Transcript Competition for Sugarcane in the State of São Paulo * An

17th ICABR Conference
Ravello, 2013
Competition for Sugarcane in the State
of São Paulo – An Exploratory Analysis
Using Maps
Walter Belik
IE / UNICAMP
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.
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
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
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.
Sugarcane growth production: 1990-2009
Area / Yeld Contribution to Growth
Area Contribution
Yeld Contribution
Brazil
65,98
34,02
Centro-Oeste
77,36
22,64
Mato Grosso do Sul
67,99
32,01
Mato Grosso
81,35
18,65
Goiás
81,41
18,59
Source: Correa, 2013
Gain of Scale in Plants in the Sugarcane
Processing
Gains from Specialization
•Professionalization of the industrial management
• Reduction of manpower - automation
•Outsourcing of services
Plant Location
To Purchase Supplies and Loans
•Power of negotiation
•Access to international market
Law of large numbers
•Negotiation with third party companies
•Land lease contracts
Demarcation of
territory
Barriers to entry
Specificities of the Assets
Physical and locationbased specificities of
sugarcane
– Transportation
costs;
– Sucrose inversion.
Favourable to concentration
Negative Externalities
– Monoculture;
– Elimination of
independent
sugarcane farmer;
– Concentration of
Political Power.
Unfavourable to concentration
Growth in the Size of Sugarcane Mills in S. Paulo
•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
08/09
units
08/09
99/00
Milling scale
99/00
units
Growth in total milled
(106 t/year)
Growth in plants
between 1999/2009
(106 t/year)
>5
3
7
44.7
19.3
133.3%
131.0%
4 to 5
4
10
43.6
17.2
150.0%
153.0%
3 to 4
8
14
47.2
27.7
75.0%
70.2%
2 to 3
13
42
101.9
30.2
223.1%
237.1%
1 to 2
50
60
88.0
73.4
20.0%
19.9%
Up to 1 m
59
36
21.0
29.2
-38.9%
-28.2%
Total
137
169
346.3
197.1
23.4%
75.7 %
Source: Castro et al.
between 1999 /2009
Growth in the Size of Sugarcane Mills in S.
Paulo
•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
Average Nominal Capacity for Milling
(ton/day)
Average
Distance
to
delivery
sugarcane (km)
Percentage of sugarcane with average
Distance over 40 km
Source: CONAB
2007-08
Harvest
10,322
2008-09
Harvest
10,527
2009-10
Harvest
11,364
23.87
25.1
25.65
15.2%
16.9%
18.4%
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
The expansion of Large Sugarcane Mills in S. Paulo
Real areas occupied with sugarcane vs Potential areas that could be occupied
Competition for sugarcane in the state of São Paulo 2011
Source: authors based in information of MAPA
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
High Concentration of Units and Scales of
Processing
Sugarcane crop needed to meet installed milling capacity by Government Region
P. Prudente
Piracicaba
Ribeirão P.
Araçatuba
6
6
20
13
Total Milling Capacity (t/harvest)
11,758,780
14,805,560
68,651,770
34,988,360
Average milling* (t/harvest)
1,959,797
2,467,593
3,432,589
2,691,412
75
70
85
85
Sugarcane Area Needed (ha)
156,392
222,083
803,226
409,364
Planted area of sugarcane 2010 (ha)
250,973
164,102
470,640
391,189
Area of sugarcane harvested**
210,817
137,846
395,338
328,599
Difference between necessary/planted sugarcane
-54,426
84,238
407,888
80,765
Number of plants operating (2011)
Productivity (ton/ha)
•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
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.
Thank you