Chairman of the Board of Copersucar
In recent months – and ever more frequently –, we have seen very bad headlines in the newspapers about the sugar-based energy industry. I think one is looking at the empty part of the glass. Actually, what happens is that in this case, the full part of the glass is much bigger. My intention is to do an exercise looking at a positive agenda for the industry, and since it is simple, it should be better detailed: all that is necessary is to value what we have already accomplished, which is a lot more than what still has to be done.
All one needs to do is look at the empty part of the glass. An important pre-condition is that the producer in our industry has a vocation for growth. Until 2008, the history we shared was to first invest and then to look for the market and, not rarely, one even invested excessively, with consequences for product prices due to excessive production.
We like to invest, we always want to invest. Proof of this is that in five years we doubled the production and invested 50 billion dollars in this endeavor. But, whoever does not want to, does not like to, or is afraid of being an entrepreneur, does not invest so much money in such a short time.
Why did we stop investing? In 2008, the financial crisis adversely impacted the capital structure of most Brazilian companies and, in the specific case of our industry, was highly leveraged due to the future market that was expected to come about.
Since 2008, due to the lack of funds, the major focus has not been on expansion, but rather, on the reorganization of the business, on setting it right. It was time to organize the household. That was when we experienced economic and financial relief, following a highly aggressive growth process.
With respect to sugarcane plantations, and also due to the lack of funds, no expansion or renovation took place in this period, so that today the plantations are old. We are still harvesting the difficulties of the 2008 financial crisis. In addition, the climate did us no good. Three years, including the current one, were quite unusual. In 2009-10 excessive rain.
In the 2010-11 harvest, we had a drought and productivity below expectations. In the current 2011-12 harvest, affected by old sugarcane and frost so unlikely in this industry, we are at a projected average productivity of 71 tons/hectare, the lowest in a decade. The 48 plants that comprise Copersucar have a crushing capacity of 115 million tons of sugarcane, 22% of the CenterSouth region’s production. We started the harvest with a crushing estimate between 102 and 105, but we will actually only crush 91 million tons.
So, we have 24 million tons of possible growth in relation to the figures on the current harvest. All it takes is for the plantations to become productive again. We drew a map to know what the investment plan would be until 2015, and in 95% of our plants, growth will come from the expansion of investments in greenfield projects, which were modular.
This is an investment that costs about 50% of that of a greenfield project, but will be for about 31 million tons of sugarcane. We will have to invest the equivalent of 50% of a greenfield project in sugarcane. Thus, we will be able to leave the 91 million tons of sugarcane level and reach 146 million tons, taking care of the plantations, while investing some 35% in only 50% of a new greenfield project.
Why would we do that? Because a part of this investment has already been made and we ought to proceed in that manner because the market stands firm and strong. Not to do this means the 50% investment that has already been made is idle and will bring no financial returns on the capital already invested in the plant.
If we extrapolate this line of thought to the Center-South region, with a current crushing capacity of 500 million tons of sugarcane, we will reach 620 million tons, i.e., we have 120 million tons of production growth opportunity on account alone of working the plantations. Apply the same reasoning and we could be crushing the equivalent of 790 million tons of sugarcane in five years.
This means leaving the 32% attendance of the flex vehicle fleet in the current harvest, to reach 45%, but still far from the 60% level we once reached. We should not think that it is the ethanol-driven car – today represented by flex cars – that will become extinct. The flex car is an achievement of Brazilian society. It is flexibility only Brazil has, but everybody else wants to have.
So, if Brazil achieved this, how can we admit newspaper headlines stating that an ethanol-driven car will become extinct? This is the car that provides us the choice among fuels.
To have 45% of the market means servicing a demand in the magnitude of 47 billion liters. At R$ 1.00 per liter, we are talking about a market of R$ 47 billion. Is the effort of servicing a market this size worthwhile? What is the main obstacle? It is cost. The industry’s deflated prices did not increase, but costs increased a lot. That was when losses were incurred.
Costs increased almost 40% in five years, due to labor, social and environmental expenditures, mechanization, which in this case resulted in productivity. However, productivity has yet to be attained, so until it is, we are faced with the difficulty of justifying investment plans. At this point, a joint effort should be undertaken. It does not suffice to think the government will solve our problem. We need to open this debate in an adult and mature manner, built on mutual trust to look for the solution of common interest.
Ethanol is not only a business of interest for the sugar-based energy industry. It has to do with the country’s vocation. We are talking about a business that generates foreign currency, that represents a GDP of US$ 48 billion, and that directly employs 1.5 million people. If we take into account the indirect jobs it creates – given the characteristics of our activity –, it employs in excess of 15 million people. So, therefore, we are talking about a business of interest for the country.
There is no single solution, it is not a magical solution, we must act on several fronts, in terms of fiscal and tax considerations, of which the “ICMS” tax is the best example. Equal treatment among States needs to be achieved. The State of São Paulo played the lead role, was the absolute pioneer among all States, thereby increasing the ethanol market for our industry.
Still on the fiscal and tax topic, one should acknowledge ethanol’s right to a partial refund in light of the positive externality it brings about for the environment and public health. This is fully legitimate when a product creates savings for a State, for the environment, and for public health.
In the context of stimuli and development, one must have available adequate credit lines, for example, well structured loans in synchronization with capacity, and payment terms compatible with the return on investment periods. As concerning the focus on technological incentives, this is where promoting the “CTC” comes into place.
Nowadays, the “CTC” has a cellulosic ethanol project that is complementary to the installed production structure.
Thus, it is not a competing plant, but rather, a complementary process in relation to the existing structure, which may increase the ethanol production capacity by 30%. This project is already in the commercial demo phase and its costs are competitive, quite close to first generation ethanol costs. With some effort, we are already talking about gains in productivity of 30%, which may occur in the next three years, depending only on the focus we will have.
In this whole scenario, there is a fact that requires attention and care, which is the planning of public policies within the industry’s institutional scenario, specifying what exactly will be the actual role of ethanol in Brazil’s energy matrix in the long term.
In short, there is no doubt in my mind that if one again achieves feasibility, ethanol’s competitiveness, we will have to ask people to stop investing, ask them to stop expansion, because the industry’s vocation for entrepreneurism exists in latent form, given that demand is firm, consistent and current.
Business know-how exists, it is fully understood, and proof hereof is this International Forum on the Future of Ethanol and the Fenasucro and Agrocana trade fairs, here in Sertãozinho. Emphasis should be laid on one important factor, and that is to say that our country’s natural resources stand out in the international context. We have all of them available, under totally sustainable conditions. I conclude by observing that it is really necessary to show society that the full part of the glass is much bigger than the empty one.
We must roll up our sleeves and make all efforts to bring ethanol to the place it deserves to be in, as related to the country and the sugar-based energy industry.