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Brazilian bio-industry should impress American investors

I just returned yesterday from a week's trip to Sao Paulo, Brazil, where I took, as their professor in an International Management-Latin America course, a group of executive MBA students (from Midwest companies like Baxter, Abbott, Hospira, Grainger, Motorola, AT&T) to the Sao Paulo Business School.

Sao Paul is one huge megapolis! Having recently returned from what I thought were two of the largest cities of the world, Delhi (15.0 million people) and Mumbai (18.2 million people), ranked 8th and 6th respectively (www.wikipedia.com), I thought I had had my fill of large cities, but Sao Paulo, with 18.3 million (ranked 5th in largest metropolitan cities of the world), beats even these cities. Number 4 on the list is New York City (my home town) with 18.8 million people, which I have also visited this year, and number one is Tokyo with 31.7 million people, a city I am planning to visit later this year. So perhaps this is the year of visiting the major megapolis of the world!

Sao Paolo, the business hub not only of Brazil, but of Latin America, in spite of the huge amount of people and sheer size of the city, doesn't feel as people dense, and in fact is only about half the concentration of Mumbai and only one-fifth the concentration of Delhi. Like Mumbai and much of the western coast of India, Portuguese adventurers heavily influenced both Brazil and this part of India during the 15th and 16th centuries.

Ethnic mix

Sao Paulo, interestingly, is a unique mix of immigrants, much like Chicago and New York. But it also has the urban sprawl of Los Angeles. Although the predominant influence historically is Portugal (which is different from the rest of Latin America where the cultural influence is Spain), other ethnic groups have shaped the Paulista (citizens of Sao Paulo) and made them very different from the Carioca (citizens of Rio de Janeiro).
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Although the city was founded by the Jesuit missionaries Jose de Anchieta and Manuel da Nobrega in 1554, it only began to flourish as a city in the 19th century when it played a key role in the first major exports of coffee. Coffee helped bring an important wave of Italian immigrants to the country in the late 1800s to work the large coffee plantations. It is estimated that some 750,000 or more Italians came to Sao Paul during this period, and today the Paulista is in many ways more Italian than Portuguese.

The Italian immigration wave was followed by a large wave from Japan that was even larger and played an important role in the development of agriculture in the state of Sao Paulo.

It is estimated that at least five million Paulistas are directly or indirectly descended from this Italian wave, with more than one million descended from the Japanese wave. Other ethnic groups include: one million German descendents, 850,000 Lebanese descendents, three million Portuguese descendents, two million Spanish descendents, 1.5 million African descendents, and one of the largest Jewish populations in Latin America (about 130,000 people). Other ethnic groups include: Chinese, Lithuanians, Greeks, Syrians, Koreans, Polish, Hungarians, and even Jamaicans.

Brazilian biotechnology: Biofuels

I could wax on even further about this trip, but interestingly during the trip Pope Benedict had just come to Brazil, as had Al Gore. President Bush had been there only a month or earlier, and struck an important U.S.-Brazil agreement on bio-fuels (bio-ethanol), an area where Brazil is a world leader.

Brazilian biofuels, as I wrote about last year, is derived principally from sugarcane, and Brazil is a world leader in this technology. About five million cars in Brazil run daily ONLY on this fuel and another nine million cars run on a gasoline/alcohol (derived from ethanol) mixture (gas only car production was stopped in 1979) (www.energysavingnow.com). It is estimated that about 70 percent of Brazilian cars and trucks are flex-fuel, and that 40 percent of Brazil's non-diesel fuel has been replaced by ethanol, according to a recent article in the Washington Post following Bush's visit.

The bioethanol industry has now created about 700,000 direct jobs in Brazil with another three to four indirect jobs created by each direct job, so there is a large social impact of this industry.

The U.S. Brazil bioethanol agreement that Presidents Bush and Lula struck is in line with the Bush government's plan to reduce current traditional U.S. gasoline usage by 20 percent over the next 10 years. It has been projected that this will require about 35 billion gallons per year by 2017, versus the current level of five billion gallons per year now in the U.S.

Brazil's current production level is also about five billion gallons per year, mostly for local consumption.

So even with bringing on board additional Brazilian capacity, we are a far distance from meeting the U.S. goal. In addition to the U.S., Japan is also very interested in Brazilian biofuels. Brazil and the U.S. together represent about 70 percent of world bio-ethanol production.

While this will potentially have a significant positive impact on Brazilian exports and U.S.-Brazil relationships (Brazil by the way is self-sufficient in energy and doesn't import fuels), it was not clear if the purpose was to really to gain access to a new source of fuel for the U.S. or to counteract the Latin American overtures of Venezuelan president Hugo Chavez, who has been trying to “Cubanize” the rest of Latin America using Venezuela's vast oil wealth.

The Bush Administration largely has abandoned Latin America in its Middle East debacle over the last six years, and Chavez has filled this void with oil money largesse (and also nationalizing of the oil and other industries), holding sway over other Latin American governments such as Bolivia (Morales recently nationalized the Bolivian natural gas market).

Embracing Brazil

We had the opportunity to visit two Brazilian companies that are quickly internationalizing: Ambev (American Beverages which was the merger of two Brazilian beer companies which recently acquired the Canadian company Labatt's and is now considered to be the third largest beer company in the world), and Natura, a rapidly growing cosmetics company (with sales over $1 billion) that has offices in several Latin American countries and France, and is poised to open up offices in the U.S. and Russia.

We also heard much about Mercosul, the Southern Common Market, currently composed of Brazil, Argentina, Uruguay, and Paraguay, with soon to be full member Venezuela, and associate members Bolivia, Chile, Peru, Ecuador, and Colombia. This market, while not quite yet the European Union (in fact it is politically at least 10 years behind), seems to be moving forward, albeit in stops and starts): citizens of the four key member countries can move easily into the other countries without passports and visas and gain employment in the other countries.

There is a new parliament although limited in scope, and the presidency rotates every six months between countries. The bigger issue is lack of a common currency and still country protectionist/centric activities, and of course greater political union. Another problem is the presence of other Latin American trade groups such as the Andean Pact, NAFTA, and one-off trade agreements between some countries and the U.S. (e.g. Chile).

But with the largest economy in Latin America, and one of the largest in the world (about $1 trillion, and on a purchasing power parity basis about $1.6 trillion), and a population of 190 million people, Brazil needs to be embraced by the U.S. Unfortunately, most U.S. companies seem to have focused their growth efforts on China and India, but Brazil is part of the group of BRIC countries (Brazil, Russia, India, and China), which are considered fast-growing, highly populated countries that are ripe for foreign investment.

See you soon!

Previous articles by Michael Rosen

Michael Rosen: Olympics of biotechnology has international flavor

Michael Rosen: A Midwest passage to India, Part II

Michael Rosen: Indian trade possibilities boggle the mind

Michael Rosen: A Midwest life-science odyssey comes full circle

Michael Rosen: Bioscience clusters: Too many or room for more?

Michael Rosen: The deconstruction of “Big Pharma”

Michael S. Rosen is president of Rosen Bioscience Management, a company that provides CEO services, including financing and business and corporate development to start-up and early-stage life science companies such as Renovar and Immune Cell Therapy. Rosen also is a founder and board member of the Illinois Biotechnology Industry Organization. He can be reached at rosenmichaels@aol.com.

This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. It is not meant to be a recommendation to buy or sell stocks!

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of Wisconsin Technology Network, LLC.

WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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