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Brazilian American Chamber of Commerce
New York City
May 4th, 2010
Investing in Brazil with a Biofuel Focus
Abundant water
Fertile soils
Mild temperature
Land availability
Natural conditions
Cutting edge Technology
Mechanization
Management skills
Environmental sensitiveness
Human & Technology
Private land
Food surplus
No trade barriers
Corporate farming
Geopolitical
Low production cost
Cheap land
Good infrastructure
Vertical integration
Economical
South America offers the most competitive conditions for food & renewable sustainable productionSouth America offers the most competitive conditions for food & renewable sustainable production
Brazil and Argentina are Top Food & Renewable Exporters
(sugar, ethanol, corn, soybean)
South America Strengths
Source: Atlas of Global development, World Bank, 2008Good quality farmland is globally limited2
3
Biofuel can be globally produced without decreasing land availability for cropsBiofuel can be globally produced without decreasing land availability for crops
The right crop in the right place: changing from grassland into sugarcane
Millions of hectares (2007)
BRAZIL 851.2
TOTAL ARABLE LAND 354.8
1. Total Crop Land 76.7
Soybean 20.6
Corn 14.0
Powercane 7.8
Powercane for ethanol 3.4
Orange 0.9
2. Pastures 172.3
3. Available area 105.8
Source: IBGE. Elaboration: UNICA.
1%
There is room for Cattle to strongly increase its efficiency (operational, crop productivity, feedlots)
4
Renewable energy and food can complementary be produced without affecting food supplyRenewable energy and food can complementary be produced without affecting food supply
Yields (M3/hectare)
0.0 2.0 4.0 6.0 8.0 10.0
Wheat (EU)
Cassava (Thailand)
Corn (USA)
Powercane (India)
Beet (EU)
Powercane (Brazil)
Source: IEA ('05), Unica ('08)
High crop yields means higher biofuel production per unit of
land
Complementary production: ethanol + sugar + bioelectricity
Source: UNICA
The higher crop productivity, the higher biofuel production and
the better use of land
Synergy with hydro production (dry season)
Carbon Credit feasibility
Use of straw could increase its potential
Bioelectricity's Strengths
5
Powercane is the most efficient and clean feedstock for ethanol production Powercane is the most efficient and clean feedstock for ethanol production
Different Feedstocks Comparison
9.30
2.71 0.83
-83%
-30%
Powercane Corn Gasoline
Source: IEA ('04), Unica ('08), Macedo, I ('04)
En
erg
y B
ala
nc
eG
HG
Em
iss
ion
s R
ed
uc
tio
n
CORN POWERCANE
Agricultural operations 1,083 4,012Transportation 2,897 4,107Inputs: fertilizers, consumables, seedlings, equipment 10,849 9,988Total agricultural production 14,829 18,107
Processing Energy - - Inputs: chemicals, lubricants, heat & electric 31,055 1,653Equipment, buildings, facilities 1,976 379Total processing 33,031 2,032
Total energy consumption 47,860 20,139
Ethanol 92,253 165,863Co-products (WDG, Bagasse) 36,803 15,154Bioelectricity - 7,129
Total energy production 129,056 188,146
Energy Balance 81,196 168,007Energy Ratio 2.7 9.3Portable Fuel Ratio 16.4 54.9
Energetic Balance (MJ/ha)
More important than the Energy Balance (heat) is the Portable Fuel Balance!
0
15
30
45
60
Convetional Tillage No Till
Lit
ers
per
hec
tare
Best Practices as No Till should be applied to achieve sustainable biofuel productionBest Practices as No Till should be applied to achieve sustainable biofuel production
No-till increases land productivity and returns over time-
1,0
2,0
3,0
4,0
2003-04 2004-05 2005-06 2006-07 2007-08
Sp
ray
pe
r h
ec
tare
3,0
4,0
5,0
6,0
7,0
8,0
Lit
ers
pe
r h
ec
tare
Spray/hectare
Liters/hectare
Carmen & Abolengo farms (Humid Pampas)
Improves water efficiency
Reduces erosion risk
Increases organic matter
Decreases use of pesticides
Improves soil fertility
Reduces CO2 emissions
Higher and stable yields & lower costs year by year
No-till Benefits
0.0
0.5
1.0
1.5
NO TILL TILL
Wat
er s
tora
ge c
apac
ity (
in/8
in)
.
Decreasing fossil fuel usage
Improving water storage capacity
6
Decreasing pesticides usage
Sugarcane: Production & Area Evolution
-
10.0
20.0
30.0
40.0
50.0
60.0
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
K H
ec
tare
s
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
MM
To
ns
Total area (hectares) Total Production (Tons)
7
The convenient Generation 2.5 of biofuels is already on stage performed by efficient operationsThe convenient Generation 2.5 of biofuels is already on stage performed by efficient operations
1 hectare of Sugarcane (1)
Sugarcane = 75 tons
Ethanol = 4.3 m3
Sugar = 4.1 tons
Power (2) = 4.5 MWh(1) Includes replanting area; average of 7 years cycle; 60% ethanol – 40% sugar(2) Does not consider use of straw
Need to integrate biofuels industry around the world
Infrastructure should be fixed and suited for biofuels
A NEW MODERN MILL PROJECT REQUIRES 8 YEARS TO ACHIEVE FULL CAPACITY (BIOLOGICAL PROCESSES)
Start Milling
Start Planting
US gasoline production cost for refineries can be estimated as oil price x 1,05US gasoline production cost for refineries can be estimated as oil price x 1,05
Distribution & Marketing
Refining costs and profits – 6% of Gasoline price – 9% of oil price (estimation 5% costs & 4% profit)
Taxes: Federal, State, and local government taxes (not including county and local taxes) accounted for about 15% of the national average retail price of regular gasoline in February 2010. Federal excise taxes were 18.4 cents per gallon and State excise taxes averaged 22.01 cents per gallon.
Crude Oil: The cost of crude oil as a share of the retail price varies over time and among regions of the country. In February 2010, refiners paid an average of about $77 per barrel of crude oil, which accounted for about 69% of the national average retail price of a gallon of regular grade gasoline.
1 Barrel = 42 Gallons $77 per barrel = 1,833 per Gallon
Cost 1 gallon of crude oil -1,833 ≈ 1,814 - Cost of crude oil in 1 Gallon of Gasoline
10%
What do US Consumers pay for on a Gallon of Regular Grade Gasoline?
The US national average retail price of a gallon of regular gasoline in February 2010 was $2.64. There are four main components that make up the retail price of a gallon of gasoline:
6%
15%
69%$1,814
Cost of gasoline for refineries
Oil Cost ≈ Oil Price
Refining cost =5 % of Oil Cost+= ≈ Oil Price x 1,05
Source: U.S. Energy Information Administration8
US could increase ethanol % on gasoline without increasing gasoline price...US could increase ethanol % on gasoline without increasing gasoline price...
…nor paying subsidies (if oil price is over USD 85 per barrel). It only has to eliminate Import Taxes on Brazilian Ethanol
Brazilian Anhydrous Ethanol
BRL / ton of cane
BRL / M3 USD / M3USD/
GallonUSD/ Barrel
AssumptionsAverage cost of cane 39,68 469,83 261,02 0,988 41,5 Exchange rate 1,8Production 10,54 124,84 69,36 0,263 11,0 Pol 14,50%G&A 2,69 31,86 17,70 0,067 2,8 Yield of sugarcane 90Energy net Revenue -6,59 -78,01 -43,34 -0,164 -6,9 Industry effi ciency 82%Cash cost ex mill 46,32 548,52 304,73 1,154 48,4 Liters per ton of sugarcane 84,45Freight Brazil 140,00 77,78 0,294 12,4 Freight Santos NY Harbor 39,63 0,150 6,3 Investment (USD / ton of sugarcane) 120Total cash cost 422,14 1,598 67,1 Return (USD / ton of sugarcane) 12Return on investment 10% 142,10 0,538 22,6 Return USD / M3 of ethanol 142,10
Total cost without tax 564,23 2,136 89,7
US Import tax (1) 211,34 0,800 33,6 Total cost without tax 775,57 2,936 123,3
without tax with taxEquivalent refined gasoline (USD / Barrel) 89,706 123,306Refining cost 4,272 5,872Equivalent oil (USD / Barrel) 85,43 117,43
(1) US Import Tax fo r Brazilian Anhydrous Ethanol - US$ 0,54/Gallon + 25% of FOB value
When blending 15-20% of ethanol, distilleries can still produce the other outputs
from petroleum without significant changes
9
E20 and E30 ethanol blends outperformed gasoline in fuel economy tests (*)E20 and E30 ethanol blends outperformed gasoline in fuel economy tests (*)
10
KEY FINDINGS
1. Ethanol’s energy content was not found to be a direct predictor of fuel economy.
2. E20 and E30 ethanol blends outperformed gasoline in fuel economy tests for certain autos.
3. Standard, non-flex-fuel vehicles operated well on ethanol blends beyond 10 percent.
4. Vehicle emissions met EPA requirements and were improved in key areas.
(*) Source: “OPTIMAL ETHANOL BLEND-LEVEL INVESTIGATION”Researchers: The University of North Dakota Energy & Environmental Research Center (EERC) & the Minnesota Center for Automotive Research (MnCAR)Testing Method: The Highway Fuel Economy Test (HWFET), a test developed by the U.S. Environmental Protection Agency to determine fuel economyVehicles Tested: Toyota Camry (2.4 liter engine), Ford Fusion (2.3 liter engine), non-flex-fuel Chevrolet Impala (3.5 liter engine), flex-fuel Chevrolet Impala (3.5 liter engine)Fuels Tested: Various blends of undenatured ethanol & Tier 2 gasoline
La Pampa
Buenos Aires
Coffee
1K HA3.5K TONS
Cotton, Soy & Corn
13K HA50K TONS
Ethanol, Sugar & Power
49K HA259K TONS
Producing each commodity in the right location
Adecoagro is already producing food and renewable energy in BrazilAdecoagro is already producing food and renewable energy in Brazil
12
Location Research Analysis Analysis of different sites in Brazil
Proper environmental conditions: Fertile Soils Climate Topography
Room for growth: Few Neighboring mills Competition with other crops Underutilized pastures Property size: small or large?
Logistics: Rail link to port? Regional terminal? Future link to pipelines?
After careful due diligence of different regions, Mato Grosso do Sul was selected for expansionAfter careful due diligence of different regions, Mato Grosso do Sul was selected for expansion
13
Angelica, our first ethanol Greenfield, was built in 16 months and began milling during August 2008Angelica, our first ethanol Greenfield, was built in 16 months and began milling during August 2008
Juice treatment and Fermentation
Cooling towers and Water treatment plant
Cane reception
Distillery and interconnections
BoilerAngelica Mill
14
Sunshine: 800 Kcal/cm2/day
Rains distribution: 1,800mm and an extremely dry period
Temperature: Annual mean 23ºC
Soils are deep and well drained
Even topography allows mechanization
Skilled workers
Bahia’s Agro Ecological Features
Bahia produces high quality cotton at a very competitive cost
Acquire ginning capacity
Ginning process defines final product quality:
staple length uniformity
cotton purity
Increase crop margins
Vertical Integration Strategy
We have developed a team in Bahia qualified to execute our expansion plan
Bahia offers excellent conditions to grow cotton, soy and corn, with high potential for land transformationBahia offers excellent conditions to grow cotton, soy and corn, with high potential for land transformation
Farms
Industry
Offices
Bahia
Crop Rotation Scheme in Bahia
Corn Cotton CottonSoy
Year 1 Year 2 Year 3 Year 4
Reduce Disease
Planting Flexibility
Risk Management
15
Our irrigated & fully mechanized coffee operation differentiates us from other playersOur irrigated & fully mechanized coffee operation differentiates us from other players
Processing facilities at farms
3rd Party Volume Trading
Exports to Premium Markets
International Certifications
Quality Control
Strong Client Relationship
100% Irrigation
Quality grains
100% Mechanization
Adjusted Technology
No frosts
Stable Quality
High Productivity
Low cost
BAHIA’S OPTIMUM CONDITIONS FOR SPECIALTY COFFEE PRODUCTION
Vertical Integration
Adecoagro’s Coffee Highlights
No correlation with other crops
1.3K hectares in production
63,500 bags estimated harvest
Thank You!