Biofuels Investment Options

Brazil has made a national commitment to biofuels, specifically ethanol and biodiesel. As a result, investment opportunities in these industries are virtually unlimited. Some of these opportunities are briefly discussed below.

Ethanol

• Brazil's experience in ethanol for automobile fuel extends over 35 years. The feedstock is sugarcane, by far the most efficient and least costly large-scale fermentable carbohydrate in the world. By any measure, Brazil is years, perhaps decades ahead of the rest of the world in ethanol production and use. In 2005, eighty percent of all passenger vehicles manufactured in Brazil were flexfuel, pure ethanol was sold at 30,000 service stations and 40 percent of the country's automobile fuel needs were met by ethanol. 

• Brazil's climate permits sugarcane production over much of the country, but currently, the cerrado region produces only a small part of national production. The primary reason is that sugarcane grown as a dryland crop in the cerrado wet/dry climate has lower yields than the 100mt/ha yields in Sao Paulo, the traditional production area. However, with irrigation, the yield advantage shifts to the cerrados. Recent EMBRAPA field research produced yields of 170 mt/ha under irrigation in Western Bahia. The cost of production per ton is significantly lower in Western Bahia than in Sao Paulo. Moreover, land in Western Bahia costs less than 10 percent that of Sao Paulo. The price of prime sugarcane land in Sao Paulo exceeds US$4,000/ha while virgin land suitable for sugarcane production in Western Bahia is available for less than US$300/ha.

• Sugarcane for ethanol production in the cerrados is attractive not only because production and land costs are lower, but also because ethanol prices are higher. For example, in October 2006, the pump price of ethanol in Barreiras, Bahia was R$2.30/l vs. R$1.30/l in Sao Paulo. The price difference reflects transportation costs from Sao Paulo to Bahia. Currently, the entire cerrado region--nearly a quarter of Brazil's total geographic area--is supplied by southern Brazil. This regional production deficit open serious investment opportunities for ethanol production in the cerrados.

• Brazil is destined to become the Saudi Arabia for fuel ethanol. No other region of the world has the climate, the immense untapped land resources and lower production costs. Production now fulfils internal needs, but Brazil's ethanol exports meet only a small part of world demand. In 2006, the US imported about 450 million gallons (1.7 milion liters) of ethanol from Brazil in spite of a US 54-cent-a-gallon import tariff. This was up from 31 million gallons (117 thousand liters) in 2005.

• If you are seriously considering investment in Brazil's ethanol industry, Western Bahia offers unparalleled opportunities in sugarcane production and ethanol production for both domestic and export markets. Tens of thousands of hectares of land suitable for irrigated sugarcane are available in the region. There are sites for ethanol production plants with good access to cerrado and export markets. State and local governments welcome foreign investment. AgBrazil is currently working with clients preparing to enter the ethanol industry in Western Bahia and will welcome the opportunity to discuss investment options with you.

Biodiesel

• In contrast to the ethanol industry, Brazil's biodiesel industry in in its infancy. Until quite recently, edible vegetable oils from soybeans, sunflower, African Palm and other plants were regarded as food'; the concept of using food oils for fuel was unthinkable.This changed starting late 2004 when the Brazilian Congress approved a national biodiesel law. Initially viewed by many as political fantasy, the country is now on track to meet and likely exceed the mandatory 2 percent blend in diesel fuel by January 1, 2008.

• As of January 2007, Brazil had five operating biodiesel plants each with close to 80 million liters annual capacity, five or more plants coming on line each with over 60 million liters capacity and two dozen plants being built or planned. Petrobras, the petroleum parastatal, now sells biodiesel blend diesel at more than 500 stations and has announced that 7,000 stations will sell blended biodiesel by the end of 2007. The industry has taken off and is forecast to meet the 5 percent blend mandate by 2010.

• Brazil has a multitude of temperate and tropical oilseed plants. The federal government has focused on castor beans that can be produced by small farmers. However, soybeans, African Palm, cotton, canola, jatropha, and sunflower are likely to be the dominant feedstock for biodiesel. African Palm may be the most competitive feedstock in the Amazon basin and the North and Northeast. Soybeans and possibly jatropha are likely to be most competitive in the cerrado region due to transportation costs and readily available and easily accessible crushing facilities. Jatropha offers special promise as a viable oil crop on tens of millions of hectares of cerrado land, including several million in Western Bahia, that are too dry for soybeans.

• The potential for biodiesel production in the cerrado is virtually unlimited. Under current state-of-the-art production technology, soybeans are now viable and jatropha shows great promise. AgBrazil has years of experience in cerrado agriculture and will welcome the opportunity to discuss biodiesel investment options with you.