In Brazil, Sugar Cane Growers Become Fuel Farmers
By TODD BENSON
Published: May 24, 2005
CATANDUVA, Brazil - Not long ago, residents of this lush cane-growing region in southern Brazil needed to keep a close eye on the price of sugar in world markets to know if the local farmers were hiring or firing.
Paulo Fridman for The New York Times
Usina Cerradinho, a sugar mill and ethanol distillery in Catanduva, a big growth area for ethanol.
These days, however, most people in this small farming town seem more preoccupied with the price of oil. And with good reason. Ever since global oil prices started their staggering climb early last year, demand for inexpensive alternative fuels like cane-based ethanol has skyrocketed, helping to line the pockets of Brazilian cane farmers while also making them less vulnerable to the swings of the sugar market.
"Ethanol is on its way to becoming a commodity just like oil, and the price of oil is one of the main reasons why," said José Fernandes Rio, a director at Usina Cerradinho, one of eight sugar mills and ethanol distilleries scattered around Catanduva, which is spending heavily to increase production.
The growing demand for ethanol - or alcohol, as most Brazilians call it - is fueling an investment boom in Brazil's sugar cane industry not seen since the oil crisis of the 1970's.
Back then, the country's military dictatorship sought to reduce dependence on costly foreign oil by offering lavish subsidies and tax breaks to sugar millers to refine cane into ethanol, while also financing the construction of a nationwide distribution network for the fuel.
Though oil jitters are once again helping to drive the current wave of investment in Brazil's sugar industry, this time the government is not picking up the bill. Flush with cash from a recovery in global sugar prices in recent years, many millers are spending their own money and borrowing from banks to increase production and upgrade port terminals, mills and distilleries to improve service to foreign markets.
According to a recent survey by ProCana, a research group in Ribeirão Preto that tracks the sugar and ethanol industry, 12.5 billion reais ($5.1 billion) has already been earmarked for 40 new mills and distilleries over the next five years. Most of that money will be spent here in western São Paulo State, a region that is already home to dozens of sugar mills, generating close to 100,000 jobs in an industry that employs more than a million people.
"Of all the different investment waves that the industry has had, this is clearly the most solid one of all," said Maurílio Biagi Filho, an executive at CrystalSev, a large sugar and ethanol conglomerate that is putting the finishing touches on a $10 million ethanol terminal at the port of Santos.
"People have money to invest, and both domestic and external demand is on the rise," added Mr. Biagi, whose family has been in the sugar business since 1920. "All the ingredients are there."
Not long ago, ethanol's future did not look so bright. In the heyday of the government's pro-alcohol campaign in the mid-1980's, ethanol-only cars accounted for almost 90 percent of new-auto sales in Brazil. But domestic ethanol consumption started declining steadily in 1990, when a poor cane harvest and high sugar prices caused an alcohol shortage that enraged drivers, prompting many to switch back to cars powered by gasoline.
Then, three years ago, Volkswagen began selling cars in Brazil that run on either gasoline or ethanol, or any combination of the two. Lured by the low cost of alcohol - it sells for almost half the price of gasoline - Brazilians have been buying these so-called flex-fuel cars in droves, helping to revive the domestic ethanol market.
Today, all major automakers in Brazil offer these hybrid vehicles, which now represent 33 percent of new-car sales, a figure that some analysts predict could reach 80 percent by the end of next year.
Thanks to the popularity of flex-fuel engines, domestic ethanol consumption is expected to jump 50 percent in the next five years, meaning that a growing percentage of the country's annual cane crop will be used to make fuel. This season, for example, a record 57 percent of the harvest is expected to go to ethanol production, up from less than half in recent years, according to Datagro, a sugar and ethanol consulting firm based in São Paulo.
"People used to say that our only chance to sell more ethanol was to increase exports," said Eduardo Pereira de Carvalho, president of Unica, the country's largest association of sugar and ethanol producers. "That changed overnight with flex-fuel cars."
Because no other country has an ethanol distribution network as extensive as Brazil's, it is unlikely that flex-fuel cars will become an international trend any time soon. But with world oil prices hovering around $50 a barrel, governments around the globe are looking for ways to replace gasoline with ethanol.
Almost a dozen countries, including Canada, Sweden and the United States, have already begun blending ethanol with gasoline, a practice that has been mandatory in Brazil for years. This helps keep a lid on prices at the pump while also reducing fuel emissions, a requirement for nations that signed environmental treaties like the Kyoto Protocol.
Other countries, like Australia and Thailand, are turning to Brazil for help to develop their own ethanol industries to feed demand for affordable energy in Asia, especially from China. India, the world's No. 2 sugar producer after Brazil, is also scrambling to spread the use of ethanol to reduce its reliance on foreign oil as its auto fleet expands along with its middle class.
For now, Brazil, with its low production costs, plentiful land and well-established ethanol industry, is benefiting the most. Last year alone, for instance, its ethanol exports tripled to almost $500 million as oil prices soared, with the United States and India topping the list of importers.
And as pressure mounts on the European Union to comply with the World Trade Organization's order that it do away with sugar subsidies, making sugar production less profitable there, more foreign sugar producers and trading houses are likely to set their sights on Brazil to keep their businesses alive.
Theo Spettman, chief executive of Südzucker of Germany, Europe's biggest sugar producer, said at a seminar this month in São Paulo that the company was looking for investment opportunities in Brazil. If it takes the plunge, Südzucker will follow in the footsteps of French companies like Louis Dreyfus, Tereos and Sucden. All set up shop in Brazil in recent years.
"The big players in the sugar industry in Europe are not going to stop being big just because their subsidies are going to end," said Josias Messias, president of ProCana, the research group that studies sugar and ethanol.
"They know they're going to have to invest here."
nytimes.com |
