Are US, Brazil Ethanol Industries Ready to Dance?

Making the case for the world’s ethanol powerhouses to work cooperatively
By Daniel Coelho Barbosa | January 16, 2013

For many years, the U.S. ethanol industry saw Brazil primarily as a competitor. In 2012, as ethanol trade barriers disappeared and weather forced market adjustments in both countries, corporations are noticing that together, the U.S. and Brazil can reach better results faster.

I would like to pose a question for the U.S. biofuels industry, especially those with a penchant for ethanol-based chemicals with higher added value: Have you ever dared to think your business could improve if Brazil were on your agenda?

The aviation sector demonstrates faith in a new strategy that has reviewed old concepts and identified new trends: protectionism is out; cooperation is the new driver to leadership. Today Boeing, Embraer and the FAPESP, a research agency in Brazil’s state of São Paulo, are working together on jet fuel research. As the aviation industry is increasingly under pressure to find environmentally friendlier substitutes for kerosene for planes, there isn't an alternative to liquid fuel in sight. There's no time to lose—the International Air Transport Association plans to be carbon neutral by 2020. Consequently, whether a major aircraft manufacturer or a small technology company, all are feverishly seeking alternatives to reduce air traffic emissions. In the race for the jet fuel of the future, many sources, from waste to algae, may become raw material to power the turbines. Realizing that the solution to this puzzle can be so rewarding, stakeholders have wisely chosen to join forces.
There are further examples of the growing interest in collaboration.

In September, former U.S. Treasury Secretary Lawrence Summers made a memorable speech in São Paulo, drawing many parallels between North America and South America. The director of the Center for Agricultural and Rural Development at Iowa State University, Bruce Babcock, was also a speaker at the conference. If anyone still thought Brazil has little to offer, the visions these gentlemen presented should have overhauled those opinions.

Generally speaking, companies that take the time to analyze potential partners in Brazil usually find promising counterparts. For instance, if the goal is research and development in sweet sorghum, the IAC, the institute for sugar and ethanol that is part of São Paulo’s Agency for Agribusiness Technology (APTA), is certainly one of the best partners. The IAC coaches many projects that are regularly showcased at its annual agro-energy workshop. In 2012, the IAC's workshop focused on energy cane varieties with higher yields and low-water needs that are designed to meet future demands, delivering more fiber and less sugars. 

If you prefer to have your own X-ray of the ethanol sector, consider attending FENASUCRO, the biggest event in South America for agribusiness equipment and technology. Whatever your goals are, you will certainly find valuable information there.

Removing Barriers
With the removal of ethanol import barriers by both the U.S. and Brazil, traders and the industry in both countries have experienced a new freedom. This clear win-win is surely the better policy and in the long term, the impetus for bigger accomplishments. Consider a statement made by Iowa Gov. Terry Branstad in a Reuters interview: "I think there's a clear sense now that we should be collaborating instead of fighting each other." The declaration was received with great satisfaction, a clear indication that a growing number of people are envisioning the magnitude of strategic teamwork possible, and the benefits for their own economies.

One might think that the U.S. EPA ranking of cane ethanol as an advanced biofuel would be a cause of resentment between the two countries, but I would argue not at all. Corn ethanol is selling fine and a lot more must be blended to meet the U.S. renewable fuels standard. Looking at it pragmatically, now that import hurdles are gone, a company in Iowa could own corn farms or a cane mill in South America and profit from it as well. In Brazil, drivers don't mind if their ethanol is imported. In the U.S., nobody worries where the oil for their gasoline comes from. The simple truth is that Brazilian ethanol paves the way for biofuels in the American market and corn ethanol eases the supply bottleneck in Brazil.

The time has come to consolidate biofuels as a viable global solution. Whether from cane or corn, ethanol has been just the first step in the energy transition process. Together, Brazil and the U.S. definitely play a significant role to evangelize the rest of the world.

Free trade was a first step towards economic prosperity and there's still a lot more to come if the governments keep that approach. No matter if it's manufacturing flex-fuel/electric hybrids, producing fuels from municipal solid waste or developing jet fuel, the potential for companies of all sizes is simply huge. 

Second-gen Opportunities
This year, we should see the promise of cellulosic ethanol production come true and, as ethanol starts to unlink from food and feed crops, its acceptance should improve. Markets for biofuels will heat up as further nations, such as China, become more receptive.

Years ago, when I told my friends in Los Angeles that the true jackpot lies beyond dominance, they were amused. Now that the first load of American-made cellulosic ethanol has shipped to Brazil, please allow another prediction: When the North American and South American giants succeed in strengthening their ties, it will positively impact businesses on both ends of the hemisphere.

It's not only biofuels. According to ABIQUIM, the Brazilian chemical industry association, the federal government is preparing a bundle of incentives for renewable chemicals. That should stimulate new investments up to $20 billion by 2020 and, although green chemicals are still niche products, margins could double.

Thanks to the first American-Brazilian joint ventures, cane-based diesel has become a reality and new specialty chemicals from algae grown on cane sugars are being intensely researched. Further cellulosic ethanol projects will be concluded this year, and there's still plenty of room for synergies of many kinds—from biotech to polymers or other technologies combined. Undoubtedly, the U.S. and Brazil are set to play a central role in the profitable transition from the oil-based economy to bioenergy. 

Embracing New Partners
Brazil's ethanol industry suffered in 2012 from numerous quarters: the world crisis, drought followed by heavy rains, blend reductions and artificially low gasoline prices. 2012 is called “a year to forget” by many in the business. Marcos Françoia, the director of MBF Agribusiness, saw many traditional mills collapse. The longtime consultant to Brazil sugar companies and foreign companies in the ethanol sector, explained, "The [cane] mills were forced to adapt or succumb—there was nothing to sweeten that pill. The management philosophy had to be reset, targets reviewed, if someone wanted to survive. It was tough, but the mills that managed to navigate the crisis re-emerged much stronger." 

Cane ethanol faced corn ethanol imports at a very delicate moment for the Brazilian industry. What is curious about it is that, although we heard complaints of all kinds, even when ethanol imports were at a record high, there wasn't a single protest against the U.S. Françoia, who knows the "cane soul" inside and out, explains "the agreement between the U.S. and Brazil was a big step forward—this way we could guarantee supply. And we have to deal with that, if we want to stay competitive internationally. If we have problems now, it's our fault." Embracing U.S. imports that strongly may sound surprising, but this opinion is widely shared.

Françoia closed our conversation with the statement: "There are fantastic knowledge resources about cane in Brazil. Our experience is huge, our researchers have international qualifications. That, allied with U.S. American know-how is a powerful combination. Together, it would be much easier to build stable markets, not only for biofuels, but there are other products to be explored. Take Coca-Cola for instance, its PET bottles use plastic from cane. Actually, the potential for partnerships is much broader. The U.S. uses corn to produce ethanol and Brazil is also a big corn producer. If one had corn stocked in both countries, he could supply his own market in case of harvest losses. But more than that, think of the profit margins with your own share of cane ethanol in the domestic markets!" 

So, could business in Brazil improve profits in the U.S.? The answer is a clear yes. Could cooperation make those profits even bigger? No doubt. It's remarkable how fast a growing number of American partners are discovering the lucrative details. Let the music play!

Author: Daniel Coelho Barbosa
Germany-based Agribusiness Analyst
+49 163 81 69 221

Agroenergy Workshop organizer: Dr. José Roberto Scarpellini,

SIDEBAR: Ethanol Associations in Brazil
While UNICA is best known in the United States, the Forum Nacional Sucroenergético, with its 15 affiliated associations, is the national organization officially representing the sugar and ethanol industry in Brazil. FNS members in the national sugar and energy forum are sugarcane mill associations representing the country’s cane-producing states. For example, UNICA and UDOP in the state of São Paulo, Biosul in Mato Grosso do Sul, Sismig in Minas Gerais, Sifaeg in Goiás, Sindacucar-AL in Alagoas, Sindacool-PB in the state of Paraíba.

UNICA is surely the best known among the FNS affiliates, and many people abroad tend to think it is the only institution in Brazil. With 131 mills represented out of 430-plus, UNICA plays an important role, but its members aren't exclusively national ethanol producers anymore. Oil companies that are increasingly advancing into biofuels markets, as well as multinational companies trading agriculture commodities, have also joined the association.

The smaller, regional ethanol associations have their virtues: they normally act closely with their mills, know their local political arenas very well, enjoy good support in the nation’s capital, Brasilia, and are frequently pioneers in innovation. Here is a taste of what's been going on in Brazil's second-largest cane-producing region, the Northeast:

In Paraíba, the state in Brazil's easternmost corner, Sindacool-PB addressed biodiversity long before nongovernmental organizations began campaigning. Association members created the first ecological corridor to preserve animal life in cultivated areas. Sindacool-PB was also among the first to support a biogas project using cane vinasse in the country.

In the state of Pernambuco, two hours away from Paraíba by car, a small Austrian company started the first project in Brazil to grow algae using CO2 from fermentation in a cane mill in 2012. In addition to sugar and/or ethanol, modern mills also produce bioelectricity, CO2 for the food industry and biogas, and now, algae, compliments of Austria.

In Alagoas, the next northeastern state, the Brazilian company Graalbio announced the first second-generation ethanol plant in Brazil, being built with Italian technology from Mossi & Ghisolfi.
The Northeast offers some advantages for ethanol producers. Port facilities are not as crowded as Rio, Santos or Paranaguá, plus, the whole region has an affinity for biobased chemicals.


FNS Members
• ALCOPAR, Associação dos Produtores de Bioenergia doEstado do Paraná; Miguel Rubens Tranin, president.
• SIAMIG, Sindicato da Indústria da Fabricação do Álcool no Estado de Minas Gerais; Mario Campos, president.
• SIFAEG, Sindicato da Indústria de Fabricação de Etanol   do Estado de Goiás; André Luiz Baptista Lins Rocha, executive president.
• SINDAAF, Sindicato Fluminense dos Produtores de Açúcar e de Álcool;  Geraldo Benedicto Hayem Coutinho Filho, president.
• SINDAÇÚCAR-PE, Sindicato da Indústria do Açúcar e do Álcool no Estado de Pernambuco; Renato Augusto Pontes Cunha, president.
• SINDAÇÚCAR-AL, Sindicato da Indústria do Açúcar e do Álcool no Estado de Alagoas; Pedro Robério de Melo Nogueira, president.
• SINDAÇÚCAR-PI, Sindicato dos Produtores de Açúcar, de Álcool e de Cana de Açúcar de União e Região; Luiz Fernando Pereira de Melo, president.
• BIOSUL, Sindicato da Indústria da Fabricação do Álcool do Estado de Mato Grosso do Sul; Roberto Hollanda Filho, president.
• SINDÁLCOOL-MT, Sindicato das Indústrias Sucroalcooleiras do Estado de Mato Grosso; Piero Vincenzo Parini, president.
• SINDÁLCOOL-PB, Sindicato da Indústria de Fabricação de Álcool no Estado da Paraíba; Edmundo Coelho Barbosa, executive president.
• Sindicato da Indústria do Açúcar e do Álcool no Estado da Bahia; Carlos Gilberto C. Farias, president.
• UDOP, União dos Produtores de Bioenergia; Celso Torquato Junqueira Franco, president.
• UNICA, União da Indústria de Cana-de-Açúcar, Elizabeth Farina, president.
• SONAL, Sindicato da Indústria de Álcool dos Estados do Rio Grande do Norte, Ceará e Piauí; Arlindo Farias, president.
• SINDIQUÍMICOS, Sindicato da Indústria de Produtos Químicos Para Fins Industriais, Produtos Farmacêuticos, Preparação de óleos vegetais e Animais, Sabão e Velas, Fabricação do Álcool, Tintas e Vernizes e de Adubos e Corretivos Agrícolas do Estado do Espírito Santo; Ernesto Mosaner Jr., president.
• SINDICANALCOOL, Sindicato de Produtores de Cana, Açúcar e Álcool do Maranhão e do Pará; Cintia Cristina Ticianelli, president.