Brazilian Sugar and Ethanol Industry Moves Toward Economic Concentration and Internationalization

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Researched by Industrial Info Resources (Sugar Land, Texas)--Economic concentration and internationalization are reshaping the Brazilian sugarcane industry, once entirely owned by local residents. An intense process of mergers and acquisitions characterizes the past decade--especially the last two years, when the economic crisis hit the sector harshly.

Sugarcane-based sugar plants historically have been owned by prosperous landowners. During the 1970s, the government's ethanol promotion program, Proalcool, permitted autonomous distilleries, which turned to sugar production in the 1990s. Starting in the late 1990s, several factors combined to lead to an intense process of mergers and acquisitions in the sugarcane-based industry: the accelerated growth of the sector; the variation of prices of sugar and ethanol; and the perspectives of market expansion.

Cosan Limited (NYSE:CZZ) (Sao Paulo, Brazil) is an example of this trend. Founded in 1936, the company acquired the first two plants in 1986, and continued buying and building processing facilities; today, it owns at least 23 sugarcane-crushing plants. The oil company Petrobras Energia (NYSE:PBR) (Rio de Janeiro) also entered the ethanol business through subsidiary Petrobras Biocombustivel (Rio de Janeiro); the company plans to continue participating in ethanol plants.

Another example is Brazilian firm ETH Bioenergia S.A. (Sao Paulo), the biofuels company of constructor Odebrecht S.A. (Salvador, Brazil), which was founded in 2007 and has acquired or built five processing plants since then. For more details, view September 16, 2009, article - ETH Bioenergia SA Inaugurates Ethanol Plant in Brazil; and November 30, 2009, article - Brazilian ETH Bioenergia SA Inaugurates Sugarcane-Processing Plant in Sao Paulo. Furthermore, ETH Bioenergia has signed a memorandum of understanding with Brenco-Companhia Brasileira de Energia Renovavel (Sao Paulo) for a possible merger. Brenco is planning to develop 10 greenfield projects in Brazil. For more details, view September 3, 2008, article - Brenco to Start Producing Fuel Ethanol in Brazil by 2009 at First of 10 Plants.

During the 1990s, the presence of foreign companies increased as well, peaking in 2009, when up to 20% of the sugarcane industry was controlled by giant tradings. Bunge Limited (NYSE:BG) (White Plains, New York) acquired its first sugarcane mill in Brazil in 2007; for more details, view September 21, 2007, article - Latin-American Industrial Briefs. In 2008, the company began developing a greenfield project in the state of Tocantins with Itochu Corporation (OTC:ITOCY) (Minato, Tokyo); for details, view December 25, 2008, article - Bunge and Itochu to Build Sugar Mill and Fuel-Ethanol Plant in Brazil. Finally, during the last few months of 2009, Bunge acquired all of Usina Moema Participacoes S.A. (Orindiuva), a Brazilian company that owned an ethanol plant and had shares in five others, all of which are in the most productive states, Sao Paulo and Minas Gerais.

Another example of the internationalization is the presence of the French group Louis Dreyfus SAS (Paris) in the industry, through subsidiary LDC Bioenergia S.A. (Sao Paulo). Having eight sugarcane processing plants, the company merged with a traditional Brazilian sugar and ethanol producer, Santelisa Vale Bioenergia S.A. (Sertaozinho), creating the second-largest company in the sector, LDC-SEV Bioenergia (Sao Paulo), which owns and operates 13 cane facilities. For more details, view November 3, 2009, article - Merger Leads to Creation of Sugar and Ethanol Giant in Brazil.

The Brazilian sugarcane industry is composed of 437 processing plants that produce fuel ethanol and sugar from sugarcane juice, and electric energy out of bagasse burning. The industry is beginning to recover from the effects of the world crisis, and companies plan to invest millions in grassroot projects, plants and powerhouse expansions. For more details listen to the "Navigating the Currents of Change" webcast from January 20, 2010, and see January 11, 2010, article - Industrial Info's World Expansion Helps Clients Uncover New Business Opportunities.

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