Brazilian Biofuels Programmes from the WEL Nexus Perspective

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Brazil’s biofuel programmes viewed from the WEL-nexus perspectiverepresented 9% of the area. This points to a reduction in the supply of farmland, thusincreasing its scarcity and pushing up its price.In Figure 4.4, a significant rise may be observed from 2006 in the price of arable land: theaverage price of such land was R$2,600 per hectare, but rose to an average of R$7,200 perhectare in 2010.Figure 4.4 Evolution of land prices in preferential areas for soybeans production inthe state of Mato Grosso between 2002 and 2010 (R$/ha)Note: * present value as of 1 August 2011.Source: The authors based on FGV Dados, 2011.Given the concentration of production in leased land, and considering the opportunity cost forland in SP, which is increasing, there was a considerable rise in the average cost of leasingland between 2002 and 2010. Moreover, the appreciation is related to the greaterconcentration of agricultural production, to the rise in international sugar prices, and tocompetition in the use of land for food and biofuel production (Rathmann et al., 2010). Therise in the price of land resources led to a sharp increase in the average total costs of thesugar cane business, at rates above the change in the average total revenue, causing losses inthe business margins (Table 4.1). In fact, the profitability of the activity, which was 14.5% in2002, became negative (-21.7%) in 2010. This also explains the debate currently taking placeregarding rising ethanol prices and the risk of shortage (MME, 2011).Many industries are integrated with the agricultural sector, producing sugar cane on their ownland for conversion into sugar or ethanol. Moreover, they have upstream activities, includingcommercialisation segments of these final products. In this case, the negative margin could beabsorbed by these segments (transformation and industrialisation), and so might not occur tothe extent that land ownership would exceed the cost of leasing. In fact, the negative marginin the segment analysed justifies the increase of the share of processing sugar cane into sugarrather than ethanol in 2010 (UNICA, 2011a). Finally, some analyses showed positive marginsin the sugar cane business in other states, including Goias, Mato Grosso and Mato Grosso doSul (14%, 14%, 10% and 13% respectively) (IEA, 2011b; Marques, 2009), which relate to thelower cost of land in these states and hence to the expansion of sugar cane production. Thismeans that only a national-level analysis of the activity would test the economic sustainabilityof ethanol production.24
Brazil’s biofuel programmes viewed from the WEL-nexus perspectiveTable 4.1 Production cost, leasing value, revenue and margins for the sugar canebusiness in the state of São Paulo, 2002–2010Average leasingvalue (ALV)Average totalcost (ATC)ALV/ATCAverage totalrevenue (ATR) aBusinessmarginYear (R$/ha/year) (R$/ha/year) % (R$/ha/year) %2002 526 1,934 27.2% 2,214 14.5%2003 578 2,309 25.1% 2,490 7.8%2004 604 2,414 25.0% 2,184 -9.5%2005 526 2,998 17.6% 2,465 -17.8%2006 857 3,415 25.1% 3,096 -9.3%2007 683 3,799 18.0% 2,523 -33.6%2008 890 3,662 24.3% 2,136 -41.7%2009 783 3,696 21.2% 2,640 -28.6%2010 843 3,814 22.1% 2,988 -21.7%Change2010/2002+60.2% +97.2% - +35.0% -Note: a obtained by multiplying the average annual productivity (in tons) of the sugar canecrop by the real average price paid to the producer (R$/ton with 145kg of TRS).Source: The authors based on IEA, 2011a, 2011b; Marques, 2009.The increase in the price of cropland was also significant in MT, being reflected in the averageleasing value from 2007. In this case, the greater concentration of soybean production,associated with the concentration of land ownership in the hands of few economic groups,enabled the latter to benefit from a 342% rise in revenue from land in the 2002–2010 period.However, the average total costs of the business rose proportionally less than leasing values(Table 4.2). This was due mainly to the following factors: (a) the exchange-rate appreciationobserved in the period, which led to a drop in the relative costs of fertilisers and agriculturalchemicals used in soy production, and (b) the growing use of direct planting methods inrelation to traditional cultivation. This technique requires less fertiliser and reduces the needfor soil operations, thus leading to savings in the use of machines (CONAB, 2011; IAC, 2005).Table 4.2 Production costs, leasing value, revenue and margins for soybean businessin the state of Mato Grosso, 2002–2010ALV ATC ALV/ ATC ATR a BusinessmarginYear (R$/ha/year) (R$/ha/year) % (R$/ha/year) %2002 102 837 12.2% 1,170 39.8%2003 150 1,143 13.1% 1,734 51.7%2004 175 1,293 13.5% 1,630 26.1%2005 162 1,457 11.1% 1,167 -19.9%2006 138 1,316 10.5% 923 -29.9%2007 259 1,405 18.4% 1,183 -15.8%2008 399 1,885 21.2% 1,826 -3.1%2009 420 1,847 22.8% 2,041 10.5%2010 349 1,611 21.7% 1,992 23.6%Change2010/2002+242.0% +92.4% - +70.2% -Note: a obtained by multiplying the average annual productivity (in tons) of the soy crop bythe real average price paid to the producer (R$/ton).Source: The authors based on FGV Dados, 2011 SEPLAN, 2010.25
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Brazilian Biofuels Programmes from the WEL Nexus Perspective

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