the social benefits that accrue: most of the material – oil-producing grain – is bought from small family-run farms in the region, thanks to an agreement signed with the Ministry for Farm Development. This confers upon Barralcool the distinction of receiving the Brazilian government’s “Social Stamp” (“Selo Social”).

The concept of an integrated unit, where biodiesel benefits from the synergies of a next-door ethanol and sugar plant, was first presented to the market in 2004. Later it was developed and presented again during SIMTEC 2005, in the city of Piracicaba, interior of Sao Paulo state.

Dedini believes that any plant that currently processes sugar and ethanol or biodiesel have a lot to gain from integration.

For more information, call:

• Dedini – José Luiz Olivério – (19) 3403-3006
• Barrálcool – João Petroni or Silvio Rangel – (65) 3311-1800
  

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VENEZUELA’S PDVSA BECOMES WORLD’S FIRST OIL COMPANY TO ACQUIRE 100% STAKE IN ETHANOL DISTILLERY

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Brazil’s Dedini, the largest manufacturer of sugar and ethanol-refining equipment in the world, sold an entire ethanol-producing plant to Venezuela’s PDVSA. The unit will refine molasses to produce the fuel.

Dedini negotiated the terms of the sale for all the different areas inside the plant, including fermentation, distillation, dehydration with a molecular sieve, and vinyasse concentration.

The new plant will be built in Tocuyo, with an annual production capacity of approximately 8.5 million liters.

This is the first time a plant specifically designed for producing ethanol is sold to an oil company, and PDVSA will become the first oil company to own 100% of an ethanol plant’s equity. PDVSA will use it to produce its own bioethanol. The ethanol to be produced will be mixed with gasoline, effectively kicking off Venezuela’s biofuels program.

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TRANSITIONING TO ETHANOL - IN 1975

• This ad is an early piece used in Brazil in the critical days after the Brazilian government established the “Pro-Álcool” (“Pro-Alcohol”) program in 1975, designed to reduce the country’s dependence on foreign funds and oil.
  
  Its main goal was to convince consumers to try out the new fuel – not an easy task, given that doing so would require purchasing a car with an engine especially designed for ethanol combustion.

So let us examine the situation in the Brazilian automotive market when that country’s government decided that national security concerns warranted the creation of a sizable ethanol-powered fleet:

1. A much smaller number of cars and light trucks meant that economies of scale would be less significant and harder to come by than will be the case when a similar transition occurs in the U.S.;
2. Lower per-capita income signified that purchasing any kind of car – a major investment in Brazil, even for the middle class – was a considerable barrier to participation in the new ethanol market;
3. Brazil’s vast geographic expanse made nationwide distribution – a critical element to the new fuel’s acceptance – a daunting task, a problem compounded by the absence or inadequacy of the country’s infrastructure.

Nevertheless, the Brazilian initiative succeeded in firmly establishing ethanol as an alternative to gasoline.

If a developing nation was able to pull off such a feat, what, but political considerations, keeps the U.S. from doing so as well?

When ethanol becomes a widely utilized, viable substitute for or complement to gasoline in the United States, the economies of scale that will be achieved will be substantial, signifying that the current ethanol prices in the few fueling stations around the country that sell it – already lower than the price of gas – could drop even more.

Americans’ higher purchasing power will significantly decrease the barriers to entry in the new market, vis-à-vis the Brazilian experience.

And the United States’ superior infrastructure will allow ethanol to be more easily – and more cheaply – distributed throughout the country. A modern railway system, in particular, is a factor that will greatly benefit the distribution system – unlike in Brazil, where the railway grid is limited and trucks are used to transport most of the cargo, even over very long distances.

In short, the U.S. should look at Brazil and see it as a 31-year “trial market”. In this sense, Brazil, an industrialized country comparable in size to the United States, is a window into the future that America would do well to examine more closely.

Hindsight, after all, is 20-20.

Hear it from the horse's mouth - follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

ENVIRONMENTAL IMPACTS OF BRAZILIAN MONOCULTURES ON THE AMAZON REGION

by Henrique Oliveira

One of the reasons green advocates like the idea of using ethanol in lieu of fossil fuels is that burning ethanol produces far less greenhouse gases. However, many are already examining the possible environmental impacts that an expanded sugar cane monoculture in Brazil, essential to the development of a sizable market in industrialized nations, will entail.

They specifically fear that pristine lands in Brazil's Cerrado (grasslands) and Amazon basin, today covered largely by forests and native bush, will be cleared to make room for new plantations. Some advocates of expanding Brazil's planted area say that such fears are unwarranted - expanded monocultures will simply optimize the use of land that today yields less than what modern farming methods, and associated elevated productivity, could produce.

A study by Brazil's Applied Economics Research Institute (IPEA), released in January 2005, used soy - Brazil's largest crop after corn - to assess environmental effects. The study pointed out that the northward expansion (i.e., into the Amazon region) in the amount of land occupied by soy monoculture - a 13.5% increase between 2001 and 2004 - occurred on previously degraded areas or pastures. In other words, it simply used land that had already been cleared, in many cases several decades before.

The study, however, was harshly criticized by environmentalists in Brazil and abroad. It is true that soy now occupies much of the land that was used for grazing - but the study fails to acknowledge that cattle raisers, deprived of cheap land due to rising costs brought on by increased competition from soy, were themselves clearing forest lands to use as pastures.

Daniel Cohenca, who works for the Brazilian government's environmental conservation agency (IBAMA) decided to study the issue in depth. He wrote a monograph, presented at one of Brazil's leading universities in agricultural research, in which he presented several interesting conclusions. Using satellite images of northern Brazil, where the bulk of the Amazon forest is located, he calculated that over 80,000 hectares of forest had been cleared between 1999 and 2004 - almost all of it illegally.

When he correlated the areas with the reason for which they were cleared, he confirmed that soy was, indeed, responsible for a substantial part of the damage. In 1999-2000, only three cleared patches were converted to mechanized agricultural production. Over the following two years, however, the ratio began to change. In late 2004, only one of the ten largest clearings in the forest was marked for cattle - all the other nine were used for monocultures.

Bottom line: any foreign corporation seeking to expand Brazil's monocultures, whether sugar cane, soy, or corn, should consider environmental impacts well beyond the immediate areas they occupy - or face an outcry from stakeholders, in Brazil and abroad, who are increasingly environmentally conscious.

Hear it from the horse's mouth - follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

INTERNATIONAL CONFERENCE IN BRAZIL TO DISCUSS ETHANOL R&D

The hydrolysis of bagasse (crushed sugar cane) to produce ethanol; new Brazilian bio-safety laws and their possible impact on sugar cane bio-technology; and the plans of Embrapa (the Brazilian Federal government’s institute for agricultural research) to develop genetically-modified sugar cane are some of the issues which will be discussed in a series of technical panels at the Brazilian Sugar and Ethanol Industry’s International Technology Symposium and Fair (Simtec).

The event will take place in the city of Piracicaba, in the interior of Sao Paulo state, from 18 to 21 July, 2006. The event, in addition to discussing themes related to research, as well as to agricultural and industrial production, will showcase the latest Brazilian breakthroughs and innovations in the sugar and ethanol business.

Contact: email simtec@simtec.com.br or visit www.simtec.com.br

My comments on the news item above: while foreign companies are spending hundreds of millions of dollars on R&D in other countries, they should also seize opportunities such as the Simtec conference and fair to get to know what Brazilian researchers and corporations are doing. After all, these individuals and organizations carry 30+ years of experience under their belts – a competitive advantage that even the most generous budgets for research and development in other countries cannot match. H.O.

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BRAZILIAN 05-06 SUGAR CANE HARVEST SMALLER THAN EXPECTED

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Brazilian firm Datagro Consulting reduced its projections for the sugar cane harvest for the 2006-07 season in Brazil’s Center-South region. Sugar cane production is now estimated at 363.5 million tons, 7.9% above the 2005-06 cycle, which came in at 336.5 million tons. Datagro’s first estimate for this season indicated a supply of 368.5 million tons of cane.

Plinio Nastari, Datagro’s President, explained that the drop in production reflected the effects of the recent drought in Brazil’s Center-South region. “The dry weather took a toll on the sugar cane to be processed between October and November 2006”, he said.

Sugar production in Brazil’s Center-South region is estimated at 24.65 million tons, 12% above the previous year’s production, which totaled 22.014 million tons. The supply of ethanol in the region has been estimated at 15.13 billion liters, 5.6% above the figure for 2005-06: 14.4 billion liters. Sugar exports from refineries in the region have been estimated at 16.16 million tons, 11.1% above shipments in 2005-06. Ethanol shipments in the Center-South have been estimated at 2.55 billion liters, 28% above the levels for the previous harvest: 1.99 billion liters.

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RISE IN SUGAR PRICES LOSES MOMENTUM

Sugar prices on the international market showed a sharp decrease in May, losing almost 200 points and signaling that the upward tendency seen in the last months is beginning to lose some of its thrust.

“The foundations are beginning to change”, noticed Julio Maria Martins Borges, President of Job Economics and Planning. "Investment funds are abandoning their invested positions", says Fernando Martins, an operator with Fimat Futures.

On the international market, the future prices of the commodity withdrew nearly 15% in May. Over the past 12 months (until June 6^th, 2006), however, the commodity presented an increase of almost 80%.

According to Martins Borges, the world’s sugar harvest in 2005-06 (from October to September) was fairly even, with a slight global deficit, a factor which helped sustain prices. This scene began to shift with the recovery of Asian countries, such as India and Thailand, and also with the record harvest in Brazil, according to the analyst. “The climate in southeastern Asia favors the development of sugar cane”, says Mr. Borges.

Despite a tendency to equilibrium in supply in 2006-07, Brazil has in its favor the fact that the European Union is reducing, as of this year, its participation in the international market, because of sugar reforms carried out by the European bloc, and also because the World Trade Organization ruled in favor of Brazil, Australia and Thailand. The WTO has determined that the E.U. will have to reduce subsidized sugar exports. Job Economics and Planning believes that the greater production of ethanol, above all in Brazil, will only support international prices in the long run. “In the short term, the effect will only be felt in Brazil”, says Mr. Borges.

And that is already happening in the Brazilian market. Sugar prices in Brazil have remained constant, even as the sugar cane harvesting season progresses in the Center-South regions of the country.

On June 6^th, the 50-kilo sack closed at R$ 49.42 (approximately US$ 22.46) in Sao Paulo, up 92% in relation to the same period last year, according to the daily survey carried out by the Center for Advanced Studies in Applied Economics (Cepea). According to Mr. Borges, the expectation among analysts is that sugar prices will remain constant in the domestic market at least until July, due to contracts already signed by refineries and mills with foreign clients.

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SALES OF HYDROUS ETHANOL IN BRAZIL DROP 14.8% IN ONE MONTH

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Sales of hydrated ethanol dropped to 333 million liters in April 2006, 14.8% below the amount measured in March and 2.11% below April ’05, according to data released by the Brazilian National Petroleum Agency (ANP). In April, when ethanol prices reached all-time highs, consumption was at its lowest level in fifteen months, after having peaked in December, when it reached 509 million liters.

The data from December had been inflated due to a change in legislation, sponsored by ANP, that required refineries to color the product in order to avoid fraud, as some of the hydrous ethanol (ethanol mixed with C Gasoline), was being sold as if it were anhydrous. Sales have decreased since then, drawing back to 465 million liters in January, 444 million in February, and 390 million in March ‘06.

The drop in sales for hydrous ethanol followed the general tendency for fuels in Brazil in April, according to the data released by the government agency. The total sales of fuels by distribution companies totaled 6.93 billion liters, with a 4.3% drop in relation to April ’05 and 9.3% less than in relation to March ’06. The greatest drop was seen in diesel, which sold 9.02% less than in April ’05. The decrease reflects the low consumption by farms, which have been affected by a drop in agricultural production, by the low international prices of export commodities, and by the drought which has hit the South of Brazil. Farms are one of the biggest users of diesel oil.

C Gasoline, mixed with ethanol, was the only fuel that saw an increase in consumption in April, out of the eight that are tracked regularly by ANP. In all, 1.92 billion liters were sold in that month, with a 1.04% increase in relation to the level sold in April 2005. In relation to March ‘06, however, there was a drop of 5.14%. Due to the high prices for hydrated ethanol in April ’06, gas became the more interesting alternative for owners of flex-fuel vehicles, who bought less ethanol in that period.

Hear it from the horse's mouth - follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

BRAZIL AND JAPAN DISCUSS ETHANOL

From "Valor Economico" - June 22nd, 2006

The article below was condensed during translation. H.O.

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Rivals in the field in today’s World Cup match, Brazil and Japan have been holding talks to discuss ways to increase trade between the two countries. High on the list of priorities for Japan is developing a supply chain of ethanol. Brazil’s strategic importance as a supplier of raw materials and biofuels is underscored by Japan’s recently-expressed desire to establish a free trade agreement with Brazil.

Japan has been surpassed by China as Brazil’s largest Asian trade partner. It now ranks sixth among buyers of Brazilian exports. Prime Minister Junichiro Koizumi wants to reverse this trend. In 2005, when President Lula visited Japan, Mr. Koizumi’s government waved with the possibility of signing a free trade agreement with Brazil. But talks did not progress, although ethanol was the star of the President’s visit.

Brazil has an enormous colony of Japanese descendants, concentrated in the state of Sao Paulo. Most of them immigrated to Brazil nearly 100 years ago, developing what has become the largest concentration of Japanese descendants outside of Japan.

2008 marks the one-hundredth anniversary of the arrival of the first ship bringing Japanese immigrants, who came to Brazil mainly to work in the fields of the booming coffee business. With the Japanese Immigration centennial approaching, the governments of the two country’s have created a bilateral committee of highly-respected businessmen, headed by Eliezer Batista, to study and propose means to strengthen ties between the two countries. One of the measures being considered is the establishment of a free trade agreement.

Brazil, however, remains wary of such proposals. It has been approached by other governments several times in the past to discuss such issues. “In the end, we discovered that the other parties’ true intention was to set up an agreement to protect investments”, says the Director for International Negotiations of the Brazilian State Department, Regis Arslanian.

The Brazilian government isn’t interested in these agreements because, according to Mr. Arslanian, the model proposed by developed countries demands total freedom for capital transfers, including from stock markets, and the power, given to foreign private investors, to take legal action against the Brazilian government should litigation arise. “Even when we talked with the Europeans”, says Mr. Arslanian, “we withdrew the issue of investment agreements; however, if Japan wants to discuss the theme, along with a cooperation agreement, we are open to negotiations”.

Japanese diplomats say that there is, indeed, a strong desire to establish a trade agreement. They say that, after Lula’s visit in 2005, the scene has changed in Japan, a country that has raised considerable barriers to protect its agricultural sector.

Free trade discussions have to overcome the resistance of Brazilian industrialists, who fear Japanese competition. And because Brazil is a member of Mercosur, any agreement would have to be established between Japan and the Southern Cone economic bloc, which also includes Argentina, Uruguay, and Paraguay.

In August, the bilateral committee headed by Mr. Batista will present to President Lula and Prime Minister Koizumi a series of suggestions to strengthen bilateral relations. The centerpiece is likely to revolve around the production and sale of ethanol to the Japanese market, as was the case during Lula’s visit to Japan.

Hear it from the horse's mouth - follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

EFFECTS OF PRO-ALCOOL ON SUGAR AND ETHANOL PRODUCTION IN BRAZIL (1975-2000)

Chart Source

The chart shows the progression in the production of ethanol (“álcool equivalente”) and sugar (“açúcar”), in addition to Total Reducing Sugars (“ART”) and sugar cane ("cana") after 1975, when the Pro-Alcool (Brazilian government program to produce ethanol for automotive consumption) was started.

Based on the chart and our past experience, we may conclude that:

1. Until 1985, the production of ethanol grew considerably, thanks to incentives from the Pro-Alcool program.
2. Between 1975 and 1985, the production of sugar in Brazil reached a plateau.
3. The drop in ethanol production after 1985 may be attributed to a global decrease in the price of oil.
4. After the early 1990’s, the production of both ethanol and sugar picked up again, apparently due to domestic factors that increased the purchasing power of Brazil’s lower-income classes (e.g., the Brazilian Federal government’s “Plano Real”, which brought inflation under control).

Note: production data are in units of equivalent anhydrous ethanol, which is calculated by reducing hydrated ethanol by a factor of .93 – this yields the average alcoholic rate in ethanol used as fuel in Brazil.

Hear it from the horse's mouth - follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

5.4% INCREASE IN LAND FOR SUGAR CANE FORESEEN IN BRAZIL

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According to information collected in April 2006 by researchers from Brazil’s Control Unit for Total Technical Assistance (CATI), working in tandem with researchers from the Institute of Agricultural Research (IEA) – both of which belong to the Department of Agriculture and Supply of the State of Sao Paulo, the amount of land devoted to sugar cane is foreseen to increase 5.4% in relation to total planted area when compared to 2005, totaling 3.87 million hectares in 2006.

Hear it from the horse's mouth - follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

BIOPACT: TOWARDS A GREEN ENERGY PACT BETWEEN EUROPE AND AFRICA

Brazil has historically had strong ties with both Africa and Europe. The Portuguese, who ruled Brazil between its discovery in 1500 and the country's independence in 1822, handed down to the Brazilians the language and the core of Brazil's cultural heritage; the Africans, brought as slaves en masse to Brazil until the mid-1800's, enriched Brazilian culture with their musicality and rhythm - which many credit with giving Brazilian soccer the "swing" that has made the country a five-time winner of the World Cup (the number, one hopes, will soon rise to six).

Both continents are hard at work in the discussion and development of biofuels. What has been good for Brazil because of the country's tropical climate can be equally good for Africa - and for Europe as well, which is working hard to develop a strong, mutually-beneficial economic relationship with many of its former colonies and with the continent as a whole.

Brazil has a special relationship with Portuguese-speaking African nations, such as Angola and Mozambique. It can certainly provide the technology and assistance needed to start an ethanol program in many other African nations as well, creating the basis for a large sugar cane crop around the world. Such an initiative would significantly strengthen the prospects for the development of a global ethanol market, by mitigating the risk inherent to having plantations restricted to a single country.

Brazil should work to strengthen ties with both Europe and Africa - a win-win relationship that can reduce global warming, promote business in Europe and Brazil, and help African economies that have all the qualifications to become significant players in the energy business.

Check out Biopact.com and discover how the biofuels business is changing both Europe and Africa - for the better.


Hear it from the horse's mouth - follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

ETHANOL: ENVIRONMENTAL IMPACTS AND PROBLEMS

From "Environment Brazil" ("Ambiente Brasil")

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Some environmental issues must be addressed for ethanol to really become a sustainable fuel. These problems stem from the facts, among others, that planting sugar cane is a monoculture; that the employees hired by farmers, especially in Brazil’s less-developed regions, work under primitive conditions; and that the crop is harvested in a manner that often resorts to burning the sugar cane, a practice which has dire environmental consequences.

Burning the straw from the sugar cane plantation is done to make manual labor cheaper and easier, increasing each worker’s productivity from two to five tons per day. The costs of loading and transportation are also reduced, and the mills have their efficiency raised, as they do not have to stop to have the straw removed. On the other hand, when these practices are used over an area of 3.5 million hectares (approximately 8,650,000 acres), they can have disastrous effects on the environment.

Several studies have concluded that burning the residue from sugar cane plantations releases carbon-based gases, ozone, nitrogen gases and sulfur (which is responsible for acid rain), in addition to also producing soot (which contains carcinogenic substances). Burning also provokes significant losses of nutrients in the soil and tends to lead to the development of erosion and weeds, as the soil is less protected. Hospitalization due to respiratory problems, intoxications, and asphyxiation increases considerably during the burning season.

There are also problems with the effluents that come from industrially processing sugar cane. If possible, these effluents should be treated and used as fertilizers. Without proper treatment, effluents ejected into rivers jeopardize the survival of several fresh water animals and plants. They also affect the low-income population, which depends on fishing in local streams and lakes for a living.

My comments on the piece above: the practices described (burning straw and used cane, harsh work conditions) have marked most of Brazil's 500+ years of experience with sugar cane. But as the field develops further, mechanization is becoming increasingly common and sound environmental practices have been adopted. The practices above are not the norm, for example, in Sao Paulo state, Brazil's most-developed area. Unfortunately, however, they are more common in other parts of the country, most notably in Brazil's Northeast, the least-developed region. H.O.

Hear it from the horse's mouth - follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.

FILLING UP WITH ETHANOL SAVED BRAZILIAN DRIVER US$ 325 IN PAST 12 MONTHS

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Fueling a flex-fuel vehicle with ethanol instead of gasoline over a one-year period meant that a car owner in Brazil saved US$ 325 (considering that he or she drove a Chevrolet Celta – a compact – an average of 400 km, or 250 miles, per week).

The analysis was carried out by a researcher from the Center for Advanced Studies in Applied Economics (CEPEA), Maria Cristina Marjotta-Maistro, and by an undergraduate student of Agronomy from Esalq/SP, Guilherme Augusto Asai.

Nearly five years after the launch of flex-fuel vehicles, the use of ethanol in lieu of gasoline offers significant financial advantages. If the difference between the price of ethanol and gasoline had remained at 53% in the past five years, as it was last year, savings on fuel would have totaled US$ 1,625.00.

The CEPEA study also showed that, in the five years since flex-fuel vehicles were introduced in Brazil, ethanol lost to gasoline only last March and April. That was when ethanol, experiencing a sudden increase in demand, passed the 70% price line when compared to gasoline.

Hear it from the horse's mouth - follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.