GRAIN | 18 July 2007 | Seedling - July 2007
The US and Brazil are, by far, the dominant centres of global ethanol production. Together they account for about 70 per cent of the ethanol currently produced in the world. Both of these countries also dominate the global export production of the crops from which they produce their ethanol. The US, which makes its ethanol out of maize, produces about 70 per cent of global maize exports. Brazil makes its ethanol from sugar cane, and today it accounts for over half of the raw sugar traded around the world. In these two countries, then, the supply of ethanol feedstocks occurs within global commodity chains, which are tightly controlled by a few transnational corporations and influenced by trade relations. 
Brazil’s emergence as a major sugar exporter began at the end of the 1980s when its sugar sector was liberalised. It was then that foreign investment started to flow in, expanding the scale and area of sugar production and orientHing the industry towards exports. But it was really only during the past few years that Brazilian sugar started flooding the global market. In 2004, Brazil won a key case at the World Trade Organisation against the EU sugar regime. Brazil’s victory undermined long-standing colonial trade and production routes, as well as the EU’s heavily subsidised export production. Today, sugar industries in Africa, the Caribbean, the Pacific and other parts of the world, which were sustained by preferential access to the EU, are in steep decline, even as the growing markets for ethanol raise the international price of sugar. Meanwhile, Brazilian sugar production is booming: the country’s share of global raw sugar exports surged from 7 per cent in 1994 to 62 per cent in 2006 and, over the past four years, its exports of sugar and ethanol increased by 243 per cent. 
The Crystalsev conglomerate
At the centre of this conglomerate is Brazil’s Biagi family, but it also involves the Junqueira family, another group of sugar barons. Both families are the major shareholders in Brazil’s second largest sugar and ethanol group, Vale de Rosário. They recently increased their shares in the company when they bought up the majority shareholders to stave off buy-out offers from Cosan and Bunge. After taking control of Vale de Rosário, the owners launched a merger process with another major Brazilian ethanol producer, Santa Elisa, also controlled by the Biagi family. When the merger is complete, the combined company will crush some 20 million tonnes of cane per year. Vale de Rosário executive vice-president, Cícero Junqueira Franco, says that the merged entity will then seek partnerships with foreign players and launch a public offering on the Brazilian stock exchange. But, in truth, the conglomerate’s transition to a transnational operation is already quite advanced.
Vale de Rosário and Santa Elisa are the major players within Crystalsev, an alliance formed by nine Brazilian mills to market their sugar and ethanol, and largely under the control of the Biagi family. After the merger of its two biggest mills, Crystalsev is now pursuing a more formal merger of its shareholders, which would turn it into a completely integrated producer and trader. Crytalsev is also rapidly deepening its ties with foreign corporations, Cargill in particular.
Cargill’s expansion into Brazilian ethanol is happening largely through the Biagi clan. In June 2006, it purchased Maurílio Biagi Filho’s 63 per cent share of the Cevasa ethanol plant in São Paulo, which brought it within the Crystalsev fold. The Cevasa plant, with a capacity to crush 4 million tonnes per year of sugar cane and to produce around 350 million litres of ethanol, will ship ethanol in its hydrous form from the TEAS ethanol terminal in Santos (which is a joint venture between Crystalsev, Cargill and two other major Brazilian ethanol exporters) to Cargill and Crystalsev’s joint-venture ethanol plant in El Salvador. There the ethanol will be dehydrated and shipped on to the US, where it can enter duty-free under a preferential trade agreement known as the Caribbean Basin Initiative, to which El Salvador is party. 
Cargill is not Crystalsev’s only foreign partner. Santa Elisa recently formed a US$300-million joint venture with the international trading company Golden Holdings, and one of the world’s largest private equity firms, the Carlyle Group. The joint venture, called CNAA, intends to have at least four new sugar mills in operation, with the capacity to crush 20 million tonnes of sugar cane per year, by 2008. This would make CNAA one of Brazil’s top three sugar producers. Company representatives say that its focus will be on expanding into the “newer” cane growing areas of the Centre–South, with Crystalsev handling domestic distribution and Global Holdings organising international trade. 
In this new context, where sugar corporations are consolidating their operations and expanding into low-cost areas of production, Brazil has become their main target for investment. Bajaj Hindusthan, for instance, India’s largest sugar producer, set up a Brazilian subsidiary in 2006 and earmarked US$500 million for immediate investment in the country. “If I need to grow exponentially, I need to be in Brazil”, said Kushagra Nayan Bajaj, the company’s CEO. “If an investor expects another tenfold increase out of me in the next five years, or three years, I can’t do it in India.” 
The boom in Brazilian ethanol production is therefore happening alongside a more general boom in the country’s sugar production. And, as with the palm-oil nexus, the sugar producers are quickly using this opportunity to secure control over the international sugar-cane ethanol market, positioning themselves to take advantage of both the rise in global prices for raw sugar and the growing demand for ethanol.
The Ometto Conglomerate
The Ometto Group, run by Brazilian billionaire Rubens Ometto Silveira Mello, controls Cosan, Brazil’s largest sugar producer. In the 2005–6 financial year, Cosan milled nearly 28 million tonnes of sugar cane and sold over 1 billion litres of ethanol.
In recent years, Cosan has refashioned itself into a transnational corporation. First, in 1999, it sold 10 per cent of its main port operations to global sugar giant Tate & Lyle. Then it set up a joint venture in 2002 with major French sugar companies, Sucden and Tereos, which both have large presences in Brazil’s ethanol and sugar trade,  and in 2005 struck up a partnership with the Kuok Group from Hong Kong. Sucden, Tereos and Kuok are now major shareholders in Cosan, although Ometto retains a majority stake. Kuok, a leading player in the palm-oil biodiesel story, also has an important stake in Cosan, through its agro-industrial conglomerate, the Kerry Group. More foreign investment came into the company in 2005, when Cosan made an initial public offering on the Brazilian stock exchange, the first major ethanol producer to do so, ceding a further 27 per cent of its shares to foreign stockholders. Ometto is now considering an initial public offering on Wall Street.
Ometto’s sugar empire doesn’t stop there. Although you won’t find this information on the Cosan website, his group also controls São Martinho, which was, at least until recently, Brazil’s number two sugar producer (behind Cosan) and the operator of Brazil’s largest sugar mill (7 million tonnes per year). In early 2007, São Martinho followed Cosan’s lead and launched an initial public offering on the Brazilian stock exchange, bringing in US$176 million in capital and a substantial foreign ownership presence. Immediately after, it began deepening its relationships with other major players. In March 2007, it signed an agreement with Mitsubishi Corporation, giving the Japanese firm 10 per cent ownership of its Usina Boa Vista – a plant still under construction, with a crushing capacity of 3 million tonnes per year. That factory was financed with US$250 million from Brazil’s National Economic and Social Development Bank (BNDES). The agreement also involved a 30-year contract under which the plant will sell 30 per cent of its production to Mitsubishi for export to Japan. At around the same time, São Martinho joined Cosan to buy out the Santa Luiza ethanol plant in São Paulo, with a capacity to crush 1.8 million tonnes of sugar cane per year.
Another important element of the Ometto empire is its close connection with Votorantim, one of Brazil’s largest family-run conglomerates, controlled by Brazilian billionaire Antônio Ermírio de Moraes. Besides the close personal ties between the two families, their companies recently set up a partnership in sugar-cane breeding between Cosan and Votorantim’s subsidiaries, CanaVialis, the world’s largest sugar-cane breeding company, and Allelyx, the most important sugar-cane biotech company in Brazil.  Then, in May 2007, Votorantim and Monsanto formally announced their partnership to develop GM sugar-cane, saying that they would have GM Roundup Ready varieties ready for commercial introduction in Brazil by 2009.
1 Tereos purchased Guaraní Sugar’s two sugar mills in 2001, and more recently announced US$100 million in investments for a third refinery as well as the purchase of a yet-to-be-completed 40-million-litre-per-year ethanol plant in São Paulo. Louis Dreyfus is now Brazil’s second largest sugar producer and trader. It first purchased the Cresciumal refinery in São Paulo in 2000, and subsquently took control of Coinbra, and of 5 mills owned by Tavares de Melo.
The Brazilian government plays a key role in facilitating this corporate consolidation. President Lula and his cabinet ministers are on a seemingly constant ethanol booster tour, striking deals around the world for the supply of Brazilian ethanol and technology. Much of the government’s support to the industry occurs via the state oil company, Petrobrás, which is actively developing the export infrastructure. Its latest project is a US$750-million ethanol pipeline, stretching 800 miles from Brazil’s interior to the Petrobrás refinery in Paulinia and then onward to the port of São Sebastião. The pipeline will have the capacity to transport nearly half of Brazil’s present ethanol production.
Petrobrás is also more directly involved in securing long-term export markets for Brazilian ethanol. In 2005, it entered into an agreement with Japan’s state oil company Nippon Alcohol Hanbai, to create Brazil–Japan Ethanol, a joint venture that plans to export 1.8 billion litres of ethanol per year to Japan.  In March 2007, as part of an US$8-billion partnership worked out between Japan and Brazil, Petrobrás, Mitsui and Itochu agreed to set up a Brazilian joint venture that would supply ethanol to Japan for at least the next 15 years. The two sides also began negotiations for the construction of a pipeline within Brazil to facilitate these exports. 
The big winners in Brazil’s emergence as the global sugar and ethanol powerhouse are the transnational corporations and the few families, known in Brazil as the sugar barons, who increasingly control the Brazilian sugar and ethanol industry. With foreign investors knocking on their doors, the sugar barons have been consolidating their holdings and restructuring their companies in order to attract foreign investment. Some have even put their family businesses on to the Brazilian stock exchange. Typically, what happens is that foreign investors buy up controlling interests or minority stakes, leaving the sugar barons, with their expertise in maximising productivity by exploitation, to oversee the agricultural operations.
Brazil’s sugar barons have used this flood of finance, from foreign investors and the government, to take over smaller firms and expand production for export. Between 2000 and 2005, 37 mergers and acquisitions took place within the country’s sugar and ethanol industry.  Today it is possible to discern just a few conglomerates – transnational networks of TNCs and sugar families – that control the industry. Two of the most important are the Crystalsev and the Ometto conglomerates.
Brazil is attracting more international investments in agrofuels than any other country. In 2006 alone, over US$9 billion were invested in the Brazilian ethanol industry, with US$2 billion going into the construction of new ethanol plants.  A number of multi-million dollar investment funds have recently been set up on foreign stock exchanges with the specific objective of investing in Brazilian ethanol (see table 5 on page 23). The new money is pushing sugar production into new areas, particularly on to lands that have long been used for cattle pasture. Eduardo Pereira de Carvalho, the President of São Paulo’s Sugar-Cane Manufacturers’ Union, predicts that as much as a third of Brazil’s current pasture land will be converted to sugar-cane production in the near future. “Over the next 15 years, an extra 100 million hectares could be planted with cane, primarily on pasture land”, he said. 
The expansion of Brazilian sugar and ethanol has repercussions beyond Brazil’s borders. The glut of money is spilling over into neighbouring countries, which offer even lower costs of production and/or strategic trade access to the US market. The Brazilian government recently signed a US$100-million agreement with its Ecuadorian counterpart to set up two ethanol plants in Ecuador and to introduce high-yielding varieties of Brazilian sugar cane. Ecuador has two advantages to offer foreign investors: the 10,000-tonnes-per-year quota it has for the US market; and the unlimited access it has been given to the EU market as part of a diversification programme to encourage farmers to move away from away from illegal crops such as coca. Similar deals have been forged with Caribbean countries that have trade access to the US through the Caribbean Basin Initiative (CBI).  The Brazilian trading group Coimex has a joint venture in Jamaica with Petrojam to invest US$7.3 million in the rehabilitation of a 40-million-gallon ethanol production plant that will import all of its raw material from Brazil and ship all of its output to the US ethanol market.
Jamaica is one of a number of small countries whose sugar sectors are in danger of completely collapsing when the EU Sugar Protocol begins to be phased out in 2007. And, like Jamaica, most of these countries are in a process of deep restructuring that they are carrying out with EU support. In these processes, ethanol is often proposed as a way to salvage part of the industry, but typically alongside privatisation plans that put the ethanol production and trade into the hands of foreign corporations.
Mauritius, for instance, which is the largest supplier of sugar to the EU, holding 38 per cent of the quota within the Sugar Protocol, is negotiating an assistance package with the EU to restructure its sugar industry. As it stands, the EU will provide over 300 million euros towards the formation of a sugar-cane “cluster” in the country that will essentially centralise, mechanise and consolidate the country’s small-scale sugar production and reorient it towards energy production, primarily ethanol.  Much is made of how the cluster will serve local energy needs, but already the bulk of the island’s ethanol is exported to Europe. The ethanol business in Mauritius is controlled by Alcodis, a joint venture company that is part of the Belgian shipping conglomerate AlcoGroup. The group handles about 8 per cent of the ethanol traded in the world, most of its sourced from its Brazilian operations but some also coming from both its subsidiary in South Africa, NCP Alcohols, and its plant in Mauritius. In 2004 Alcodis shipped over 3.5 million litres of ethanol to the EU from Mauritius – tax-free because of its status as an ACP (African, Caribbean or Pacific) country. 
Table 5. Investment funds for Brazilian ethanol
Bermuda-based company listed on London Stock Exchange that was formed by about 50 investors in 2006. One of its principle investors is the American fund Kidd & Company. With over US$500 million slotted for investments in Brazilian ethanol, the fund has so far spent US$400 million purchasing controlling interests in three plants with a joint milling capacity of 3.5 million tons of sugar cane, and is investing in the construction of two new plants in the states of Espírito Santo and Bahia. Infinity BioEnergy’s focus is on regions with little tradition in sugar cane, where it sees the potential for growth. Infinity BioEnergy also recently announced that it was merging with the Evergreen fund, another British investment fund targeting Brazilian ethanol with a majority interest in the Alacana ethanol plant in Nanuque. Infinity plans to export at least part of this production to the US, and is therefore investing US$20 million in a dehydration plant in the Caribbean that will provide duty-free access to the US market
Bioenergy Development Fund
Launched in early 2007 by France’s third-largest bank, Société Générale, it is incorporated in the Cayman Islands. Although it has yet to make an investment, the fund raised US$200 million in its first month and, supposedly, is on track to raise a total of US$1 billion this year. Société Générale is also involved in investments in US ethanol plants.
Brazilian Renewable Energy Company Ltd (Brenco)
Raised US$200 million in the initial private placement of its shares. It is financed by several big-name investors, such as Sun Microsystems founder Vinod Khosla, supermarket magnate Ron Burkle and the co-founder of AOL, Steve Case. Goldman Sachs is its exclusive placement agent. Other investors include former World Bank President James Wolfensohn, film producer Steven Bing, and Brazilian firms Tarpon All Equities and Grupo Semc. The CEO of Brenco is Philippe Reichstul, former president of Petrobrás. Brenco’s goal over the next 10 years is to reach an annual output of 3.8 billion litres, according to market sources. Brenco is incorporated in Bermuda, but has headquarters in São Paulo.
Clean Energy Brazil
Established by Numis, an English investment bank. Partners include Czarnikow Sugar, one of the world’s largest sugar brokers and the broker for approximately 30% of the Brazilian sugar/ethanol market, and Agrop, owned by Brazil’s Junqueira sugar family. The fund operates on the London Stock Exchange, and raised US$185 million in its initial public offering. Its first acquisition in 2007 was of a 49% stake of the Usaciga sugar group.
Latin America’s regional bank, the Inter-American Development Bank (IDB), is another major player shaping and supporting the unfolding ethanol agribusiness web. It works closely with the Interamerican Ethanol Commission to develop the global market for ethanol, through a twin strategy of expanding ethanol production and consumption. IDB President, Luis Alberto Moreno, is one of the chairs of the commission, along with former Florida Governor Jeb Bush and former Brazilian Minister of Agriculture Roberto Rodrigues, who is now president of the Superior Council of Agribusiness of the São Paulo State Federation of Industries.
Oddly, the bulk of IDB ethanol funds are channelled into the already saturated market for Brazilian ethanol production. The IDB says that in Brazil it is “focusing on leveraging private sector investments to expand production capacity”. Its Private Sector Department is currently structuring senior debt financing for three Brazilian ethanol production projects that will have a total cost of US$570 million and loans for five biofuel projects worth around US$2 billion are in the pipeline. In March 2007, the World Bank’s soft loan department, the International Finance Corporation, announced a US$35-million package for the construction in Brazil’s main sugar producing state, São Paulo, of a sugar mill that will source its cane from land currently devoted to pasture for cattle.
Guyana: first stop on the ethanol express
Guyana is emerging as a particularly important destination for the spill-over of Brazilian ethanol capital. The country, which is part of the Caribbean Basin Initiative (CBI), provides a key sea-port outlet for sugar and ethanol coming from the north of Brazil. But unlike the Caribbean island countries, which only dehydrate ethanol imported from Brazil, Guyana has the potential for its own low-cost sugar and ethanol production, opening the door to much larger exports to the US than are possible in other CBI countries.  The minister of Agriculture, Robert Persaud, says that 202 square kilometres of land have already been identified for new sugar-cane cultivation. “We have identified virgin lands for the cultivation of a new sugar-cane variety different from the one that we currently use for the production of sugar and molasses”, he added. 
According to Brazil’s ambassador to Guyana, Arthur V.C. Meyer, Brazil’s second largest producer of biodiesel, Bio-Capital, plans to invest in sugar-cane cultivation and ethanol production in Guyana. He said that the Brazilian company intends to invest US$300 million in the purchase of some 50,000 hectares of land for cane cultivation and in the construction of an ethanol distillery.  Bio-Capital is carrying out a similar investment in the state of Roraima in northern Brazil, which will probably transport dehydrated ethanol to its Guyana facilities for hydration and duty-free export to the US. Although Roraima consists largely of Amazon rainforest, and there are several land disputes between companies and indigenous peoples, the Brazilian government is paving the way for greater agrofuel production in the area by financing the upgrading of a road running from Bomfim in Roraima across the Takutu River to Guyana’s ports.
There are also reports of a Spanish–Israeli company negotiating a US$100-million ethanol investment in Guyana. The group, Tanacama Ltd, began discussions with the Guyana Office for Investment and the Guyana Sugar Corporation in November 2006. It intends to establish a pilot ethanol plant in the Canje river basin and to open around 10,000 hectares of land to sugar-cane production using Israeli agricultural technology. The initial capacity of the factory is expected to be 80 million litres annually, and the investors are hoping to increase that amount 10-fold within a decade. 
1 While imports of dehydrated ethanol into the US from CBI countries are subject to quotas, there are no limitations on imports of ethanol derived from locally produced feedstocks.
The project in São Paulo says a lot about how the ethanol industry is being shaped in the region. The mill brings together Brazil’s Unialco S.A., whose major trading partner in 2006 was Cargill, with Inversiones Manuelita of Colombia and Pantaleon Sugar Holdings of Guatemala, both of which are run by notorious local sugar barons. The Herrera family controls Pantaleon and more or less all of Guatemala’s sugar industry, while Manuelita, the second-largest Colombian-based sugar producing group and one of the main sugar producers in Peru, is part-owned by Colombia’s most powerful sugar baron, media mogul and agrofuel booster, Ardila Lülle. Pantaleon and Manuelita are investing in these joint ventures through their Spanish-based joint holding company, Grupo Colgua.  The initial announcement for the project talked about serving local ethanol markets, but, with the ink on the deal hardly dry, the three companies made a subsequent announcement for another joint investment – a US$20-million factory in Guatemala that will hydrate Brazilian ethanol for export to the US.
1 Corporate control of the US maize ethanol market is discussed in Grist magazine’s December 2006 special series on biofuels. See: http://tinyurl.com/2r6k5m
2 Groupes Sucres et Denrées website, “Sugar Market”: http://www.sucden.com
“Brazilian agribusiness exports doubled in four years”, Anba, 11 January 2007, http://tinyurl.com/37tsql
3 Pratik Parija and Thomas Kutty Abraham, “Bajaj plans to expand into Brazil”, Bloomberg News, 22 August 2006, http://tinyurl.com/2o3g32
8 Peter Blackburn, “Brazil could double ethanol output by 2014 – UNICA”, Reuters, 4 August 2006, http://tinyurl.com/ypqrrw
12 See Héctor Mondragón, “Los negocios del biocombustible y de la caña de nuestros empresarios y el gobierno nacional”, May 2007, http://tinyurl.com/2vtkfh