1

BRAZILIAN SUGARCANE INDUSTRY ASSOCIATION

Joel Velasco

Chief Representative – North America www.unica.com.br

2

OUTLINE

•! Brazil’s Sugarcane Industry Today

–! Diversification to weather the global crisis

•! Key Elements of Energy Security

–! Fuel + Infrastructure + Prices = Security

•! Building Biofuels Markets

–! Meeting global demand sustainably

•! A Challenge…

–! Where greater research & analysis is needed

3 3

4

ABOUT UNICA

•! UNICA is the leading sugarcane industry association, representing +100 producers and mills in Brazil

•! Responsible for 60% of all ethanol and sugar production in Brazil

•! Emerging as a leader in the generation of bioelectricity already meeting 3% (and soon 10%) of Brazil’s electricity demand

•! International presence, now in Washington & Brussels, to engage in constructive dialogue

5 Source: Ministry of Mines and Energy BEN (2008).

Other renewables 3.0%

Petroleum 36.7%

Natural Gas 9.6%

Coal 6.0% Uranium

1.6%

Hydroelectricity 14.7%

Other biomass 12.4%

SUGARCANE IS #1 RENEWABLE ENERGY SOURCE

6

CURRENT PRODUCTION

Note: Estimates based on available data projections.

7

SUGARCANE DIVERSIFICATION

Note: Estimates based on available data projections.

8

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Liters per hectare AVERAGE PRODUCTION YIELDS

Source: IEA – International Energy Agency (2005), USDA (2008), MTEC, MAPA, ICONE, UNICA

Sugarcane (Brazil)

Beets (Europe)

Sugarcane (India)

Corn (USA)

Cassava (Thailand)

Wheat (Europe)

9

NET ENERGY BALANCE

0

1

2

3

4

5

6

7

8

9

10

Source: World Watch Institute, compilation of various sources.

Sugarcane (Brazil)

Beets (Europe)

Corn (USA)

Wheat (Europe)

Resulting energy for every unit of fossil fuel input

10

Note: Reductions represent well-to-wheel CO2-equivalent GHG emissions avoided from unit of ethanol compared to gasoline, calculated on a life-cycle basis.

-100%

-80%

-60%

-40%

-20%

0%

Ethanol from Grains (US/EU)

Ethanol from Sugar Beet (EU)

Ethanol from Sugar Cane (Brazil)

AVOIDED GREENHOUSE GAS EMISSIONS

Source: IEA – International Energy Agency (May, 2004), based on a review of recent articles.

Compared with “yesterday’s” gasoline baseline

11 11

12

FUEL: SUGARCANE ETHANOL IN BRAZIL

Sources: NIPE-Unicamp, IBGE and CTC

13 Sources: INPE Canasat

South-Central region

represents 87% of sugarcane harvest

FUEL: SUGARCANE ETHANOL IN BRAZIL

14

INFRASTRUCTURE: FLEX FUEL CARS & DISTRIBUITON

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INFRASTRUCTURE: FLEX FUEL CARS & DISTRIBUITON

-

200

400

600

800

1,000

1,200

0

1

2

3

4

5

6

Mill

ion

s o

f L

ite

rs

Mill

ion

s o

f V

eh

icle

s

Accumulated Sales of Flex-Fuel Vehicles

Source: ANP & ANFAVEA

2008 2003

About 90% of new

cars sold are Flex Fuel Vehicles

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JAN FEB MAR APR MAY JUN JUL AGO SEP OUT NOV DEC

Retail Gasoline (E-25) 2.521 2.509 2.510 2.528 2.533 2.517 2.497 2.486 2.480 2.479 2.488 2.504

Retail Ethanol (E-100) 1.586 1.584 1.581 1.663 1.668 1.513 1.401 1.359 1.339 1.320 1.398 1.489

R$ 0.85

R$ 1.10

R$ 1.35

R$ 1.60

R$ 1.85

R$ 2.10

R$ 2.35

R$ 2.60

R$ 2.85

Gasoline

Ethanol

Sources: 2007 data from ANP, UNICA, Reuters. NOTE: Note: Brazilian Gasoline has 25% ethanol content. There is no "pure" gasoline available in Brazil.

Pri

ce a

t th

e P

um

p (

R$/L

iter)

PRICES: CONSUMERS NEED TO SEE SAVINGS

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0

20

40

60

80

100

120

140

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Oil

prices (

US

$/b

arr

el)

Gasolin

e a

nd e

thanol prices (

R$/L

iter)

Petroleum

Gasoline (E-25)

Ethanol (E-100)

Sources: IMF, IPEA, CEPEA/ESALQ, ANP

2005 2008

PRICES: CONSUMERS NEED TO SEE SAVINGS

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500

700

900

1100

1300

1500

1700

1900

Millio

ns o

f L

iters

Gasoline

RESULT: GASOLINE IS NOW THE ALTERNATIVE FUEL

Ethanol

Source: ANP & UNICA

2000 2008 2003

19

Millions of Hectares (2007) %

total land

%

arable land

BRAZIL 851

TOTAL ARABLE LAND 354.8

1. Total Crop Land 76.7 9.0% 21.6%

Soybean 20.6 2.4% 5.8%

Corn 14.0 1.6% 3.9%

Sugarcane 7.8 0.9% 2.2%

Sugarcane for ethanol 3.4 0.4% 1.0%

Orange 0.9 0.1% 0.3%

2. Pastures 172.3 20% 49%

3. Available area Total arable land – (crop land + pastures)

105.8 12% 30%

RESULT: 1% OF ARABLE LAND DISPLACES 50% GASOLINE

Sources: IBGE, UNICA

20 20

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Petroleum

4,252 MT

(184.9 BGJ)

Ethanol 36 MT

(0.96 BGJ)

Sunflower 31 MT

Biodiesel 3.2 MT

(0.12 BGJ)

Castor Seed 1.4 MT

Soy 214 MT

Notes: Million tons, 2005. Data for palm, gasoline, diesel, LPG and Kerosene is from 2003. BGJ = Billions of Giga Joules Sources: FAO, Oil World, F.O. Licht, LCM, EIA. Elaboration: Icone and UNICA.

Rapeseed 47 MT

Gaso-line

1237 MT (53.8 BGJ)

Diesel 1077 MT (46.1 BGJ)

Total (Energy Equiv.) = 115.7 BGJ 1.1 BGJ

Palm 8 MT

LPG 391 MT

(11.9 BGJ)

Kerosene 92 MT (3.9 BGJ)

Sugar Cane 1,292 MT

Corn 702 MT

Wheat 628 MT

WORLD FUELS PRODUCTION

Renewable energy represent less than 1%

FOSSIL RENEWABLE

SOURCE FUEL FUEL SOURCE

22 Source: FOLicht, Secex, USITC, European Comission, LMC. As prepared by UNICA

ETHANOL TRADE VS. PRODUCTION

Only about 10% of total production

0

10

20

30

40

50

60

70

2000 2001 2002 2003 2004 2005 2006 2007

Billio

ns o

f L

iters

10%

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Biomass-based Diesel 0.50 0.65 0.80 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Non-celulosic Advanced 0.10 0.20 0.30 0.50 0.75 1.00 1.50 2.00 2.50 3.00 3.50 3.50 3.50 4.00

Celulosic Advanced 0.10 0.25 0.50 1.00 1.75 3.00 4.25 5.50 7.00 8.50 10.50 13.50 16.00

Conventional Biofuels 4.00 4.70 9.00 10.50 12.00 12.60 13.20 13.80 14.40 15.00 15.00 15.00 15.00 15.00 15.00 15.00 15.00

0

5

10

15

20

25

30

35

40 B

illi

on

s o

f G

all

on

s

!

!

L

OWER

GH

G

U.S. RENEWABLE FUELS STANDARD (RFS, gallons) Represents about 7% of US gasoline market in 2008

Source: EISA of 2008, Dept of Energy, ITC; E-10 Blend Wall Limit based on EIA’s projections of gasoline consumption and do not include bottleneck and other infrastructure concerns.

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U.S. MARKET FOR ETHANOL BLENDING (E-10)

75 – 100%

50 – 74%

10 – 50%

0 – 10%

2007 2008

Source: Hart Energy

SHARE OF E-10 MARKET

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U.S. MARKET FOR ETHANOL BLENDING (E-10)

75 – 100%

50 – 74%

10 – 50%

0 – 10%

2007 2008

Source: Hart Energy

SHARE OF E-10 MARKET

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JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER

2006 11,781,907 19,511,078 35,844,984 24,348,429 16,584,532 29,619,991 123,698,512 96,976,443 63,914,158 92,664,383 34,809,105 40,281,740

2007 51,864,071 31,018,239 23,948,426 40,199,519 49,094,678 35,929,933 81,845,382 71,883,705 38,371,822 19,767,472 11,127,527 15,137,438

2008 18,743,314 54,057,559 31,289,855 44,744,455 71,679,118 72,262,873 107,003,322 105,842,403 105,499,734 41,374,565

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

Source: (*) Brazil’s Ministry of Trade (SECEX) though the end of September 2008 (includes direct $0.54 tariff and via CBI $0.30 dehydration charge.)

MONTHLY EXPORTS TO NORTH AMERICA

2006 2007 2008

590 MGY 470 MGY 650 MGY*

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$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

2004 2005 2006 2007 2008

Source: U.S. International Trade Commission. Note: 2008 Data through the end of September.

COST OF U.S. IMPORT LEVY

*

YTD

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OUR MESSAGE

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Biomass-based Diesel 0.50 0.65 0.80 1.00 1.00 1.00 1.00

Non-celulosic Advanced 0.10 0.20 0.30 0.50 0.75 1.00 1.50

Celulosic Advanced 0.10 0.25 0.50 1.00 1.75 3.00

Conventional Biofuels 4.00 4.70 9.00 10.50 12.00 12.60 13.20 13.80 14.40 15.00

Status Quo 0.66 0.44 0.75 0.98 1.41 1.45 1.45 1.62 1.78 1.80

Parity 0.80 1.50 2.70 3.26 3.33 3.64 3.95 4.00

No Tariff 0.85 2.10 3.10 4.64 5.00 5.56 6.40 6.50

0

5

10

15

20 B

illi

on

s o

f G

all

on

s

IMPACT ON IMPORTS BASED ON POLICY CHANGES

By 2015, Brazil could exports between 1.5 to 6.5 billion gallons

Source: UNICA, EISA of 2008, Dept of Energy, ITC

30 30

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INDIRECT EFFECTS Emissions that may be

forced by the use of a product via market, policy

mediation, or otherwise

LAND USE CHANGE

DIRECT EFFECTS Emissions directly attributable to

the production of a product

Oil Prices

Foreign Policy Shift Currency

Financial Speculation

U.S. Policy Shift

Emergence of Technology Socio-Political Shifts

Weather

Commodity Supply & Demand

War

Indirect effects as leakages?

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LAND USE CHANGE

Indirect effects as leakages?

A Latte

Wrapper

Water

Coffee

Energy

= 1 liter

Sugar Cup

208 liters per cup

142.8 liters

Milk

Lid

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Soybean

Corn

Sugarcane

Other

Pasture

Available

ARABLE LAND

355 M hectare 42%

USES OF ARABLE LAND

Sources: IBGE 2007 Data, UNICA

LAND USE CHANGE

If the goal is GHG reduction, where’s the target?

34 Sources: IBGE, INPE/DETER, UNICA

LAND USE CHANGE

Deforestation not driven by just agriculture…

30,651

14,309

10,498

8,389

1,857 1,299

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1990-2006 2000-2006

Deforestation

Soybean

Sugarcane

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2 METERS

3 METERS

2 METERS

3 METERS

1 METER

1 METER

4 METERS

22-36

tons C/ha

3-5

tons C/ha

5-7 years

Source: Polo de Biocombustivel (Weber Amaral) from various sources.

ABOVE & BELOW GROUND CARBON UPTAKE

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Annual tons carbon per hectare

3-8 t C/ha 22-36 t C/ha

CANE VS. PASTURES: CARBON UPTAKE

Source: Polo de Biocombustivel (Weber Amaral) from various sources.

37 Source: http://www.wageningenacademic.com/Default.asp?pageid=58&docid=16&artdetail=sugarcane&webgroupfilter=&

FOR FURTHER READING

New book on Sugarcane from Wageningen University

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U.S. ETHANOL SPREADS

Spread with Regular Unleaded Gasoline

Source: EIA, JP Morgan

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U.S. ETHANOL PRODUCTION VS. SPREAD

Will production continue despite negative economics?

Source: EIA, JP Morgan

41

0

50

100

150

200

250

300

350

400

450

500

Soybean

Corn

Sugarcane

Note: 1) 2007 * - estimated data ; 2) Sugarcane include cane destined for ethanol production, sugar production and other uses (animal feed, spirits, etc)

Sources: IBGE, UNICA

1982 2007

PRODUCTIVITY OF TOP THREE CROPS

Yields continue to improve in Brazil

42

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

'00

0 h

a

an

d '0

00

to

n

Food Production

Area

Sources: IBGE, UNICA NOTE: Note: 1) 2008 is estimated data; 2) Grains include rice, corn, wheat, soybeans, etc.

Brazil’s food production volumes

doubled in the last decade mainly in last two decades

1990 2008

FOOD AND LAND DYNAMICS

43

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Are

a (

'000 h

a)

Eth

anol (m

m liters

) S

ugar

('000 t

on

)

Ethanol

Sugar

Area

Sources: IBGE, UNICA

Brazil’s sugarcane ethanol volumes

have increased 130% and sugar more than 350% in two decades

1990 2008 2003

SUGARCANE AND LAND DYNAMICS