BRAZIL'S RIBEIRAO PRETO: SUGAR AND ETHANOL BRING PROSPERITY

UNCLAS SECTION 01 OF 03 SAO PAULO 000754 SIPDIS SIPDIS STATE FOR WHA/BSC, WHA/EPSC FOR FCORNEILLE STATE ALSO FOR E FOR GMANUEL AND EEB/ESC/IEC FOR BHAENDLER STATE PASS USTR FOR KATE DUCKWORTH STATE PASS FED BOARD OF GOVERNORS FOR ROBITAILLE STATE PASS EXIMBANK STATE PASS OPIC FOR DEMROSE, NRIVERA, CMERVENNE NSC FOR TOMASULO TREASURY FOR JHOEK USDOC FOR 4332/ITA/MAC/WH/OLAC USDOC ALSO FOR 3134/USFCS DOE FOR GWARD AND CGILLESPIE USAID FOR LAC/AA E.O. 12958: N/A TAGS: EAGR ECON PGOV ENRG ELTN BR SUBJECT: BRAZIL'S RIBEIRAO PRETO: SUGAR AND ETHANOL BRING PROSPERITY TO INTERIOR Summary -------------- ¶1. (U) During an official visit to Ribeirao Preto, an agri-business center in northeastern Sao Paulo state, the Consul General visited a sugar mill and met with the Mayor and the President of the City Council. Once part of the state's coffee belt, the Ribeirao Preto area is now best known for its sugar and ethanol production, much of it increasingly mechanized. The Mayor boasted of Ribeirao Preto's export industries and said the city is actively seeking more foreign investors for its agro-industrial plant. End Summary. Copersucar: Principal Sugar Cane Producer -------------- ¶2. (U) On August 29-30, the Consul General (CG),accompanied by USDA Agricultural Trade Director, Poloff, and Econoff, visited Ribeirao Preto, a city of about half a million people approximately 300 km north of Sao Paulo. The municipality of Ribeirao Preto is the acknowledged center for ethanol production, accounting for more than 10 percent of Brazil's annual sugar crop and boasting at least 21 ethanol plants. The CG visited the Pedra Agroindustria sugar mill and ethanol processing plant. ¶3. (U) The Pedra plant director, Luiz Roberto Kaysel Cruz, explained the company's operations and led a tour of the facilities. Pedra is one of five mills in the region belonging to the private Copersucar cooperative formed in 1959, which today has 85 member companies and 31 active sugar and ethanol production facilities. Copersucar produces about 15 percent of total cane production in Brazil's south-central region, which encompasses Sao Paulo, Parana, Goias, Mato Grosso, Mato Grosso do Sul, and Minas Gerais states. In all, Copersucar was responsible for 7 percent of world sugar exports last year. Unlike Copersucar's other mills, Pedra exports most of its sugar because Pedra has a dedicated railway to transport sugar to Santos, Brazil's largest port on the coast of Sao Paulo state, where the cooperative has exclusive port facilities for its sugar exports. ¶4. (U) Pedra's producers harvest 85 percent of their sugar cane mechanically, and hope to have the entire harvest mechanized within 3 years. Mechanically harvested cane is much less labor-intensive (6-7 workers can replace about 100) and less destructive to the soil than hand-cut cane. Mechanization, however, requires much closer attention to logistics, as mechanically harvested cane must be milled within 24 hours, while manually harvested cane has a shelf life twice that long. This just in time mechanization process has resulted in Pedra developing an intensive training program. Employees spend three hours a day learning to read and write and three hours a day training alongside more experienced colleagues. When asked about the social impacts of needing fewer laborers for the mechanized operation, Cruz commented that the sugar/ethanol sector actually needs workers, but many do not want to accept formal employment because the income would render them ineligible to receive Bolsa Familia (BF) payments. Ethanol Production Expanding -------------- ¶5. (U) Pedra almost evenly splits its cane production between sugar and ethanol production. Coperasucar supplied about 3 billion of the 16 billion liters of ethanol produced last harvest in Brazil's south-central region, and exported about 20 percent if its ethanol production. Most of Copersucar's ethanol exports go first to the SAO PAULO 00000754 002 OF 003 Caribbean for further processing. This allows for duty-free access to the U.S. market under the Caribbean Basin Initiative. Unlike sugar, ethanol currently has no specific Brazilian export terminal, and the cooperative exports via a variety of smaller locations in Santos. Pedra has discussed the possibility of building a terminal as the ethanol export market expands. At the moment, however, its principal concern is keeping Petrobras, Brazil's parastatal oil and gas company, from controlling ethanol exports. Petrobras currently dominates Sao Sebastiao, the primary port where Brazil's oil and gas trading occurs, and Cruz told the CG's delegation that Pedra fears it could do the same for ethanol exports if the proposed ethanol pipeline also uses Sao Sebastiao. Making Environmentally Friendly Plastics From Sugar -------------- -------------- ¶6. (U) Cruz also introduced the CG to PHB Industrial, S.A., the newest arm of Pedra, still in the testing phase of developing a biodegradable plastic polymer, Biocycle, made from sugar cane. According to two PHB managers, Eduardo Brondi and Sylvio Filho, the sugar-based product is a white powder which can be used to manufacture a variety of environmentally friendly plastic products that biodegrade within 120 days. In the production phase, Biocycle actually reduces carbon emissions both as a derivative of sugar cane byproducts and by virtue of its biodegradability. In addition, it has the potential of reducing plastic buildup in landfills. Filho explained that the goal is to diversify the company's production mix to include this value-added niche product to minimize its exposure to commodity price fluctuations. Three kilograms of sugar cane produces one kilogram of the biopolymer powder. PHB outlined potential markets for Biocycle including Europe, which prizes products derived from clean energy, and Japan, given that country's limited space for waste disposal. PHB produces Biocycle more cheaply from Brazilian sugar cane than similar corn-based products developed in the U.S., but, as is usually the case with Brazilian products, higher transportation costs reduce the advantage. Mayor Wants More Investment -------------- ¶7. (U) Following the sugar mill tour, CG's delegation and Pedra management lunched with Welson Gasparini, Mayor of Ribeirao Preto; Jorge de Oliveira, his Chief of Staff; and Wandeir Silva, President of the City Council. Mayor Gasparini, a lawyer and educator who began his political career in 1959 when he was elected to the Ribeirao Preto City Council at the age of 23 and is now in his fourth term as Mayor - he was elected in 1963, 1972, 1988, and 2004 - said the city's economy is strong, the workforce well educated, and the poverty rate relatively low. He said the city is always looking for more investment for its export industries and asked the CG to encourage potential U.S. investors to visit. (Note: In November, Florida Governor Crist is leading a large private-sector group on a visit to Sao Paulo, Sao Jose dos Campos, Ribeirao Preto, and Rio de Janeiro. End Note.) He also noted that AMCHAM Brasil has a chapter in the city. ¶8. (U) The Mayor outlined Ribeirao Preto's importance as a regional hub; some of the principal cities and economic centers of the interior of Sao Paulo and Minas Gerais states are located within a 200-km radius of Ribeirco Preto, including Araraquara, Campinas, Franca, Limeira, Sao Carlos, Sco Jos do Rio Preto, Uberaba (MG), and Uberlandia (MG). This is due to the city's accessibility, which is facilitated by its high quality rail system; unusual in Brazil. Overall, the Mayor pointed out that Ribeirco Preto's convenient SAO PAULO 00000754 003 OF 003 location, positive social indicators, rich agricultural land, and well-developed infrastructure have made it a magnet for commercial investment in Brazil. In addition to sugar cane, the region produces soy beans, citrus products (especially oranges),peanuts, and other fruits and vegetables. Agriculture makes up about 19 percent of the municipaity's GDP, with 26 percent devoted to commerce ad the rest to other services. The sugar and ethanl boom has generated complementary industries, sch as agricultural machinery and factory equipmet. Not Immune from Poverty -------------- ¶9. (U) Though Ribeirao Preto has less povety and more equal income distribution than many arts of Brazil, Gasparini acknowledged that the ity does have some urban slums ("favelas"),mostlypopulated by migrants from the northeast - princially Maranhao state - who came to work in the agricultural sector (mostly in sugar cane) and then don't leave. The city also has a number of participants in the federal government's "Bolsa Familia" (BF) cash-transfer program, though the Mayor wasn't sure how many. Gasparini said administering the program represents a significant burden for the municipal government and is probably even more challenging for smaller, less prosperous towns with fewer government resources. In addition to registering applicants, municipalities are responsible for reporting on beneficiaries' compliance with BF's conditions, such as children's school attendance and vaccinations. Beneficiaries also rarely remove themselves from the program due to gainful employment, he said. Gasparini added that it is very difficult and time-consuming for the government to remove a recipient from the rolls due to excess income or non-compliance with the conditions. Comment -------------- ¶10. (U) The Pedra ethanol operation is impressive, both in size and efficiency. The plant is clean and working conditions appear to be good. The city and surrounding region also appear to foster a generally high quality of life, which it should be able to sustain as long as demand for sugar and ethanol continues to grow. End Comment. WHITE