1. Competition for Sugarcane in the State of São Paulo – An Exploratory Analysis Using Maps Walter Belik IE / UNICAMP 17th ICABR Conference Ravello, 2013

2. Expansion of Sugarcane in the state of S. Paulo S. Paulo State is the main producer of sugarcane in Brazil: 56,8% (2012). There are 187 plants (2011/12) (an increase of 36,5% comparing to harvest 1999/2000. Due to the economic crisis the expansion stopped and 15 plants are in insolvency. The area of sugarcane in S. Paulo reached 5.2 million of hectares in 2012.

3. Institutional Environment in the Brazilian Ethanol Industry 1990s – Deregulation and price liberalization; – First Ethanol exports 2000 – 2007 – Rise in the oil prices; – Flex fuel vehicles introduced in Brazil; – Foreign capital entry in sector; – Green Protocol in the state of São Paulo to anticipate the ending of sugarcane burning by 2014 2008 -2012 – International financial crisis – Delay in the US program to replace fossil fuels for bionergy ; – New discoveries of oil in Brazil (Pre-salt layer); – Non tariff barriers to Brazilian ethanol exports; – Loss of competitiveness compared to gasoline in the domestic market – Remarkable sugar prices in the international market

4. Expansion of Sugarcane in the state of S. Paulo Government regions in the state of São Paulo Proportion of area farmed with Sugarcane compared to total agricultural area

5. Sugarcane Expansion Considering the crisis of Orange Production and the transformation in the use of pastures it seems that the expansion of sugarcane is far from reaching its limits in S. Paulo ; New areas farming sugarcane and new huge units have been installed in the West of Brazil. Area ContributionYeld Contribution Brazil65,9834,02 Centro-Oeste 77,3622,64 Mato Grosso do Sul 67,9932,01 Mato Grosso 81,3518,65 Goiás 81,4118,59 Sugarcane growth production: 1990-2009 Area / Yeld Contribution to Growth Source: Correa, 2013

6. Gain of Scale in Plants in the Sugarcane Processing Gains from Specialization Professionalization of the industrial management Reduction of manpower - automation Outsourcing of services To Purchase Supplies and Loans Power of negotiation Access to international market Law of large numbers Negotiation with third party companies Land lease contracts Plant Location Demarcation of territory Barriers to entry

7. Specificities of the Assets Physical and location- based specificities of sugarcane – Transportation costs; – Sucrose inversion. Negative Externalities – Monoculture; – Elimination of independent sugarcane farmer; – Concentration of Political Power. Favourable to concentrationUnfavourable to concentration

8. Growth in the Size of Sugarcane Mills in S. Paulo Milling scale 99/00 units 08/09 units 08/09 (10 6 t/year) 99/00 (10 6 t/year) Growth in plants between 1999/2009 Growth in total milled between 1999 /2009 >5 37 44.719.3 133.3% 131.0% 4 to 5 410 43.617.2 150.0% 153.0% 3 to 4 814 47.227.7 75.0% 70.2% 2 to 3 1342 101.930.2 223.1% 237.1% 1 to 2 5060 88.073.4 20.0% 19.9% Up to 1 m 5936 21.029.2 -38.9% -28.2% Total 137169 346.3197.1 23.4% 75.7 % Source: Castro et al. Considering the plants in operation, there was a remarkable size increase in 10 years Almost 50% of S. Paulo production units have mill capacity over 2 millions tons / harvest comparing to 20% in the 99 /00 harvest

9. Growth in the Size of Sugarcane Mills in S. Paulo 2007-08 Harvest 2008-09 Harvest 2009-10 Harvest Average Nominal Capacity for Milling (ton/day) 10,32210,52711,364 Average Distance to delivery sugarcane (km) 23.8725.125.65 Percentage of sugarcane with average Distance over 40 km 15.2%16.9%18.4% Processing mills need to go further to collect the raw material; Average economic radius to transporting sugarcane to industrial unit is 20 km (average conditions); Loss in quality due to sucrose inversion; Burned sugarcane X Raw sugarcane Source: CONAB

10. The expansion of Large Sugarcane Mills in S. Paulo Location of plants by size in the state of São Paulo 2011 Total unites considered in 2001: 187, less 15 units that were idle due to financial problems Source: authors based in information of MAPA

11. The expansion of Large Sugarcane Mills in S. Paulo Competition for sugarcane in the state of São Paulo 2011 Real areas occupied with sugarcane vs Potential areas that could be occupied Source: authors based in information of MAPA

12. The expansion of Large Sugarcane Mills in S. Paulo Competition for sugarcane in the region of Ribeirão Preto and its neighboring regions 2011 Source: authors based in information of MAPA

13. High Concentration of Units and Scales of Processing Sugarcane crop needed to meet installed milling capacity by Government Region Presidente Prudente has a surplus of sugarcane compared to its processing scale The production need to double in Ribeirão Preto to meet the installed milling capacity; The impact of deficit of raw material could be the idleness of the plants

14. Conclusions Given the physical and locational based specificities of the assets it’s required a proximity between production of raw-material and processing; Due to the growth in the industrial scale the overlapping of production areas and the competition for suppliers is giving inefficiencies to some regions of Brazil; It is necessary to reintroduce some form of government regulation regarding the capacity of plants to be installed and their location.

15. Thank you