Brazilian Agribusiness and Ethanol Update

Commodities / Brazil Oct 15, 2007 - 08:55 AM GMT

Agribusiness is the main driver of the Brazilian economy accounting for 33% of GDP, 42% of exports, and 37% of all employment.

Agribusiness export revenues for the month of August reached $5.8 billion, representing 13% YoY growth. Sugar sales fell 17.9% in value YoY. Exports dropped 13.6% in value but rose 23.3% in volume.

In the southeastern state of Sao Paulo , which accounts for 31% of Brazil 's GDP, the trade surplus was $6.92 billion for the first eight months of the year. Business in Sao Paulo is different from the rest of the country. 85% of the products undergo some sort of industrialization and/or processing, whereas for Brazilian exports as a whole the number is 56%. A much higher percentage of products created in Sao Paulo are modified to some extent and Brazilian agriculture is exported to the world through a variety of means, be it through sugar based products or the bagged salads you find in your local grocery store.

The Netherlands recently released a study looking at the sustainability of Brazilian ethanol as a prelude to importing ethanol in order to meet future energy demands. The study found that there were no issues which would preclude San Paulo ethanol from not being able to meet Dutch sustainability standards for 2007.

National Food Supply Company president, Wagner Rossi announced that the March 2008 sugar cane harvest is expected to yield 547 million tons, a 15.2% increase over the previous crop. 473 million tons, or 86.47%, is expected to be used for sugar and alcohol production. Plant technicians aim to maintain similar sugar levels as last year due to the low market price while alcohol production is expected to increase by 21.9% from last year. We can expect the amount of available ethanol to remain flat in the coming year as well.

Farmland used for the growing of sugar cane grew by 12.3% to 6.9 million hectares, up from 6.2 million a year ago.

Environmentalists are concerned over the damage to the rainforest in Brazil as it helps maintain the world's ecosystem. In a landmark decision, Brazilian Indians are celebrating a court decision declaring that 18,070 hectares of land in Espirito Santo belong to the Tupinikim and Guarani people rather than multinational Aracruz Celulose. This decision may pave the way for a slowdown in the destruction of the rainforest and capping the amount of available farmland, a bullish sign for sugar and agricultural prices.

Last week, the United Nations Conference on Trade and Development disclosed that Brazil is the fifth most attractive country to invest. Already, FDI through August of 2007 has surpassed the total FDI for all of 2006.

Brazil and Saudi Arabia have been working towards a trade agreement with Mercosur and the GCC which would promote investment between the two countries. Last year, Saudi Arabia opened itself up to Brazilian mining companies. Saudi Arabia is promoting Brazil as a place to invest and Arab banks have been listing on the Brazilian exchanges.

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By David Vaughn
Gold Letter, Inc.
David4054@charter.net

“The Worldwatch Institute, an organization that focuses on environmental, social and economic trends, says the current rate of global demand for resources is unsustainable.”

The publisher and its affiliates, officers, directors and owner may actively trade in investments discussed in this newsletter. They may have positions in the securities recommended and may increase or decrease such positions without notice. The publisher is not a registered investment advisor. Subscribers should not view this publication as offering personalized legal, tax, accounting or investment-related advice. The news and editorial viewpoints, and other information on the investments discussed herein are obtained from sources deemed reliable, but their accuracy is not guaranteed. © Copyright 2007, Gold Letter Inc.

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Comments

Luiz Fernando Brandão
18 Oct 07, 13:09

Comments about Aracruz Celulose

As Manager of Corporate Communications at Aracruz Celulose, I would like to make the following comments about the financial analysis above.

First, readers of this article might conclude - wrongly - that Aracruz Celulose grows sugar cane in order to produce ethanol. This is not the case. In fact Aracruz is the world's leading producer of eucalyptus pulp which is used to manufacture printing and writing paper, tissue, and high value-added specialty papers.

It is also implied that Aracruz is a company involved in the destruction of the rainforest in Brazil. This is not true. In fact it is quite the reverse.

Aracruz established its first eucalyptus plantations during the 1960s in areas that were largely deforested. Thanks to the forestry practices that were adopted, the native forests were conserved and enriched. In Aracruz’s pioneer plantation region (in the State of Espírito Santo), native reserves today total 55,000 hectares, or 35% of the company’s total area, which is much higher than the ratio found in adjacent areas.

With regard to the recent court decision concerning the demarcation of Aracruz's lands to the Tupinikim and Guarani people, please note that, after many months of consultation and deliberation, Brazil's Minister for Justice decided in August of this year that 11,000 hectares of Aracruz's land (not 18,070 hectares) should be demarcated to the Tupinikim and Guarani people. At the time that he made the ruling, he made it clear that Aracruz had not expelled any indigenous communities from the areas.

Further details of these issues and our environmental track record can be found on our website at www.aracruz.com.br.

Luiz Fernando Brandão

Manager of Corporate Communications

Aracruz Celulose, Brasil

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