May 29, 2008 / 12:13 AM / in 9 years

Ethanol boom brings change to Brazil cane growers

SERTAOZINHO, Brazil (Reuters) - At the start of this year’s cane harvest at the Sao Francisco ethanol mill, workers gathered to ask God for protection and a good crop.

<p>Workers of the Sao Francisco ethanol mill attend a mass inside the company's main distillery in Sertaozinho, in this May 1, 2008 file photo. REUTERS/Paulo Whitaker</p>

It was a traditional Roman Catholic mass, held inside the mill’s main building amid the sweet smell of sugar cane.

Around 150 employees and their relatives surrounded an imposing altar. The offerings included a bottle filled with ethanol, a wooden toy truck and a cane cutter’s machete.

“It’s a long tradition. Our industry has a family roots, we are Catholics as are many of our employees,” said the mill’s executive officer, Jairo Menesis Balbo. “We thank God for our production and ask Him help to start another one.”

Nearby stood giant machines that are set to crush more cane than ever in the coming months to meet national and global demand for ethanol to fuel cars. Brazil is heading for a record sugar cane crop, with an expected cane output of up to 580 million tonnes.

A world leader in biofuels, Brazil has decades of expertise in using sugar cane to make ethanol for cars, in a process that is much more economically viable than using corn, the major ethanol feedstock in the United States.

Brazil launched a national program to stimulate consumption and production in the 1970s. Its most recent boost came in 2003, with the launch of flex-fuel vehicles, which can run on gasoline, ethanol or a mixture of the two. Ethanol consumption surpassed that of gasoline earlier this year for the first time in two decades.

But change is in the air as the ethanol boom attracts investors from all over the world and some fear old customs could fade away, along with traditional management models, as the industry is consolidated into fewer, bigger and vertically integrated companies.

Analyst Julio Maria Borges sees Brazilian cane output doubling by 2015, but he predicts it will be in the hands of about 30 large groups, compared with around 200 currently.

Brazil’s largest sugar and ethanol group, Cosan, which crushed 36 million tonnes of cane last crop, is the clearest example of verticalization.

The group bought some of ExxonMobil’s assets in Brazil in April, becoming the world’s first renewable energy player with operations from planting to filling stations.

The entry of oil giant BP into the sector, also announced last month, is another example of changes.

The British company bought half of Tropical Energia SA, a joint venture between Brazilian groups Santelisa Vale and Maeda. The new company will operate two ethanol distilleries.

“Companies will stop worrying about selling their product at the mill gate only, and will look more toward the final destination,” said Antonio de Padua Rodrigues, technical director at the Sugar Cane Industry Association (Unica).

He cited as examples U.S. company Cargill and Brazilian Crystalsev’s investment in a sugar refinery in Syria, Coimex and Crystalsev’s ethanol dehydration plants in the Caribbean and Copersucar’s ethanol terminal in Rotterdam.

<p>Workers of the Sao Francisco ethanol mill attend a mass inside the company's main distillery in Sertaozinho, in this May 1, 2008 file photo. REUTERS/Paulo Whitaker</p>

“Nowadays all the big groups have logistic companies to trade their products. And smaller ones will likely join forces to set up trading companies too,” Padua said.

In this environment, old rituals like the start-of-season mass could fade away. The masses have taken place for decades in nearly all the 380 mills around Brazil, most of which are named after saints and still run by descendentants of their founders.

“As industry consolidates and foreign companies arrive, it’s likely traditions will disappear. A fund based in New York or London won’t keep this kind of thing,” said Plinio Nastari, president of leading sugar and ethanol analysts Datagro.

OPPORTUNITIES

BP was the first oil giant to enter the market but others are expected to follow. In just one year, the foreign share in Brazil’s cane sector doubled to 12 percent of all cane crushed, according to Datagro.

<p>Workers of the Sao Francisco ethanol mill attend a mass inside the company's main distillery in Sertaozinho, in this May 1, 2008 file photo. REUTERS/Paulo Whitaker</p>

About 85 new mills have come onstream since 2005 and 60 more are scheduled to begin operating by 2010, with total investments of around 40 billion reais, according to Unica.

The expansion has increased environmental concerns, pressuring the industry to change practices adopted since the days of slavery, such as manual cutting.

While many local companies are expected to be snapped up multinationals, some see the boom as an opportunity for expansion.

“The next three years won’t be easy. These new companies arrive with an investment capacity which we don’t have here,” Jairo Balbo said.

To face the fiercer competition, Balbo is in talks with an undisclosed big company on a deal that could include the transfer of a minority stake to his group, which was founded by Jairo’s grandfather, Attilio Balbo.

The son of Italian immigrants, Attilio bought his first mill, Santo Antonio, in Sao Paulo state, in 1947 and nearby Sao Francisco six years later. The group’s annual turnover is now about 350 million reais ($210 million). It will soon inaugurate its third mill, in Minas Gerais state.

“Our industry will change dramatically in 10 years,” Jairo Balbo said, citing the case of Brazil’s second-largest sugar and ethanol producer, Santelisa Vale, as a successful example.

Santelisa Vale was created through the merger of Santa Elisa and Vale do Rosario groups last year. A few months later, investment bank Goldman Sachs took a minority stake and was followed by the investment arm of Brazil’s development bank, BNDESPar. The last important step of the group, which plans an IPO at Sao Paulo Stock Exchange, was the deal with BP.

“Companies have become more and more impersonal and far from people, but I think some of the tradition will always persist,” said Luiz Biagi, whose family still has a controlling stake in the group, which will crush 20 million tonnes of cane this season.

One of Brazil’s most traditional sugar clans, the Biagi celebrates many weddings and baptisms in a church on the same property as its main mill, Santa Elisa. Luiz Biagi’s father, Maurilio, is buried next to the mill.

Reporting by Inae Riveras; Editing by Eddie Evans

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below