19 May Brazil gives U.S. a biofuels samba lesson
The samba is the unique Brazilian national dance. Although it is present in all parts of Brazil and throughout the year, it is particularly celebrated during Carnivale time (pre-Easter) when the whole country goes on holiday and celebrates with colorful costumes and dance competitions from the different samba escolas (schools). Samba is to Brazil what jazz (and perhaps blues) is to the U.S. All three music types have their origins in the significant African heritage present in both countries.
Biofuels is quickly becoming another point of similarity between both the U.S. and Brazil, although each country has taken a different approach to biofuels – much like the similarities and differences between samba and jazz.
I’m just back from a trip to Brazil (Rio and Sao Paulo) where, once again, I took a group of executive MBAs from Lake Forest Graduate School of Management to the Sao Paulo Business. This year’s crop of students (all seasoned executives) came from companies such as Hospira, Abbott Labs, Baxter, Valent Biosciences, Kraft, All State Insurance, Northern Trust, Komatsu, and others.
Brazil is one of the BRIC (Brazil, Russia, India, and China) countries, which is a grouping of four emerging nations with a combination of large populations and high economic growth rates, making them particularly attractive to companies looking to either set up key international operations or establish regional operations. In fact, these four markets have become so important, and share key attributes beyond population size and growth, that companies such as GlaxoSmithKline have set up new international divisions to concentrate corporate resources on BRIC and on lessons that can be learned and applied to other markets.
I have written about Brazil on each of my prior trips for the last two years, but each time I am so impressed by the energy and people that it is worth jotting down some insights into this amazing country. Before I dip into this year’s insights, some facts about Brazil in comparison with the U.S.:
U.S. versus Brazil comparison
|Key Country Attributes||U.S.||Brazil|
|Size – Land Mass||9.8 million square kilometers||8.5 million square kilometers (half the size of Russia, larger than China and double the size of the EU)|
|Population||303.8 million||191.9 million|
|GDP Size (PPP basis)||$13.9 trillion||$1.8 trillion|
|GDP Per Capita (Purchasing Power Parity Basis)||$46,000||$9.700|
|GDP Growth (2007)||2.2%||4.5%|
|Inflation Rate (2007)||2.7%||4.1%|
|Median Age||36.7||29 years|
|Life Expectancy||78.1 years||72.5 years|
|Number of People live with HIV/AID’s||950,000||660,000|
|Labor Force||153.1 million||99.5 million|
|Population Below Poverty Line||12%||31%|
|Public Debt (% of GDP)||36.8%||43.9%|
|Exports (2007)||$1.1 trillion||$159.2 billion (17.8% to U.S.)|
|Imports (2007)||$2.0 trillion||$115.6 billion (16.2% from U.S.)|
|External Debt (2007)||$12.3 trillion||$230.3 billion|
|Number of Cell phones||233 million||99.9 million|
|Number of Internet Users||208 million||42.6 million|
|Paved Roads||4.2 million kilometers||96.4 K kilometers|
Although there are a lot of disparities between the U.S. and Brazil, a country which is larger than continental U.S. (only with the inclusion of Alaska does the U.S. surpass Brazil in size), there are more similarities than one would think, including the level of public debt as a percentage of GDP and the proportionate number of people living with HIV infection.
Brazil has managed their current account (exports versus imports) better than the U.S. and actually has a significant trade surplus; however it still lacks from substantial infrastructure needs, not the least of which is paved roads. Brazil is oil independent through a national policy of both local oil development and a strong government-mandated biofuels program (much stronger than the U.S. effort).
Biofuels in Brazil
During our visit to Sao Paulo and the Sao Paulo Business School (which is the only business school which teaches MBA classes in English), we had the opportunity to hear a presentation from the executive director of the Brazilian sugar cane industry. As you may remember from last year’s article, virtually all of Brazilian biofuels come from this crop versus the U.S. usage of corn for bioethanol and soybean for biodiesel.
According to the Institute of Science in Society, Brazil started its biofuels program in the 1970s as a direct result of the world oil crisis. Today, Brazil has over 300 sugar-ethanol mills in operation and 60 more in construction. Brazil also has biodiesel in production as a result of the Lula government mandate, which says that current diesel fuel must have a minimum of two percent blend of biodiesel from oilseed crops such as soybean, sunflower, palm oil, and castor beans. This level will rise to five percent by 2013. There are an estimated 10 biodiesel plants in operation and another 40 under construction according to ISIS.
About 50 percent of Brazil’s sugar cane crop is used for bioethanol and the remaining 50 percent for refining into sugar and Brazilian cars can use 100 percent ethanol in over 30,000 filling stations. Ethanol represents 40 percent of all non-diesel fuel consumption. According to ISIS, Brazil produced 15.9 billion liters of bioethanol (more than 4.2 billion gallons) in 2005, which will double in the next decade (the Brazilian Sugar Cane Association estimates that 2008 production levels will be at about 5.5 billion gallons). This level was about one-third of the world’s supply and almost comparable to U.S. production (the U.S. produced 4.9 billion gallons of corn ethanol in 2006 in 112 bioethanol plants, according to a January 2008 TIME Magazine article, and a Business Week article of Feb. 5, 2007).
Brazil is the largest exporter of biofuels in the world, and unlike the U.S. does not subsidize its crop production for this effort. President Bush has called for annual production levels of 35 billion gallons of renewable fuels during the next 10 years.
Sugar vs. corn
Some of the compelling arguments for use of sugar cane versus corn or other crops for bio-ethanol, are the following:
• Impact on food prices.
• Energy balance (creates more energy than is consumed in production process).
• Carbon emissions decrease from usage.
The U.S. has seen large increases recently in food prices due to its reliance on corn for bioethanol as this crop plays an important part in the U.S. food chain. Corn-based ethanol only produces 25 percent more energy than is consumed in the production process, according to the TIME article. Greenhouse gas emissions from corn-based bioethanol are minimal.
Sugar cane, on the other hand, plays a much smaller role in the food chain and therefore has minimal impact on food prices. Additionally, its energy balance is much more favorable than corn energy (energy balance is measured by units of biofuels produced by units of input – sugar cane is between 8.5 to 10.2 versus corn level of 2), and the carbon emissions saving is the highest of any crop, between 85 to 90 percent according to ISIS.
Brazil is not only expanding its use of sugar cane for biofuels but also as a source of bioelectricity. A good part of Brazil’s electricity needs are supplied by hydroelectric dams, which in times of drought produce less electricity. The bioelectricity generated from sugar cane mills is providing an excellent backup source, as these mills are using more and more of the waste produced by the conversion process into ethanol. The Brazilian Sugar Cane Industry estimates that energy from sugarcane is already equivalent to that of the country’s current hydroelectric supply, and by 2015 the additional bioelectricity produced from the waste materials of bioethanol production will equal the hydroelectric supply.
Cream of the biofuel crops
Interestingly, there are more than 100 countries that produce sugar cane around the world versus less than two-dozen that produce conventional oil, according to the Brazilian sugar cane association. If more countries started to produce biofuels from this crop, the dependence on conventional fuel would drop considerably and the overall environmental impact would also decrease significantly!
Brazilian food (or not) for thought! See you soon!
Previous articles by Michael Rosen
• Michael Rosen: Foreign biotech companies on U.S. buying spree
• Michael Rosen: Globalization radically changing pharma, airlines, cars
• Michael Rosen: Biotech financing remains strong
• Michael Rosen: Canadian biotech: a profile of our northern neighbor
• Michael Rosen: A tale of two biotech cities: Chicago and Baltimore
This article previously appeared in MidwestBusiness.com, and was reprinted with its permission. The article is not meant to be a stock recommendation.
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