Recent drops in sugar and alcohol prices have led some people to question the wisdom of investing in mills. After all, those who invest want to have a financial return and, preferably, with little risk. However, risk is an inherent characteristic of any activity in a free market economy, especially if it is closely linked to agriculture, as is the case with the production of sugar and ethanol from cane. The risk does exist, because much of the production depends on the climate, which has not proved to be the most reliable in these times of global warming.
In the last ten years, the sugar-alcohol sector has learned self-management, in the face of a deregulation process that taught it to own its own nose, after decades under the wing of the government. This learning, hard at first, made the sector get used to the common fluctuations of agricultural commodities.
The sector also had to deal with a discouraging scenario of scrapping the fleet of cars powered by hydrated alcohol and low prices. In order to survive, the sugar and ethanol industry learned to be efficient and, with efficiency, came competitiveness. The turning point came in the new millennium, with the introduction of flex-fuel vehicles in the automobile market, in 2003. In fact, the collapse of alcohol prices soon after the deregulation of the late 1990s stimulated the practice of -galo” – the mixture of hydrated alcohol with gasoline to lower the cost, regardless of whether the car's engine is prepared for this or not, making it the first version of flex fuel.
At the same time, oil prices, which came from a period of relative stability, began to show significant increases, driven by the growth in demand, especially from part of emerging countries, such as India and China, which exceeded the increase in supply. Oil, whose scarcity period in the 1970s was forgotten by many, has once again become a matter of concern for governments not only because of the issue of energy dependence, since its reserves are in conflict regions, such as the Middle East, but also by the scientific evidence that its burning, as well as that of other fossil fuels, such as natural gas and coal, is the main cause of the greenhouse effect and, consequently, of climate change.
Fuel ethanol, seen until then as a Brazilian peculiarity, began to be seen as a real alternative to the partial replacement of gasoline in many countries. The United States, with problems of groundwater contamination with MTBE – an oxygenating agent derived from petroleum –, had a significant increase in corn alcohol production, with the right to proposals for more resources for cellulose alcohol research and plans to replace 20% of gasoline consumed by ethanol over the next ten years. The European Union has shown itself to be more ambitious in the use of biofuels, especially in the case of biodiesel made from rapeseed, while emerging countries such as India, China, Thailand, among others, are advancing in their programs to blend ethanol into gasoline.
Such visibility came to disturb the representatives of the established order, even with ethanol accounting for not much more than 2% of the world's consumption of liquid fuels (Brazil and the United States, mainly). The oil industry and the governments that benefit from it have taken the theory that agroenergy disputes the area of food production from the bottom of the trunk - which is a big deal, especially in the case of Brazil, with millions and millions of hectares of land to expand your agriculture without having to cut down a single tree.
With ethanol exports representing around 15% of Brazilian production, it is logical that the main focus of business attention is the domestic market. Flex vehicles already account for more than 80% of new cars sold, being powered, preferably, with hydrated alcohol. Forecasts are for investments in the order of US$ 17 billion until the 2012/13 harvest, with a focus on alcohol production.
Replacing part of gasoline with fuel ethanol is a strategic decision – it cannot be postponed for a long time, not least because the possibility of the price of a barrel of oil returning to US$ 20 is very remote, in a world where the discovery of reserves new ones became scarce in the 1990s. To top it off, not even the oil industry itself is willing to invest heavily in refineries, which are unable to meet the growing demand.
In the case of sugarcane ethanol, the investments made in Brazil bring one of the most positive characteristics: sustainability. But do prices fluctuate? They fluctuate – they could even fluctuate less with the more intensive use of market instruments, such as hedging, for example. However, those who invest do not aim for immediate profit, especially because sugarcane is a crop that, after its implementation, has 5 to 7 cuts. Is investing in alcohol a bet on the future? It is clear! And that is why Construtora Norberto Odebrecht bought the Alcídia plant, in Teodoro Sampaio, in a project in which I am a partner. After all, if ethanol is the fuel of the 21st century, why miss the train of history?
Eduardo Pereira de Carvalho was president director of the Sugarcane Industry Association - ÚNICA, he was vice president of CVRD, he was secretary general of the Ministry of Finance, he was president of Banespa and Secretary of Agriculture of the State of São Paulo. He is currently an executive at Odebrecht.