Why Brazil
Sugarcane productivity and energy efficacy give Brazil a leading
role in ethanol production; keeping it will depend on more R&D

Janaína Simões

Climate changes, air pollution in the cities, energy security and increasing oil prices, with no expectation that they will drop below US$ 50 to US$ 60 a barrel. These are the topics that lead investments on ethanol, whose production Brazil leads. The expectation is that the current consumption of around 33.7 billion liters (8.9 billion gallons) will jump to 79.4 billion liters (21 billion gallons) by 2010. The figures presented by Peter Baron, of the London-based International Sugar Organization, during the VI International Datagro Conference on Sugar and Alcohol, show that Brazil consumed 16.1 billion liters (4.2 billion gallons) of ethanol in 2005, will consume 16.9 billion liters (4.5 billion gallons) this year, and has an estimated demand of 27 billion liters (7.1 billion gallons) for 2010. In second place comes the United States, which consumed 14.7 billion liters (3.9 billion gallons) last year and is expected to consume more than 25 billion liters (6.6 billion gallons) in 2010.

In the same conference, held in São Paulo on October 24, 2006, the president of the São Paulo Sugar and Alcohol Agroindustry Union (União da Agroindústria Canavieira de São Paulo, Unica), Eduardo Pereira de Carvalho, said that, in a conservative estimate, the potential increase of Brazil’s exports will be of 4 billion liters (1.0 billion gallons), reaching 7 billion liters (1.8 billion gallons) exported in 2012/2013, against 3.1 billion liters (820 million gallons) sold this year in the external market. Exports would total 2 billion liters (529 million gallons) for North America (the U.S. and Canada); 2 billion liters for Asia (China, India, Japan, South Korea and Thailand); 1 billion liters (264 million gallons) to Europe; 1 billion liters for other countries; and the remaining 1 billion liters to the market of non-fuel alcohol.

If the world market grows to nearly 80 billion liters (21.1 billion gallons), as Baron believes it will, and if Brazil increases its sales to the external market to 7 billion liters of ethanol, as Carvalho projected, Brazil will supply about 10% of the market. “Brazil is virtually ethanol’s only origin because it is the only country that produces enough to export it,” pointed out Baron in his talk.

Perspectives in the international market

Baron’s figures show the size of the opportunity for Brazil. In the United States, the demand will increase as it becomes mandatory the addition of ethanol to gasoline, something the legislation in several States require. There are States, such as New York, in which the percentage of alcohol mixed in the gasoline is already 85%. The U.S. plans to eliminate MTBE (methyl-tert-butyl ether), a pollutant addictive that infiltrates the soil; and there is also federal legislation, combined with State legislation, to restrain air pollution.

Japan, second only to the United States in gasoline consumption in the world, is another large market. Ethanol consumption there, today practically non-existent, will jump to 6 billion liters (1.59 billion gallons) by 2010, indicate Baron’s projections. Another important market is Europe’s. In that continent, whose target is to reach a 25% mix, consumption will increase from 1.5 billion liters (396 million gallons) to 14 billion liters (3.7 billion gallons) by 2010. The pace in which ethanol production grows is not fast enough to meet the European Union’s high demand.

India and Thailand are implementing programs for ethanol use in gasoline, and also want Brazil’s flex fuel technology. In the case of India, of the 300 million liters (79.3 million gallons) a year it consumed last year, the program for the addition of 5% of alcohol in the gasoline, being implemented since October of 2005, has already increased the demand to 500 million liters (132 million gallons). And if the country really implements the E10 mixture (10% of alcohol mixed into the gasoline), it will need 1 billion liters (264 million gallons) of ethanol a year for meeting its demand. India is a sugarcane producer, but is also an exporter of molasse – an ethanol competitor – and will need another to produce ethanol from raw material, or to import it, to meet the demand.

In Thailand, several programs for the development and use of bio-fuels have been tried. They didn’t succeed due to the need for stocking molasse, an important product in that country as well, and a source of ethanol along with manioc. That’s a problem because it lowers productivity and increases production costs, which in turn jeopardizes the competitiveness of local producers. In this country the construction of 25 plants has been approved and the government wants to eliminate the use of MTBE in 2007.

China wants 15% of its energy matrix based on renewable energy by 2020. Nine Provinces have adopted the E10 alternative. If that is done nationwide, the demand for ethanol will exceed 5 billion liters (1.3 billion gallons) a year. Still in Asia, Pakistan and Vietnam signal that they want to add ethanol to gasoline. Industry in the Philippines also works with the local government to implement an ethanol program, with targets for E5 in 2007 and E10 in 2010.

In the Americas, Colombia has adopted the 10% mixture of alcohol into gasoline in September of 2005. Its production capacity is enough for supplying the domestic market. Costa Rica, Guatemala, El Salvador, Nicaragua, Honduras and Belize are looking into their internal markets and want to supply them with sugarcane-produced ethanol. Argentina will start adding 5% of ethanol to gasoline in 2010. Venezuela has 300,000 hectares planted with sugarcane to supply 15 distilleries currently under construction to give support to its program.

Brazil’s strong points

In order to meet the growing demand, Brazil will need to increase its production. The first, easier and most viable alternative available is to increase the planted area and the number of sugar mills. In the country’s center-south, according to Unica, 77 new producing units are expected to begin operation by the 2012/2013 harvest, which amounts to an investment of US$ 12.2 billion and adds 2 million hectares more to the planted area in that region alone. Other US$ 2.4 billion will be invested in existing units in the region. Unica says also that Brazil has more than 90 million hectares of potentially agricultural lands for that expansion. Sérgio Alves Torquato, of the Instituto de Economia Agrícola (Institute of Agriculture Economy, IEA), a research institution connected to the Agência Paulista de Tecnologia dos Agronegócios (State of São Paulo Agency of Technology in Agribusiness, Apta) and the São Paulo State Secretary of Agriculture Supply (Secretaria Estadual de Agricultura e Abastecimento de São Paulo), published on October 2, 2006, an article in which he estimated in approximately 6.5 million hectares the area planted with sugarcane in the 2005/2006 harvest.

Unica’s Carvalho points out that research and development in agriculture, with the various sugarcane stocks, and in technology, for cultivation techniques, gave the country an “incomparable” efficacy. “Our sugarcane is not irrigated; it depends exclusively on rainwater and what’s in the soil. Fifteen years ago, the milling period lasted between 140 and 150 days per harvest; today it lasts between 210 and 220,” he highlights. Sugarcane productivity average in Brazil has jumped from 47.78 ton per hectare in 1975 to 79.29 tons per hectare in 2005, according to Minister of the Civil Household Dilma Roussef. In the State of São Paulo, Brazil’s largest producer, productivity used to be 61.50 tons per hectare 30 years ago; today, it’s 83.54 tons per hectare.

The main source for Brazil’s competitiveness is sugarcane. The energetic balance in ethanol production show that for each unit of energy invested in the sugarcane industry 8.3 units of renewable energy are produced. With corn, this relation varies from 1.3 to 1.8 per unit; with wheat, it is 1.2; with beet, 1. 9. Brazil has reached that level thanks to the investments in technology that increased productivity and reduced production costs. The most important technological advances are the improvement in the agricultural area, with the genetic improvement of the sugarcane – there are about 100 different varieties in the fields – and the use of straw, vinasse and bagasse to generate the energy used in the mills and as fertilizers in sugar plantations.

What prevents sales’ expansion today

What play against Brazil’s leadership in this area are the high tariffs imposed by ethanol importing countries that wish to protect their producers. The U.S. produces ethanol from corn, whose production cost is US$ .25 per liter, compared to Brazil’s US$ .17, indicates the New York Board of Trade - but import tariffs upon Brazilian ethanol is US$ .14 per liter. Only ethanol imported from Caribbean and Central American countries enter the United States with no tariffs, up to a maximum limit of 7% of the U.S. total consumption. So Brazil sends hydrated alcohol to the Caribbean; there it is dehydrated to be turned into anhydrous, is sent to the U.S. and is added to gasoline.

In the case of the United States, in addition to import tariffs there are subsidies and tax incentives. American producers also have a US$ .51 tax exemption per gallon and State tax credits (average of US$ .15 per gallon), as well as specific incentives for small producers (US$ .10). There are also subsidies for corn cultivation. According to data given by Berkeley University’s professor Tad Patzek to the São Paulo financial daily Valor Econômico in January of 2006, U.S. grain producers received US$ 37.4 billion in subsidies between 1995 and 2003. But in spite of all the protectionism, the United States is Brazilian ethanol’s great consumer: until August of this year, it had bought US$ 450 million worth of it, or 1.3 billion of liters (343 million gallons).

But Brazilian sugarcane producers are not worried with U.S. competition right now. According to Carvalho, for Brazil’s producers the U.S. has an enormous importance in the process of consolidation of ethanol’s global market. In other words, the goal today is to convince as many countries as possible to produce and consume ethanol. In the U.S., Brazilian producers want to complement the local supply of ethanol or substitute oil imports. “Our competitor is the oil industry, not the alcohol producing countries. The gasoline market is our market,” he pointed out in the Datagro event. He also said that the access to markets will depend on oil prices – which, he believes, won’t drop below US$ 50 per barrel –, on the opening of the U.S. market, and on the establishment of public policies that force the addition of alcohol to gasoline. “There’s no potential for spontaneous growth; the demand exists only when it’s mandatory,” he pointed out.

The role of technology in keeping Brazil ahead

The technology of the future should be hydrolysis for the extraction of sugar and production of ethanol from the cellulose of residues – which represents 2/3 of the sugarcane plant. In that Brazil is falling behind, thinks Unica’s president, even though it is the country closest to having something commercially feasible. “This has been studied for a while, but it’s the U.S. that is in the lead because it invests money with forgiveness clause, hundreds and hundreds of thousands of dollars. Brazil’s investment in this field is ridiculous,” he criticizes. As a concrete action, he remembers only the initiative of Dedini (read feature in this issue of Unicamp Innovation) and its semi-industrial plant of acid hydrolysis in Pirassununga, in the State of São Paulo. “We have to rethink that aspect in our policy. We must be leaders in this area. The largest part of the cost is gathering and transporting the material, but we don’t have that problem because the bagasse is already at the mill,” he highlights. For him, this technology’s greatest advantage is to make possible for a large number of countries to produce alcohol from a raw material that is not necessarily sugarcane, since it can be used in other types of biomass.

Through hydrolysis, researchers strive to extract sugar from the cellulose of forest and agricultural residues. In the case of Brazil, that technology has been applied to use the cellulose from sugarcane bagasse, which today is burned. As explains Carlos Rossell (read feature in this issue of Unicamp Innovation) , an associate researcher of the Interdisciplinary Nucleus of Energy Planning (Núcleo Interdisciplinar de Planejamento Energético, Nipe) of the State University of Campinas (Universidade Estadual de Campinas, Unicamp) , bagasse is comprised of cellulose, a polymer of glicosis formed by six carbons; hemicellulose, composed by sugars from five carbons, the pentoses, which are still not used for sugar production; and lignin, the plant’s structural material, which may be a source for other chemical or fuel matters. Cellulose and hemicellulose may be transformed into sugars, which are then processed in the sugar mills and turned into alcohol.

There are two routes in hydrolysis, acid and enzymatic. The difference is in the catalyst. In the first route, the catalyst is an acid. In the second, it is an enzyme, a biological molecule. Each kind of biomass requires specific enzymes that will act in degrading the material to be turned into sugar. Brazil’s State oil company, Petrobras, is investing in research on enzymatic hydrolysis. The objective, according to Sillas Oliva Filho, the company’s alcohol and oxygenated products manager, is to obtain hydrogen from alcohol.

Antônio Bonomi, manager of key accounts of the Business and Marketing Department (Diretoria Adjunta de Negócios e Marketing) of the State of São Paulo’s Institute for Technology Research (Instituto de Pesquisas Tecnológicas, IPT), explains that the U.S. uses only the corn grain, leaving behind as residue the plant and the cob. “That’s why they’re interested in the hydrolysis’ chemical route. It’s a way to increase production per hectare. The U.S. is the world’s largest grain producer, but they have the problem of production seasonality because of the climate,” he points out. According to the researcher, who coordinates IPT’s participation in the Projeto Bioetanol (Bio-ethanol Project, a program funded by the Brazilian government whose focus is to inform sugar mill owners and ethanol industries that sugarcane bagasse can be used to produce energy and has the goal of generating a 10% increase in production without expanding the planted area), Americans have invested US$ 2 million in two enzyme producing companies.

International Sugar Organization’s Peter Baron says that no country has reached industrial scale in the use of that technology, something that, for him, will happen within ten years. “We want to have 100 countries producing ethanol, and the transformation of cellulose through acid or enzymatic hydrolysis will be the way for the generalization of competitive production. This process won’t happen only through the production of ethanol from corn or sugarcane,” argues Unica’s Carvalho.

The use of biotechnology for the development of higher yield sugarcane, in particular the research on transgenics, is another key point in technological development. “In this aspect the industry is not behind. We have a significant quantity of research, we already have genetically-modified varieties, but there’s no licensing for putting these varieties in the field,” points out Carvalho. Brazil was the first country to make the genetic sequencing of sugarcane, which has already brought a positive impact on the productive sector. According to him, even in conventional genetic improvement there have been advances, since from that knowledge it is possible to identify more rapidly the best individuals for crossbreeding, thus reducing the time in finding the best variety. “But Brazil’s CTNBio [Comissão Técnica Nacional de Biossegurança, National Technical Biosafety Commission] must change, abolish the requirement of absolute majority vote of commission members to allow the planting of transgenics,” he says. (Genetically-modified organisms need the votes of 2/3 of the commission, which has 54 members, to be approved in the country).

Could Brazil export ethanol technology? “I don’t want to sell technology. What I want is to produce more alcohol and use the bagasse more efficiently. I’m not concerned with intellectual property. It’s difficult to take that alternative into consideration when the U.S. is investing so heavily on it,” thinks Carvalho. And what is it that is lacking in Brazil, more government investment? “We can no longer count on public money for research and development. We, the leaders, must take courage and put money into that, but Brazilian entrepreneurs don’t have the culture of investing on R&D,” he concludes.