Investments: money that brings money Technology development & implementation strategies The example provided by Brazil s sugarcane sector Dr. Plinio M. Nastari DATAGRO GLOBAL FOOD SECURITY CHALLENGES Global Food Security: the Role of Productivity Università degli Studi di Milano - Aula Magna August 7-8, 2015 Milan, Italy Organizors:
Brazil in the world of cane, sugar & ethanol 35.3% of world s sugarcane production (FAO, 2014); 56.5% of cane is converted to ethanol & 43.5% to sugar (Datagro, 2014); Brazil responds to 45.6% of world sugar exports (raw equiv.) and 19% of world ethanol exports, With only 31.4% of cane dedicated to exports (Datagro, 2014), Growth is a result of diversification and increases in productivity since 1975. 3
Million tons of TRS equivalent Production of Total Reducing Sugars (Sugar+Ethanol) in Brazil since 1975. 90.0 75.0 Sugar Anhydrous Hydrous 87.2 Crop 15/16 33.3% 60.0 45.0 30.0 15.0 7.1 - Used by the flex-fleet Used as a blend in gasoline (E27) 25.6% 41.1% Source: DATAGRO. Note: TRS is a common denomination for sugar and ethanol, in sugar equivalent.
Brazil s Domestic Energy Supply (10 6 toe) 2014 35,02 24,73 48,13 120,33 5 Source: Brazil s National Energy Balance, 2015.
Final Consumption by Source (%) 2014 16.1% 44.5% 5.1% 17.2% 10.8% 6.3% 6 Source: Brazil s National Energy Balance, 2015. Bagasse+ethanol=15.9%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* ETHANOL s SHARE IN OTTO CYCLE FUEL DEMAND 50% (in gasoline equivalent) 45% 40% 35% 30% 44,3% 38,9% 41,8% 37,0% 39,2% 38,1% 40,2% 39,7% 37,7% 37,3% 39,4% 41,5% 31,6% 37,2% 45,0% 32,3% 42,0% 30,3% 33,7% 40,2% 36,2% 25% Source: DATAGRO Note: (*) First 5 months (Jan-May). 7
SIZE OF THE DOMESTIC FLEET (OTTO CYCLE) Flex-Fuel Vehicle Fleet Vehicle Fleet by Type of Fuel (2014) 30 Neat Ethanol 2.0% Electric 0.0% 25 23.43 24.09 20.85 Gasohol (E27) 28.4% 20 17.96 15 14.92 12.23 10 5-0.05 0.38 1.19 2.61 4.59 6.88 9.47 Flex Fuel 69.6% Source: DATAGRO Source: DATAGRO Flex cars were responsible in June/15 for 69.6% of total light vehicle fleet. This proportion is rising every year: 2014: 67.02% 2013: 63.12% 2012: 58.02% 2011: 52.07% 8
Ethanol substituted between 1975-2014 2.41 billion barrels of gasoline Proved reserves of oil & condensates (including Pre-Salt) in 2014: 13.13 billion barrels (SEC),or 16.61 billion barrels (SPE/WPC). Between 1975 & 2014, volume de gasoline substituted by ethanol: 2.41 billion barrels At current pace, every year another 127 million barrels are substituted without the need of new investments because it is renewable! Source: DATAGRO
Hard currency savings Between 1975 & 2014, substituted gasoline valued at its world price enabled savings of US$ 185.4 billion, without considering the cost of foregone debt, or US$ 381.3 billion, considering the cost of foregone debt (estimated at Prime Rate + 200 base pts). Source: DATAGRO Brazil s foreign reserves (31 July 2015): US$ 370.8 billion.
Competitiveness of Ethanol vs. Gasoline at pump level Note: Below 70% hydrous ethanol/gasoline price ratio, hydrous ethanol is more advantageous to consumers than gasoline 11
Strategies for R&D Development From Intervention to Deregulation Brazil s sugarcane industry moved from a full-intervention model until 1989, to a deregulation phase that lasted 10 years (1989-1999). Since 1999, the industry is fully deregulated. Until 1989, government established: Production quotas for cane, sugar, ethanol; Commercialization quotas for sugar & ethanol; Authorizations for deliveries out of mill inventories; Prices for cane, sugar & ethanol at producer level; State monopoly on sugar exports; Developed R&D activities for development of new cane varieties (through Planalsucar, part of the IAA Instituto do Açúcar e do Álcool, part of the Ministry of Industry and Commerce). In 1989, IAA was declared extinct, and deregulation phase started. 12
Chronology Strategies for R&D Development Oldest R&D activity in cane in Brazil has been developed by IAC/SP (Instituto Agronomico de Campinas), founded in 1892, initial R&D in cane started in 1950s. IAA/Planalsucar started R&D in cane in mid 1960 s. In 1969, COPERSUCAR created its own R&D Center, denominated CTC-Centro Tecnológico da Copersucar, in Piracicaba, São Paulo, to develop cane varieties and technology only to its affiliated members. Until 1989, R&D for cane in Brazil was developed in parallel by IAC, CTC and Planalsucar/IAA. With the extinction of IAA, personnel and R&D activities of Planalsucar were transferred in 1991 to network of 7 Universities denominated RIDESA Rede Interuniversitária para o Desenvolvimento do Setor Sucroenergético. In 1997, legislation was approved to protect Intelectual Property (IP) on R&D in plant breeding (Lei de Proteção de Cultivares, PL 9456, 25/04/1997). In 2004, CTC opened use of its varieties and other technologies to other members besides Copersucar for payment, and changed name to Centro de Tecnologia Canavieira (CTC). In 2011, CTC became a corporation. Currently, R&D in cane is developed by RIDESA, CTC and IAC. 13
60 50 40 30 20 10 0 Technological development in all aspects of sugar & ethanol production led productivity to more than triple in last 40 years. Sugarcane s productivity increased from 3.2 to 10.9 tons of TRS per hectare. 150.0 120.0 tons cane/ha kg TRS/ton cane 136 In addition, development of new cane varieties enabled expansion towards more than 3 million hectares in new agricultural frontiers. With a total investment of US$ 2.7 billion, value creation is estimated between US$ 400-500 billion over the last 40 years. US$ 400-500 B 90.0 60.0 30.0 0.0 12.0 9.0 85 81 38 1975 2014 tons TRS/ha 10.92 6.0 3.0 3.23 14 Source: CTC US$ 2.7 B Investment Total Value Creation 0.0 Source: Datagro 1975 2014
Technological development has also enabled improvements in Industrial Efficiency (%) 100.0% Average Industrial Efficiency, measured as capacity of recovering sugars contained in sugarcane as end product (sugar or ethanol) has improved from 82.1 to 89.3%. 90.0% 80.0% Indust. Efficiency 82.1% 89.3% There are mills with Ind. Eff. above 93%. 70.0% 60.0% 1975 2014 Source: CTC 15
There is room for substantial improvements in productivity of sugarcane through the next two decades. Ag biotechnology will enable gains through molecular breeding and genetically modified varieties. In sugarcane, commercial cellulosic ethanol production started in 2014. By 2030, one hectare of sugarcane should produce between 30,000 and 35,000 liters of ethanol. In addition, there is room for the use of complementary crops, like corn, which could add another 3,500 to 5,000 liters of ethanol per hectare. 35.000 28.000 21.000 14.000 7.000 0 Liters of ethanol/hectare 2010 2015 2020 2025 2030 Breeding Agronomic Practices Molecular Breeding GM Cane Source: CTC 16
G7 courageously decided to ban fossil fuel use until 2100 June 07-08 2015: G7 Leaders decided to ban the use of petroleum, natural gas and coal by 2100. A courageous decision that will trigger change around the world. Biofuels in Brazil are already saving considerable volumes of CO 2.
Avoided Emissions from Biofuels (used as fuel only) in Brazil - 2014 Source Industry Best Industry Average practices Average Best practices (kg CO2 eq/liter) (2014 total in 000 tons CO2 eq) Anhydrous ethanol 2.564 2.716 28,437.48 30,123.32 Hydrous ethanol 1.722 1.867 22,375.87 24,260.01 Biodiesel (soy) Biofuels total 2.530 8,637.65 59,451.00 Source: DATAGRO. Avoided Emissions 18
Avoided Emissions from Biofuels used as fuel (only) since 1975 Avoided Emissions - Industry Average Source (kg CO2 eq/liter) Since 1975, in 000 tons CO2 eq. Anhydrous ethanol 2.564 428,670.03 Hydrous ethanol 1.722 372,809.56 Biodiesel (soy) Biofuels total 2.530 53,762.50 855,242.09 Source: DATAGRO. 19
Biofuels in Brazil In 2015/16 crop, 91% of all cane crushed in Brazil (97% in Centre-South) is mechanically harvested (with no burning) = potential to incorporate not only bagasse but also cane leaves into economic use/production. Brazil has achieved more than 40% substitution of gasoline already and research indicates that productivity in cane can continue to expand in the future. R&D investments in sugarcane have yielded considerable returns overtime (2.7 vs. 400-500 billion US$). Key elements: resolve to carry R&D effort, and IP protection to enable continued private investment. 20
PLANTING DATA HARVESTING SOLUTIONS EVENTS CALENDAR 10 July 2015 4 th Sugar & Ethanol Summit Brazil Day Organized jointly by DATAGRO & Brazil s Ministry of Foreign Relations IoD Institute of Directors, London www.datagro.com www.datagromarkets.com +55 11 4133 3944 25 August 2015 4 th DATAGRO Ceise Br Fenasucro Conference Sertaozinho, Brazil 21-22 September 2015 (Sao Paulo Sugar Dinner) 15 th DATAGRO International Conference on Sugar & Ethanol Grand Hyatt São Paulo, Brazil 04-05 April 2016 GLOBAL AGRIBUSINESS FORUM 2016 Grand Hyatt São Paulo, Brazil 18 May 2016 (New York Sugar Dinner) X ISO DATAGRO New York Sugar & Ethanol Conference Organized jointly by DATAGRO & the International Sugar Organization (ISO) The Waldorf=Astoria Hotel, New York 21
PLANTING DATA HARVESTING SOLUTIONS