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Discovering International City

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Bowie Chan

on 25 November 2013

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Transcript of Discovering International City

Key Industries

Ethanol Fuel Industry
Introduction of Sugarcane

1900’s - 1960’s
Early Experience

1905:1st test of using ethanol as fuel for vehicle engines
1927: 1st ethanol fuel plant went on line in State of Alagoas
1931: A compulsory 5% ethanol blend for all imported gasoline

Large-scale Production

First Oil Crisis in 1973
-> Oil import costs were tripled

Sugar market crisis in 1974
-> Sharp decline in sugar price

Late 1980’s: Fuel Shortage
-> dropped in oil price
-> cut in government subsidies

1990’s: Production of neat ethanol vehicles drop significantly
-> Lost confidence in ethanol fuel

After 2000
Flex-fuel Vehicles Era

2003: Introduction of flexible fuel vehicles

2007: 1st flex-fuel bus in São Paulo

Source: World Bank (http://databank.worldbank.org/data/download/GDP.pdf)

Brazil’s Position in the World

Ethanol Production in Brazil in 2009

Brazilian Ethanol Industry's Position in the World

Where is Ethanol Produced?

Distribution of Distilleries in Brazil

Source: IBGE, Brazil (http://www.ibge.gov.br/home/estatistica/populacao/censo2010/tabelas_pdf/Sao_paulo.pdf)

Source: IBGE, Brazil (http://www.ibge.gov.br/home/estatistica/populacao/censo2010/tabelas_pdf/Sao_paulo.pdf)

State of São Paulo

State of São Paulo
58% of the countrys’ ethanol production


National-wide Program
Financed by the Government
Large-scale ethanol generation by local distilleries
Increased ethanol-gasoline blend to 20%
Production by 500%


Late 1980’s - 1990’s
Growth Slow Down

Launch of Pró-Álcool


Ethanol in Brazil
58% of the countrys’ ethanol production

Government Incentives
Government bank offering loans with low interest rate
Expansion of Ethanol Production

Government subsidies
E.g. engines in Brazilian Fiat 147
E.g. Flex-fuel vehicles (FFVs) with favourable tax treatment & reduced annual licensing fees

Automobile Policies
Encourage domestic usage of ethanol as fuel

Surging Demand: Domestic Market
Coastal city
Temperate humid subtropical climate
Abundant rainfall
Favorable Climate for Sugarcane Cultivation

Two-thirds of Total Sugarcane Production
A substantive agronomical research was dedicated to increasing sugarcane yields
Pró-Álcool Program

*Bagasse: remains after sugarcane stalks are crushed to extract their juice

Improve the milling process and introduce new innovations

Collaborative R&D
The busiest port in Latin America
Brazil’s leading port in container traffic
Responsible for 80% of Brazil´s ethanol exports

Port of Santos
Inaugurated a 207 km pipeline in Aug 2013
Move ethanol from Ribeirao Preto up to Paulinia (both located in São Paulo)
Second and third sections to follow in 2014 and 2015

Surging Demand: Domestic

Expansion on Market: U.S.

Expansion on Market: EU
Cyclical Production Shortfall

High world sugar price
e.g. Sugar production crisis in Pakistan and Russia
-> global sugar deficit
-> 51% sugar price spike

Mills opted to maximize output of sugar to take advantage of its high price relative to ethanol prices

Cyclical Production Shortfall

Sugar Price Spike
Poor Harvest
Structural Production Shortfall

Lack of Capital

Utilize idle capacity in the industry
e.g. center/south region: 492 million tones v 620 million tones max. capacity
Investment only 2/3 of greenfield expansion
Lower breakeven point
Short and Mid-term Solutions

Adjust the Anhydrous Blend Ratio in Gasoline
Investing on Brown-field Expansion
Provision of financial resources when private sector finance is scarce
National Development Bank announced a new BRL 4.0 billion credit line for replanting cane and expansion of cane area

No more a counter measure to gasoline problem
Encourage private investors on long term investments
Long-term Solutions

Active Government Involvement
Government to Show Clearer Intention to Support to Industry
Q&A session

Closing Thoughts about
the Ethanol Industry

Decades-old of cane burning: labour intensive

Mechanization adoption rate:
20% (2010) -> 40% (2014) -> 100%(2017)

Negative social effects?

Consortium : Retaining program for about 7,000 current and former cane cutters

Problems with Mechanization
MGNT2510D "Discover International City"
by "Final Year" Group

Easing the supply-demand mismatch
Concentration of agricultural research in São Paulo

Research Institute
The rapid adoption of flex technology was facilitated by the investment in fuel distribution infrastructure

Ethanol pumps were installed at filling stations at year 1976

Today, all of the country’s roughly 33,000 filling stations have at least one ethanol pump
Ethanol Pumps
Please feel free to raise questions :)
Government Policy
Ethanol production costs declined by 70% over last 35 years
Increasing sugarcane agricultural yields and decreasing industrial costs
Tax Incentives on Ethanol Fuel
Blending Mandate
Ethanol is allowed to blend to gasoline within the 20-25% range
Southeast coastal region of Brazil
Full transcript