SUMMARY

1. BRAZIL OVERVIEW

2. AGRICULTURE IN BRAZIL

3. BIODIESEL IN BRAZIL

1. ETHANOL IN BRAZIL

2

BRAZIL OVERVIEW

Brazil has been experiencing a major social and economic transformation:

� An increase of 27.7% in GDP per capita ⇒ US$ 12.7 thousand (2003 to 2011 –Ipea data).

� A reduction in income inequality: richest increased by 16.6% ⇒ the poorest roseby 91.2% (2003 to 2011 – Ipea data).

� More than 30 million people have risen from the poverty level to the middle class

Social Indicators

� More than 30 million people have risen from the poverty level to the middle classbracket (““““New Middle Class””””).

� An increase of 30% in the number of new homes over the past ten years (IBGE).

� A reduction in illiteracy: from 11.4% in 2004 to 8.6% in 2011 (IBGE).

HIGHER DEMAND FOR BASIC SERVICES PRESSURE FOR EXPANSION OF ENERGY PRODUCTION

Source: Institute of Applied Economic Research (Ipea) / Brazilian Institute of Geography and Statistics (IBGE) 4

BRAZIL OVERVIEW

� Brazilian’s GDP: US$ 2.4 trillion (the world's sixth largest economy).

� GDP’s Growth: 2.7% (in 2011); 1.54% (in 2012); and 4% (in 2013 - BCB).

� Inflation Target: 4.5% per year (2012, 2013 and 2014) – with a 2% “margin”.

� Inflation Forecast for 2012: 5.44% (BCB – 01/11/2012).

� Average Unemployment rate: 5.3 % (August/2012) (IBGE).

Economic Indicators

� Average Unemployment rate: 5.3 % (August/2012) (IBGE).

� Foreign Reserves: US$ 377 billion (August/2012) (BCB).

� (FDI) Direct Foreign Investments in 2012: US$ 60 billion (BCB).

� Exports: US$ 264 billion/year (Forecast for 2012 of the MDIC).

SUSTAINABLE GROWTH IS ONLY POSSIBLE WITH THEEXPANSION OF ENERGY PRODUCTION

Source: Brazilian Central Bank (BCB) / Brazilian Institute of Geography and Statistics (IBGE) / Ministry for Development, Industry and Commerce (MDIC) 5

AGRICULTURE IN BRAZIL

� The average share of the Agricultural GDP in Brazilian GDP was 24%.

� Brazilian’s agribusiness exports were record in 2011, with sales of US$ 94.6 billion,

24% higher than in 2010.

� Valuable supply chains in Brazil developed from basic agricultural business: soybeans,

sugarcane, corn, coffee, cassava etc.

� These chains have been strengthened as the country gained competitiveness in

agricultural production.

0

500.000

1.000.000

1.500.000

2.000.000

2.500.000

3.000.000

3.500.000

4.000.000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

PIBAgrícola PIBBrasil

Agricultural Sector’s Share in Brazilian GDP (R$ million 2010)

7Source: Brazilian Central Bank (BCB)

Agriculture

GDP

Brazilian

GDP

BIODIESEL IN BRAZIL

� The National Program of Biodiesel Use and Production (PNPB) was created in 2004.

� Objectives of the Program are the development of an alternative energy source and the establishment of a production chain, creating jobs and improving income.

2,672,760

1,500,000

2,000,000

2,500,000

3,000,000

(m³)

Biodiesel Production in Brazil

Rate of Growth: 84% per year

� Since the beginning, the Brazilian’s biodiesel production is growing fast (Ex. rate of growth between 2006 and 2011: 84% per year.

� In 2008, Brazil has introduced the mandatory mixture of biodiesel to petroleum d iesel - 2% (B2).

� 2010: such proportion increased to 5%.

69,0020

500,000

1,000,000

1,500,000

2006 2007 2008 2009 2010 2011

(m³)

9Source: National Petroleum Agency (ANP)

ADVANTAGES OF USING BIODIESEL

Renewable energy source

Renewable energy source

High potential of creating jobs

and improving income

High potential of creating jobs

and improving income

Low explosion risks

Low explosion risks

Less polluting than petroleum

diesel

Less polluting than petroleum

diesel

Enables the use of carbon

credits

Enables the use of carbon

credits

Great lubrificant for

engines

Great lubrificant for

engines

10

BIODIESEL

� Soybean oil is the main source for biodiesel production in Brazil, around 80% of vegetal oil usedin the Brazilian biodiesel production comes from soybean.

� This number is expected to change given the incentives concerning the production of otheroleaginous.

� Such incentive was created after the introduction of the Social Fuel Seal as an stimulus to the

Diversification

� Such incentive was created after the introduction of the Social Fuel Seal as an stimulus to thediversification of the biodiesel supply chain.

Other oleaginous crops with the great potential:

Peanut

Canola

Sunflower

Castor Beans

Cottonseed

� As a result, It is estimated a gradual increase in the insertion of other oleaginous in the biodieselcomposition, at a rate of 1% per year, in order to reach 70% by 2020.

11

SOYBEANS (crop 2011/2012)

� Midwest (MT and GO) and South (PR and RS) regions concentrate 81% of production.

RO

AC

RR

AP

PAMA

PI

CERN

PB

PE

SE

ALTO

AM

Source: National Supply Company (CONAB)

RS

SC

PR

SP

MG

MT

MS

GO

DF

RO SE

BA

MT32.9%

PR16.5%

GO12.4%

RS32.9%

12

� Biodiesel family producers are receiving incentives from the Federal

Government as . technical assistance to farmers (increase productivity) and the

guarantee of the the productions purchase.

� This initiative has helped to modernize the agricultural activities and generate

income, for every direct job in the countryside, 12 jobs are generated in the

FAMILY FARMING ANDEMPLOYMENT

income, for every direct job in the countryside, 12 jobs are generated in the

agro-industrial segment.

� In such context, we can estimate that 1.3 million jobs are generated in the

biodiesel production chain.

13

� In 2006, around US$ 35 million were spent on raw material acquisition from

family farming.

� In 2010, such number reached more than U$$ 0,5 billion.

FAMILY FARMING ANDEMPLOYMENT

� in 2011, the number of farmer families in the Brazilian National Account

(PNPB), 70% higher than in 2009, i.e., over 103 thousand families increasedtheir incomes.

� We can say that The Seal Program has improved the well-fare of over 270thousand families.

14

BIODIESEL: SOCIOECONOMIC BENEFITS

� As a result of biodiesel program, Brazil has stopped spending US$ 3.4 billion in dieselimports.

� We can already find around 69 biodiesel industries in Brazil.

� The Brazilian production capacity is cerca 6 billion m³ per year.

� The next step is the possibility to meet the demand for the B10 mix (10% of biodieseladded to petroleum diesel).

� 2010: Brazil produces fossil biodiesel and imports around 9 billion liters of diesel. With theB10, US$ 6.8 billion could have been saved.

15

ETHANOL IN BRAZIL

� In 1975, the “Pró-Álcool” programwas created, in order to decreasethe country’s dependence on oilimports.

� In 2003, Brazil has reinforced theethanol program.

� Brazilian ethanol production rate of

28,806

22,000

24,000

26,000

28,000

30,000

(mill

ion

s o

f lit

ers)

Ethanol Production in Brazil

� Brazilian ethanol production rate ofgrowth between 2003 and 2011:10% per year.

� Ethanol demand is a result of theexpansion of the fleet of flex fuelcars.

� Nowadays, Brazil is the biggestethanol producer in the world andsecond largest world ethanolexporter.

17

12,140

10,000

12,000

14,000

16,000

18,000

20,000

2003 2004 2005 2006 2007 2008 2009 2010 2011(m

illio

ns

of

liter

s)

Rate of Growth: 10% per year

BRAZILIAN ETHANOL INDUSTRY FACTS

401 sugarcane

mills in Brazil.

95 of them are

exclusively ethanol

producers.

8.8 billion liters will be exported.

Brazilian ethanol

industry facts

292 produce both sugar

and ethanol.

2011: Brazil produced

28.8 billion liters of ethanol.

By 2019, Brazil will

produce 58.8 billion liters.

Source: Ministério da Agricultura 18

ETHANOL AND SUGARCANE

� Brazilian ethanol comes essentially from sugarcane.

� 2011: the sugarcane industry was responsible for the employment of 750 thousand people in differentsegments of its production chain.

� Sugarcane cultivation: 498 thousand workers. Sugar fabrication: 105 thousand workers.

Processing IndustryRural Production

Sugar Market

Electricity MarketInputs Industry

Sugarcane Production Chain

� In average, 15% of the Brazilian fertilizer sales are directed to the sugarcane industry.

� Ethanol and sugarcane production have significant impact over other productive segments.

� Exogenous shocks in demand in the biofuels industry cause impacts on the sector itself, on thechemical sector, pharmaceutical, cosmetic, food and refined oil.

Source: PNAD - Brazilian Institute of Geography and Statistics (IBGE) / Union of the Sugarcane Industry (UNICA) / Study from ESALQ – USP: “Social Externalities of Different Fuels in Brazil”. Guilhoto et al., 2008.

Processing IndustryRural Production Electricity MarketInputs Industry

Ethanol Market

19

SUGARCANE (crop 2012/2013)

� 80% of the Brazilian sugarcane production is concentrated in the Center-South Region

(GO, MG and SP).

RO

AC

RR

AP

PAMA

PI

CERN

PB

PE

SE

ALTO

AM PE2.9%

Source: National Supply Company (CONAB)

RS

SC

PR

SP

MG

MT

MS

GO

DF

RO SE

BA

GO8.8%

SP54.2%

AL4.5%

MG9.0%

20

ETHANOL AND EMPLOYMENT

� Between 2002 and 2011 ocoured an increase of 120% in the number of formal

workers in the ethanol production segment.

� In average, such workers have in average 8.3 years of education, superior to the

workers of sugarcane plantations, with an average of 4.9 years of education.

� Workers in the ethanol industry earn 58% more than those from sugarcane plantations.

65,772

144,861

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

2002 2003 2004 2005 2006 2007 2008 2009 2011

Number of Workers in the Ethanol Production Segment

21Source: PNAD - Brazilian Institute of Geography and Statistics (IBGE) / Study from ESALQ – USP: “Social Externalities of Different Fuels in Brazil”. Guilhoto et al., 2008.

ETHANOL: SOCIOECONOMIC BENEFITS

Increase in the Consumptionof Hydrous Ethanol

Number of JobsGenerated per Year

Increase in Salaries(R$ million per year)

5% 39 thousand 79

10% 78 thousand 157

15% 117 thousand 236

� An increase of 5% in ethanol consumption: 39 thousand new jobs.

� An increase of 5% in ethanol consumption: Increase salaries in R$ 35 millions.

Source: Study from ESALQ – USP: “Social Externalities of Different Fuels in Brazil”. Guilhoto et al., 2008. 22

Thank you

www.fgv.br/fgvprojetos

+55 21 3799 6051

Cesar Cunha Camposcesar.cunha.campos@fgv.br

Giuliano Marchini Senatoregiuliano.senatore@fgv.br