AN INTEGRATED STRATEGIC PLAN FOR THE SUGAR CANE AGRIBUSINESS SYSTEM: AN APPLICATION OF THE CHAINPLAN METHOD

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1 AN INTEGRATED STRATEGIC PLAN FOR THE SUGAR CANE AGRIBUSINESS SYSTEM: AN APPLICATION OF THE CHAINPLAN METHOD Marcos Fava Neves School of Economics and Business (FEA) University of Sao Paulo Markestrat, Marketing and Strategy Research Center. FEARP Av dos Bandeirantes , Ribeirão Preto-SP Tel/Fax: Marco Antonio Conejero Markestrat, Marketing and Strategy Research Center. School of Economics and Business (FEA) University of Sao Paulo Maestro Ignacio Stabile St., 520, Zip Code ( ), Ribeirão Preto-SP Tel/Fax: Problem Statement The Sugarcane Agribusiness System is made up from many links: the production of sugarcane; the processing of sugar, ethanol, bioelectricity and other derivates; the services on research, technical assistance and financing; transportation; commercialization; and exportation. All of these links build a network around the mills as shown in figure 1. PEST (Political-legal, Economical-natural, Social-cultural, Technological environments) Inputs Production Industry Agro-chemicals Fertilizers Machines and equipments Parts Services Others Own sugar cane Leasing Partnership Traditional Suppliers Inputs Industry Other competing mills Mill Other non-competing companies Ethanol Sugar Bagasse Others Distributors Oil chemical Ind. Industries Traders Traders Food Industry Chemical Industry Ind. Empacotadora Own Consumption Energy generation Fertilizer Industry Yeast Food Pellets Others Distribution Gasstations Plastics Processors Other companies Global Market Global Market Other Companies Other Companies Wholesale/Retail Distributors agriculture.. livestock... ** ** F I N A L C O N S U M E R ** ** Products + Services $ + Information Facilitators agents: Logistics, Transport, Storage, Brokers, Banks, Insurance Companies, Certificators etc. Figure 1 - The Sugarcane Agribusiness System Source: Neves et al. (2008).

2 Brazil is the world s biggest sugarcane producer, accounting for over 30% of total production (FAO, 2010). The vast majority of the production, around 85%, takes place in the South- Center region of the country, where harvest starts in April and ends in November. The other 15% is produced in the North-Northeastern region, where harvest lasts from September until March. In the 2008/2009 harvest, total production grew 14% compared to previous year, reaching million tons of sugarcane. The country s sugar production is the largest in the world. Last harvest Brazilian mills produced 32.1million tons of sugar, from which more than 60% were exported. Ethanol production is only bigger in the US, and unlike sugar only a minority is exported. In 2008 Brazil exported 5.1 billion liters of ethanol. This volume represents only 19% of total production, but was 40% higher than in Sugarcane is one of the leading crops in terms of income generation in the Brazilian agribusiness. According to Neves et al. (2010), the sugarcane milling sector circulates annually US$ 28 billion, what represents 1.5% of GDP. It employs, directly and indirectly, 4.76 million people. Table 1 summarizes the importance of the sugarcane agribusiness system. Table 1 - Brazilian sugarcane sector economy /2009 crop year Generates: US$ 28 billion. Represents: Job creation: Independent sugarcane suppliers: Cultivated area: Average yield : Milling: Production: Exports: Bioelectricity: Taxes: 1.5% of national GDP million direct and indirect. 70 thousand producers distributed in 1,694 municipalities. 7.8 million hectares (4.7 million ha for ethanol) 77.5 tons/hectares. 569 million tons. 31 million tons of sugar million liters of ethanol million tons of sugar. 5.1 billion liters of ethanol. Generation of 2,017 MW. Capacity of 4,034 MW. 3.58% of Brazil s electric power. US$ 6, million. 423 operating plants. 248 mixed plants (sugar and ethanol). Players: 159 ethanol plants. 16 sugar plants. Sources: Elaborated by the authors based on Neves et al. (2010) and other sources. For the existence of a global market for food and bioenergy, it is necessary to develop expertise in the planning of agribusiness systems that will be increasingly transnational and must be sustainable. According to Zylbersztajn and Neves (2000) and Batalha (2001), the agribusiness systems (chains) hold the following basic elements for its descriptive analysis:

3 the agents, the relations between them, the sectors (inputs, agriculture, industry, and distribution), the facilitating organizations, and the institutional environment. It is more a macro analysis, of a product flow from suppliers to final consumers. In this process, to face the changes in international business environment and growth opportunities for food and bioenergy, a strategic planning is necessary. The construction and elaboration of a process for strategic planning and management of productive chains should be the objective of each country. This process should prioritize the areas of coordination and institutional environment (laws), production and products, communications, distribution and logistics, and human resources, in order to define projects, strategic thinking and change (Neves, 2007b). 2 Objectives and Methodological Procedures The objective of this paper is to contribute to the academicians to incorporate the uncertainty, instability and unpredictability of changes in the planning process of agribusiness systems, to consider various future possibilities in the formulation of objectives, guidelines and strategies, and to ensure the sustainable growth of their economies. As specific objectives, we defined: a) to perform a macro-environment analysis (STEP analysis) for the sugar cane agribusiness system in Brazil; b) to analyze the internal environment of the sugarcane agribusiness system in Brazil in five strategic areas, its strengths and weakness; c) to propose an strategic agenda to this sector in order to collaborate in the discussions related to the issue. The methodological procedures were defined as: 1) a review of the CHAINPLAN method (Strategic planning and management for agribusiness systems) (Neves, 2007b), 2) a literature review on the sugar cane agribusiness system, 3) in-depth interviews with the experts from the industry, government and trade associations. 3 Theoretical Framework: The CHAINPLAN Method It is estimated that by 2020, food supply in the world will have to be increased by 50% and available areas for agriculture are restricted as well as sources of water. An efficient logistic system is still a challenge for many countries around the World. It is difficult to predict how much biofuel will be needed once it depends on car fleets and their evolution, industrial demand, people demand, institutional environments (% set by governments for the biofuel addition in oil) and consumer behavior. So, to deal with all the environmental changes in the national and international business arena, and growth opportunities to the food, fiber and bioenergy productive chains, strategic planning should be focused on understanding the production chains. Increasingly in Brazil it will be necessary a strategic planning and management process of its various agribusiness systems. For this, Neves (2007b) developed the CHAINPLAN method for "Strategic Planning and Management of Agribusiness Systems" which has been applied to agribusiness systems in Brazil, Argentina, Uruguay, South Africa, among other countries. It consists of five stages: the initiative of systems leaders, the mapping and quantification of

4 the agribusiness system, the formation of a vertical organization, the plan with strategic projects, and the implementation of the plan. The CHAINPLAN method is summarized in figure 2, a 5-step process aiming at the implementation of strategic planning and management in production chains. Figure 2 - The ChainPlan method for strategic planning and management of chains 1 Initiatives of Leaders, Government, and Research Institute/ Universities in planning the future of the Chain 2 Description, Mapping and Quantification of the Chain 3 Creation of a Vertical Trade Association 4 Elaboration of the Strategic Plan for the Chain 5 Management of Strategic Projects and Contracts Design Source: Neves (2007b). Figure 3 presents with details the step 4 of the CHAINPLAN Method. This step is divided in 12 stages trying to design an integrated strategic plan for the agribusiness system in the following 5 or 10 years. Figure 3 - Summary of the ChainPlan plan (step 4) INTRODUCTION AND UNDERSTANDING 1 2 Market Analysis with the Chain Approach 3 Analysis of Internal Situation and Competitors Production, Products, Research and Development, and Innovation Decisions OBJECTIVES FOR THE CHAIN STRATEGY FOR THE SYSTEM 7 Communications Decisions 8 Distribution and Logistic Decisions (Including Exports) 9 Human Resources and Qualification Decisions CHAINPLAN BUDGET CONTROL AND EXECUTION 10 Institutional Environment Coordination and Adequacy Decisions Source: Neves (2007b). Each stage will be elaborated (and detailed) as the guidelines presented in Table 2.

5 Table 2 - Guidelines for a demand-driven strategic planning and management of the chain Stage What has to be done Phase 01 Introductory 1 Introduction and - To verify if the chain has other plans done and to study them; Understanding - To verify the planning method of the studied chain; - To verify which teams will take part in the process; - To study plans made for production chains in other countries, for benchmarking; - To identify a member of the team who could promote relationships with other chains; - Finally, in the case of chains with sophisticated planning processes it must be verified how this model can help the existing model, and how to adapt, gradually, the chain to this one. 2 International Market and - To address threats and identify opportunities from the so-called uncontrollable Consumer Analysis with Chain variables (possible changes in the legal/political, economical and natural, sociocultural and technological environment) both in the domestic as well as in the Approach international market; - To understand existing barriers (tariff and non-tariff) and check collective actions to reduce them; - To analyze the final and intermediate (dealers) consumer s behavior and their purchase decision process; - To analyze opportunities to fit environment, fair trade, sustainability and sustainable development goals; - To analyze opportunities to fit the national and international labor institutional environments; - to set up an Information System to support informed decision-making; - To describe the main national and international competitors. 3 Internal Situation Analysis - To identify all the strong and weak points of the chain; and Global Competitors - To map contracts and existing forms of coordination; Benchmarking - To describe the existing structures of management and its transaction characteristics; - To make an analysis of main competitors; - To analyze the value creation, resources and abilities of the chain; - To analyze the critical success factors of the chain; - To select, amongst the chains (which may or may not be a competitor) where the benchmark (sources of good ideas) will be. 4 Objectives for the chain - To define and quantify the major chain objectives in terms of production, exports, imports, sales to achieve sustainable growth and to develop solutions for the weak points; 5 Strategies to reach proposed - To list the major strategies (action) that will be used to reach the considered Objectives objectives in item 04 in terms of positioning, exports, value capture, and market segmentation; Phase 02 Plans of Strategic Vectors: Production, Communication, Distribution Channels, Qualification and Coordination (Institutional Adequacy) 6 Production, Products, R & - To analyze productive potentials and production capacities; D, and Innovations Projects - To map and plan for production risks (sanitary and others); - To analyze products and product lines, as well as complementary product lines for expansion decisions; - To develop innovation opportunities in the chain, and in the launch of new products; - To identify opportunities to settle national and international innovation networks; - To foster university partnerships and with medical and health areas; - To detail all offerings and potential services; - To make decisions related to the joint construction of brands, and labels for the system use; - To analyze and implement the certification process for the chain; - To ensure product adequacy with respect to the rules and institutional

6 environment; - To ensure environmental sustainability; - To make packaging-related decisions (labels, materials, design); - To calculate recurrent investments at this stage. 7 Communication Projects - To identify the target public for the communication (messages from the production chain); - To develop goals for this communication (product knowledge, product reminders, persuasion, among others) and try to define the unique positioning and message that will be generated by the chain; -To define the communication tools to be used; that is, define advertising or public relations strategies to boost sales, among others. -To make films and international materials that benchmark those already used in other production chains; - To review communication actions and determine the annual promotion budget involving all the network agents; - To indicate how communications results will be measured so that the chain learns more and more about the best tools to achieve revenue on investments. 8 Logistic and Distribution - To analyze the product distribution channels and to search for new ones; Projects (Including Exports) - To analyze the possibilities of value capture in the distribution channels; - To identify possible demands of international dealers and consumers to suit the existing services; - To define new ways to the penetrate the markets (through franchising, joint ventures and other contractual forms, or through vertical integration); - To determine annual budget for distribution; - To verify how distribution actions can be done together with other chains. 9 Enabling Decisions in the - To conduct trainings in management for the chain participants; Productive Chain/ Human - To conduct trainings in control of costs and use of technologies Resources - To conduct trainings in national and international sales; - To transmit information from technological centers/research; - To conduct trainings in food production; - To offer technical assistance to improve properties; - Others 10 Institutional Environment - To develop projects to finance the chain; Coordination and Adequacy - To develop basic infrastructure improvement projects; Projects - To develop projects to increase consumption in government programs; - To develop programs for isolated productive areas; - To push for tax reduction in the production chain project; - To strengthen export activity through export promotion agencies; - To support laws that provide incentives for the use of technologies (fiscal incentive, etc); - To develop a product and product name standardization project; - To promote more transparency in legislation referring to products and processes projects; - To develop proposals for chain conflict solutions; - To ensure coordination in the development of contracts and proposals. 11 Strategic Projects - All projects generated in steps 6 to 10 will be consolidated and priorities will Consolidation be settled. 12 ChainPlan Budget - Budget of Every Project, which contains costs and total budget. Source: Neves (2007b). Below, we delineate a strategic plan for the sugar cane agribusiness system, in order to cooperate with existing organizations in the system, which have been working in this direction. It is the result of proposals that have been made by the authors in the last 10 years as well as future suggestions.

7 4 Results 4.1 Understanding In this step, a historical and broad understanding of the industry is performed. It is believed that the sugar cane system is widely known in Brazil. There are several technical and market publications, and this paper aims to add a little more on this knowledge. Furthermore, the sugarcane is characterized by strong and representative industry associations, whether in industrial, production and distribution link, along with trade unions and others who have done significant development work. A strategic plan should include organizations, companies and other public and private agents, gathered especially for this purpose. 4.2 External Analysis: Opportunities and Threats There are many steps that must be made in the external analysis, as can be seen in the table above. In this article we seek to contribute a little with the macro environmental analysis. In this analysis, we use the tool "PEST or STEP analysis", well enshrined in the literature of strategic planning. It considers the main uncontrollable factors in a production system, ranging, bringing opportunities and threats. These are environment factors: the political-legal, economic, natural, socio-cultural and technological (Neves, 2007a; Campomar and Ikeda, 2006; Jain, 2000; Johnson and Scholes, 1997). To develop multiple scenarios of a theme that involves the energetic future of the world and dealing with an industry known for its high risk and fairly long term investment projects, various macro environmental changes are analyzed. The main "uncontrollable" factors to be considered in the analysis of the energy sector in the world today are brought under table 3, which separates these changes in environmental opportunities and threats. Table 3 - Summary of opportunities and threats in Sugar Cane AGS (Agribusiness System). Political Legal Economical - Natural Social-Cultural Technological O P P O R T U N I T I E S - Addition of ethanol in engines of trucks; - New emission reduction targets and growth of the carbon credit markets; - General tax incentives for biofuel production - Development and internalization of biofuels market in developing countries, with the advancement of new projects (biofuels and feedstock production) on degraded areas; - Addition of ethanol in different countries, - Growth in population and increase of wealth (China and India), increasing consumption; - Growth in the consumption of sugar (products / food that use sugar); - High prices of oil; - Growth in flex-fuel vehicle fleets; - Export of technologies and biofuel facilities from actual producers countries to new ones; - New and high flows of foreign direct investments in biofuel industries; - More awareness of global warming; - Migration of people to cities (eg.: China) demanding processed food and high volumes of fuels. - Image of the renewable and clean fuel; - Defense of sustainable biofuel productive chains. - Acceptance of GMO s - Movements of Organics/FairTrade/ -New technologies enhancing flex-fuel vehicle efficiency; - New machines for harvest; - Generation or expansion of the cellulosic ethanol use (biobutanol, hydrolysis); - Genetic modification of energy crops for resistance to dry weather and diseases; - Use of satellites replacement of MTBE used - Loss of production in some Nutraceutics/Cosmetics and precision in gasoline to meet environmental agenda; - Addition of biodiesel in different countries, the lower level of sulphur emissions and greater countries generating opportunities to others; - Emergence of new producers (Caribbean and Asia); - Focus in core competence (biofuel industry), independent - Inclusion of smallholders - Generation of green jobs and income agriculture (GPS); - Research with fertilizers (varieties that use less fertilizer); - Use of

8 T H R E A T S lubricity to the engine; - Alliance of developing countries with developed countries to obtain preference for imports and not to compete with food production; - Prohibition of burning the sugar cane, generating more energy to crush and ethanol facilities; - Brazilian ethanol as advanced biofuel in US; - New institutional framework for electricity. - Environmental zoning in Brazil; - New institutional framework for distribution of fuels. - Social-environmental barriers to biofuel imports; - Lack of international law to biofuel standardization for export (in the world market); - Stricter work and environmental laws for biofuel production; - The oil companies, the local producers and the ethanol lobbies against imported ethanol; - Slow and tendentious legal environment (contractual hold-up problems, delays in justice, bureaucracy, etc.); - Lack of regulatory stocks of biofuels in countries (to avoid fluctuation of commodity prices); - Discontinuity of the tax incentive programs in the long term (breaks); - Tax inequality through value chain and states of Brazil; - Conflict "pre-salt" investments vs. bioenergy economy in Brazil; - Gasoline price control in Brazil and Petrobras Monopoly. Source: Elaborated by the authors. supply of feedstock with better income distribution; - Good Agricultural Practices like rotation of crops - food and energy, causing an increase of food production in the areas of renewal energy crops; - Land availability for expansion of the biofuel sector in developing countries; - Positive energetic and carbon balances for all biofuel sources; - Value of positive externalities. - Growth in the hybrid vehicle fleets; - Lack of machines and equipment for expansion of industrial capacities; - High agricultural commodity (feedstock) prices fluctuation; - More powerful diseases or pests; - Climate change bringing reduction in the available lands; - Lack of agro inputs (fertilizers mainly); - Concentration of the biofuel sales in a few major markets (US, EU) or companies (eg. BP, Exxon, Chevron, Shell, Petrobras); - Inflationary process in food prices; - Competition of biofuel industries with alternative distribution channels by the right of by-products (agricultural residues). - Lack of credit/funding lines with easy access. - Small environmental services markets in Brazil. - High supply and use of public transportation; - High migration flows of people to developed countries; -Image of jobs generated by the energetic crops employed in the harvest in developing countries (sugar cane, palm); -Image of land occupation generating competition with food; - Image of the "monoculture"; - Growth of NGOs, with destructive purposes (bioterrorism); - Hard requirement of social-environmental certification; - High cost of certification; - Mechanization vs. unemployment in agriculture; - Number of different seals. biofertilizers from by-products; - Integration of biodiesel and ethanol facilities; - Focus on energy efficiency (hybrid cars, reducing the weight of cars) allowing the use of renewable energy (ethanol, biodiesel, biomass); - Privatization/ Public-Private Partnerships in infra-structure facilities. - Sweeteners and other bioenergy sources; - New technologies generating more competitive energy (hydrogen); - Growth in the fleet of natural gas or hybrid vehicles; - Deficient infrastructure for distribution of agricultural production from new frontiers (internal logistics). - Low investments on R&D in developing coutries.

9 4.3 Internal Analysis: Strong and Weak Points Moreover, in the third part of the strategic plan there are several analyses which must be done. Raise strong and weak points, make comparative analyses within the world main producers and exporters (Australia, India, and Thailand, among others related to sugar as well as USA related to ethanol), and understand the competitive benchmarks. Then, there is an internal analysis, which means, throughout a depiction, strong and weak points are reached. The idea is that strong points can be enforced, making the weak ones deserve projects regarding to improve them for forthcoming years. The analyses areas, or themes, are spitted into five, as in the CHAINPLAN method. First, there are the innovation, research and production issues. Then, the issue related to the productive system communication with clients and consumers. The third dimension gathers issues such as distribution and logistical. The fourth analytical one is training. The last one is related to coordination aspects of productive system and institutional environment. These points are analyzed in table 4. Table 4 - Summary of the strengths and weaknesses according to strategic areas in the Sugar Cane AGS (Agribusiness System) Coordination Innovation/ Research/ Distribution Training and Communication and Institutional Production and Logistics Capabilities Environment S T R E N G H T S W E A K N E S S E S - Sugar cane has lower biofuel cost (corn, beet, rapeseed); - Capacity of the mature and large industry in Brazil; - Strong metalmechanical industry dedicated to ethanol facilities; - Capacity of expansion to new lands in Brazil; - Sugar cane varieties more resistant to climate change; - Strong agronomic and biotechnological intelligence centers in Brazil; - "Genoma Project" - mapping sugar cane genetic sequence - Total use of byproducts and residues in the field; - Flex-fuel technology. - Manual harvest and human aspects in some sugarcane; - Practice of burning (sugar cane); - Profitability of the sugarcane independent suppliers; - High investments in the cellulosic ethanol research by the - Image of green fuel, jobs generator, environmentally correct, exporter, regional development promoter and renewable fuel associated; - "Free" advertising. - UNICA (Sugarcane Industry Association) Communication actions in Brazil, US and EU. - Low capability to anticipate problems and coordinate the response; - Image of labor condition in the harvest in developing countries; - Concentration - Vertical integration of ethanol facilities to distribution of fuels - Trading and oil companies control of the sector - Bioelectricity s facilities concentration close to high demand of electricity and complementary to hydroelectricity sources. - Export logistics in developing countries; - Delay of ethanol pipeline infrastructure; - Distribution cost; - Ethanol - Good training capacity (university and research institutes) in Brazil; - UDOP (Union of Bionergy Producers) corporative university for executives and technical workforce. - Low coordination between organizations that offer training (research institutes and universities); - Lack of executive and technical workforce; - Reallocation of formers sugarcane - Consecana model (sugarcane payment formula) - Agricultural Partnerships - Associations and Cooperatives - Voluntary agreement to eliminate the practice of burning sugar cane; - Reputation / relational contract; - 80 to 90% of the production cost of ethanol comes from sugarcane - High vertical integration of biofuel facilities for agricultural

10 developed countries. - High investments in the hybrid cars technology by the developed countries. of lands and farmers; - Low Corporate Governance Practices by the Sugar mills sector. Source: Elaborated by the authors. internal price fluctuation - High concentration of fuels' distributors - Lack of fuels stock capacity in Brazil; - Difficulty of connection to electrical-grid by sugar mills. cutters. production. - Non-payment of sugarcane by fiber content - Lack of long-run contracts for distribution - Lack of pattern contracts for ethanol exports 4.4 Objectives (Goals) The goals must be clear and consistent and, whenever possible, quantitative. Thus, for the sugar cane chain, size-related goals must be thought regarding to production and exportation volumes and others. These goals also must be taken in terms of economic sustainability (income of the main links in productive chain), environment (to keep the production bases for future generations) and people, aiming to include, promote jobs, develop inner areas and others. Table 5 brings some suggestions. Table 5 - Example of strategic objectives (goals) in Type of Goals Description Sugar Cane Production Produce X tons, on a target cost of R$ x and on a target price of R$ y Sugar Cane Production Ethanol Production Energy Production Sugar Export Ethanol Export Volumes of Production Units Profit Margins in different links Job Volume Produce X tons on a target cost of R$ x and on a target price of R$ y Produce X billions of litters, being responsible for 80% of Brazil fuel consumption on a target cost of R$ x on a target price of R$ y Produce X MGW, being responsible for 15% of Brazil needs on a target cost of R$ x on a target price of R$ y. Export X tons to Y countries, being responsible for 60% of world exports, on a target price of R$ X Export X tons to Y countries, being responsible for 60% of world exports, on a target price of R$ X. Operating Units Expected Margins Expected Jobs Production of other products Produce X litters of diesel and Y tons of plastic, among others. from sugar cane Source: Elaborated by the authors. 4.5 Main Strategies Brazil must pursuit the cost leading strategy with economic, environmental and social sustainability. To supply the most broad market lines of sugar buyers, by type, country, needs, and ethanol, besides many other generated products. To place itself as one of the cleanest industries in the world, taking and transforming solar energy into energy to be used by human beings. To cope with these changes, we need to design, to think strategically and change. Strategic projects which were here mentioned reflect the authors opinion, containing only suggestions

11 without any arbitrariness which it may seem to show. Projects for each one of the areas (coordination and institutional adjustment, production and products, communication, distribution and logistics, and human resources) of a strategic planning process of the productive systems were defined. To implement them, the following relationship can be split between the public and the private sectors and also implemented in a joint way in some cases. To prepare this material, agendas already established by many important Brazilian agribusiness organizations such as: UNICA 1 (Sugarcane Industry Association), UDOP 2 (Union of Bioenergy Producers), ORPLANA 3 (Sugarcane Growers Association), CANAOESTE (Sugarcane Growers Association of Sao Paulo State), ABAG Ribeirao Preto 4 (Brazilian Agribusiness Association in Ribeirao Preto City), CTC 5 (Sugarcane Technological Center), IEA 6 (Agricultural Economics Institute), IAC 7 (Campinas Agronomic Institute), and others were very helpful. A visit to their sites is also recommended. There are major projects for the strategic area which can ensure the permanence of the current good conditions for the sugar-ethanol-energy sector. Among the projects below, some are exclusive from the private sector, others are public and others are mixed. 4.6 Projects and Decisions Related to Production, Products, Research, Development, and innovations: Programs for vertical growth of sugarcane production (higher yield in the same area) should be encouraged, through increased productivity, especially in genetic modification of sugarcane, among others. R&D (Research and Development) Integrated Activities for the industry: to stimulate the formation of public-private partnerships (PPPs) and technological parks between Embrapa, Agronomic Institutes, Intelligence centers in universities, private companies, technological centers (such as CTC) and associations, with tax incentives and funds for the development of joint research in the sector. One way to this proposal has come with the creation of the Brazilian Bioethanol Science and Technology Laboratory by the Government. Digital Technology platform which shows the current research, where and by which researchers they are being made, promoting integration and avoiding research and project duplication. Encourage the integration and diversification of farming for food production and energy. Upon application of technologies to exploit the synergy between the two types of planting, demystifying the vision of competition among them. The integration of the sugar mill and ethanol distillery with biodiesel plant, livestock, corn and other grains will add other products to the mix of mills. Dedini Co. has developed an integrated ethanol and biodiesel plant as an alternative to this movement

12 Strengthening a genetic bank for sugar cane in order to meet the strong demand for new cane varieties which are resistant to pests and adapted to dry regions. The CTC (Sugarcane Technological Center) has been working in this way, and to continue this growth strategy they are moving to be a public-limited company (plc). International patenting of technology and other aspects related to the Brazilian ethanol production in order to avoid the free importation of technology and to capture value over technology export and thereafter of royalties. Product diversification: innovation so that the structures of production and industrialization may increasingly have a multi-use concept. Nowadays, sugar and ethanol facilities are taking advantage of the economy of scope to add the production of bioplastics and diesel. Permanent project for reduction of production costs in the production chain, aiming to capture greater value through lower costs, improving profitability. Encouraging the expansion of cane activities, mainly in regions where there are degraded or underused pastures. This zoning should also consider that, for the local economy, it is important for other crops to remain, allowing coexistence with sugarcane and economic diversity. In this sense, one must adopt the zoning of the sugarcane production, made by the Ministry of Agriculture (MAPA), defining where it is allowed to plant sugar cane, giving priority to the use of pastures and not impacting the Amazon and the Pantanal Biomes. Considering innovation, in the industry of large and small engine, it is necessary to study innovation through ethanol-powered motorcycles. Despite its low consumption power, they would contribute to improve air quality in major urban centers (a motorcycle pollutes 20% more than a new car). This innovation was presented by Honda Motors in 2009 and represents today more than 10% of motorcycles market share. The adaptation of large diesel engines for ethanol with new technologies, aiming the truck market for sugarcane suppliers and mills (and tractors) and urban buses. If Mills could supply their own fleet of trucks with ethanol generated by themselves, in a privileged tax regime, its cost could be reduced and may be passed on to the final price and this supply chain would be more environmentally friendly once the large volume of diesel consumed in operations is considered on the emission balance, and on the sugar cane sustainability account, in a very negative way. Development of new products from the ethanol and sugar chemistry, besides the others which have been developed, such as biodegradable plastic and diesel from sugarcane and so on. Innovations in production processes aiming the improvement of environmental balance of the activity.

13 Projects for renovation of mills, aiming to have more efficiency, funding for new equipment such as more efficient boilers, among others. Programs to strengthen the base industry. Electric power production should be strengthened, to seize existing potential in the sector, giving priority to this form of renewable energy through financing. Strengthen, in production, the ability to include small producers with sustainable remuneration, and the ability to establish and honor long-term contracts. Innovations for other products which could be processed at the mills, improving their use and enabling them for second and third generation ethanol. Innovations to improve industrial conversion processes, always seeking for new income. 4.7 Projects and Communication Related Decisions In this area, many activities can compose a plan for the sector. The main ones are highlighted below: Disclosure of the world image of Brazil as a global supplier of renewable energy and environmental solutions. Strengthen the work of UNICA (Sugarcane Industry Association) and APEX (Governmental Agency for Brazilian Exports Promotion) with Agora project to promote the image of Brazilian ethanol as "sustainable fuel": reduce countries' dependence on imported and scarce oil; encourages the adoption of clean technologies (flex fuel, gasohol, local production in a sustainable manner, expansion of distribution net); ensures a sustainable production system, with high energy balance (reduce emissions of greenhouse gases), allows the co-generation of clean energy (with the use of sugarcane bagasse), generating carbon credits. In partnership with municipalities and businesses, city buses could be tested on ethanol (UNICA has been doing this with Agora project), in much larger scale. In Sweden there are 600, with only 3% above cost. These buses would be painted and decorated with the production chain, and through them the people would have knowledge, information, either through their walls, or brochures which would be distributed, videos, after all, is a moment where everyone wants to read something. Weekly changing of routes, in 4-5 months they would have "spoken" with the entire user population of that county. Outside the improvement for the polluted air conditions of large cities, it would be a permanent channel of communication with the community sector. It is clear that continuing this growth; it will not take long for something from 70 to 80% of fuel consumption in Brazil to be ethanol. We will have gasoline surplus. Petrobras will be able to export gasoline ready for use, with anhydrous ethanol added in it, to neighboring countries with faster transport. It is a clear possibility for Petrobras to become the first green oil company in the world. It has to work faster. Petrobras has a very important role in the image of ethanol. And ethanol (and biodiesel) has a very important role in Petrobras' image. Petrobras group has created a business unit dedicated to biofuels called Petrobras Biocombustivel in They are investing in greenfields biodiesel plants and in Acucar Guarani, the fifth largest ethanol company

14 in Brazil, in partnership with Tereos International, a French commodities trading company. Creating a list of priority countries for trade agreements (FTAs agreements and tariff reductions) in the case of sugar and ethanol. Strengthen work in these countries. As examples, we have strong markets in Africa and Latin America for sales of sugar and ethanol as well as plants technology (facilities). Work on the development of African countries to jointly build an image of ethanol as a renewable peaceful fuel. The gas station must be immediately used as a communication tool of ethanol; "green" stations, where the supply chain communicates with the final consumer. The sector has lost decades of opportunity to have this "factory store" and use the station as a communication tool. Knowledge portal for sugarcane, which may be the UNICA Web site or otherwise, which show everything that researchers and consumers need to know about sugar cane, with databases of thesis and dissertations, articles, books and videos. One must remember that this is the "new media" generation and therefore the information should be offered to them in this way. It can also be thought about green stations in California that sell E85 with sugarcane ethanol, promoting the environmental balance and communicating even more with the American consumer. UNICA has done a promotion of Brazilian sugarcane ethanol in US gas stations as a way to fight against the import tariff of US$ 0.54 a gallon. 4.8 Projects and Decisions Related to Distribution and Logistics Among the decisions related to distribution and logistics we can highlight: Mechanisms to encourage strategic stocks of ethanol avoiding price fluctuations, which harm the image of this product, face the consumer. Regulator stocks in Brazil and the main consumer markets of Brazilian ethanol can improve the image of the sector in Brazil and around the world and provide security of supply in domestic and international markets. In 2010, the ANP (Brazil s National Petroleum Agency) has authorized the transaction of ethanol between mills, stimulating the formation of stocks and commercialization of bigger volumes during the whole year. The mills, for its focus on industrial activity, are very conservative in having positions in distribution channels. Mills which are in the same region can build joint ventures to enter the ethanol distribution market, with an independent management, purchasing now existing distributors or settling new ones; authorized to operate by the government (ANP). If today there are still arguments against this economic perspective, they tend to become increasingly weak as the volume of ethanol consumed in Brazil grows, and may come to represent 70% of the market in five years. Still in the distribution channels, the mills in associative organizational forms, like franchising or joint-ventures, could have gas stations in cities. These stations would be "concept stations (the name could be green or "verde"), and serve for two basic

15 functions: to establish retail prices of ethanol (hindered the action of urban cartels or the power of oil distributors), and image communication for the final consumer, as stated in the item of communication, because these stations should be green, decorated with the sugar cane and communication materials, in short, an "eco" service station. The stations would sell gasoline and diesel, but ethanol in 80% of the bombs. The concept of "factory store". Improvement of infrastructure for disposal of ethanol production. It is necessary to speed already announced investments on ethanol pipelines, as well as on port facilities for ethanol export at the lowest possible cost. Streamline the public-private partnerships (PPPs) and strengthen a broad privatization program of highways, railways and ports in order to avoid overburdening the ethanol coming from more distant regions and that currently suffer from the problems of transport costs in Brazil. Strengthen alliances and joint ventures of ethanol exporting groups to share investments and reduce risk, besides joint activities in logistics of national and international ports, freight and others. Permanent innovation in harvesting and transportation logistics. General adoption of the standard contract for the ethanol, developed by IETHA (Association for International Trade of Ethanol), an organization with almost 50 members. Before that, technicians from Brazil, EU and U.S. should work to standardize the fuel and to transform it into a commodity. Once Brazil tends to dominate 60% or more of the world sugar market, companies should consider the collective actions that will strengthen the logistics of transportation, port storage and distribution of this product, aiming to have very competitive costs. Easy access for mills to transmission lines (electrical power grids) of the SIN (National Interconnected System), to enable them to strengthen the Energy supply. International logistics of ethanol. 4.9 Projects and Decisions related to Training Several actions are recommended in a plan for the sector in this area of human resources and training. It is noteworthy that with the growth of the sector, there is lack of people in this area. UDOP (Union of Bioenergy Producers) has done an excellent work in this area forming executives and technical professionals to act in the new sugar and ethanol mills. The main suggestions are highlighted below: Mapping of specific needs and effort coordination of the existing organizations in training of technicians and executives for the sugarcane productive chain.

16 Map the essential technical and undergraduate courses for the sugar cane agribusiness and its spatial distribution. Plan, along with many different organizations and the Ministry of Education, the granting of scholarships and incentives for research. Implement training programs for workers (sugarcane cutters) in the sugar cane agribusiness system, organized by trade associations and unions. Training programs for workers who lost their jobs after mechanization of harvest. UNICA has been doing this with Renovacao project. Promote training of public employees related to agribusiness, to improve performance in management of food quality, sustainability, certification, and traceability. Actions of training in environmental sustainability in mills and farms. Digital platform for training, aiming at popularizing the existing knowledge. Create a kind of Sustainable Regional Development program to stimulate sugar and ethanol mills thinking about the inclusion of local communities. Proposition of corporate social responsibility projects to add local companies and/or small producers in the sugar/ethanol mill supply chain. UNICA together with SEBRAE (Brazilian Service of Support for Micro and Small Companies) could coordinate this kind of activity Projects and Decisions Related to Coordination and Adequacy to Institutional Environment Among the main actions in the coordination and institutional environment area we can highlight: First, the main points that Federal and State Governments could attack involving tax and regulation issues. It is a point that ethanol have a reduced VAT rate to 12% in all the states and a slight reduction in other federal taxes. Once that virtually all the states will produce it, this reduction in revenues will be offset in part by production, the investments that have been and are being made, generated wages and collected taxes. Not considering the environmental benefits and internalization development. It can also be studied whether the addition range of anhydrous ethanol to gasoline could be expanded from the current 20-25% to 20-30%. Many people with gasoline cars have already made it on their own. Thus, in cases of large production, the use of 30% could help in consumption without any harm to the vehicle, and vice versa, thus contributing more to the environmental issue. Considering new cars, it is necessary to think of any greater tax benefit for the "flex fuel" vehicles instead of gasoline fueled ones. The Brazilian domestic market is large, and despite the market signal in favor (it is becoming increasingly difficult to sell gasoline used car, in Sao Paulo, and soon in Brazil). It is observed that some car manufacturers such as Korean, German, Japanese, and American still resist, and Brazilian consumers have no access to larger cars with flex fuel engines. It is also estimated that a large number of cheap vehicles will come to Brazil, from China and India, and we cannot risk that they are only as a gasoline option. It has been proved by the American, French and even Japanese manufacturers, that these flex engines are fully

17 feasible in Brazil. They could also, like the French manufacturers, export these cars and engines, spawning this technology and consumption to other markets. Still in the Government agenda, it is necessary to consider changes in the tax incidence on mills and distributors. Spite of all the undeniable efficiency of fuel distributors, and their struggle to fight informal market, a tax isonomy would greatly contribute to a more competitive market. ANP is working hard to increase the market efficiency through new rules and laws. The Government should consider how to reduce labor costs in the industry, so that resources can be used in training programs. Establish a unifying vertical trade association for the sector which could represent all the links of chain. Promote planning, along with the government, through a strong and representative vertical trade association. The vertical association is responsible for implementing marketing programs and promoting sugar and ethanol exports (with presence in major trade fairs and exhibitions abroad, in joint actions with Apex Brazil), with government and private funding. In the Consecana (sugarcane payment formula by sugar content) review, usually every five years, could be given greater importance to sugarcane bagasse (payment per fiber content in the sugarcane) in the equation. In the future, with a more vertical system of production and distribution, Consecana can start from the final sugar prices on domestic and international markets and national average prices of ethanol at the pumps of gas stations. Define the certification process of the Brazilian ethanol from sugar cane, coordinated by UNICA, to fit the industry standards for quality demanded by de developed countries, mainly on the issue of sustainability. UNICA has been doing it taking advantage of different types of social-environmental certifications like BSI (Better Sugarcane Initiative), Roundtable on Sustainable Biofuels, Ethos Institute, GRI (Global Reporting Initiative) and others. Stimulate the dormant capacity that the sector has to provide electricity through clear statutory framework and purchase warrants, and preferential treatment to this type of energy, perhaps the least impact to be expanded. These are only some ideas from the authors' work in more than 10 projects in the sector. They have been released for a long time. Some have already been implemented, either by existing organizations, and here we highlight the role of leadership, modernity and globalization that the management of UNICA has had, or by government and others. Our proposal is that the coordination of this planning effort could be centralized, and that this could be accomplished aiming the sustainability of the sector, in order to make Brazil increasingly competitive and in a comfortable position in energy supply to the world. At a period when the world needs water, food, and energy, the sugarcane, without a doubt, is the mainly Brazilian response to help meet these needs. 5 Conclusions