THE IMPACTS OF THE NEW EU SUGAR REGIME IN THIRD COUNTRIES: A BRAZILIAN VIEW Ministry of Agriculture, Livestock and Food Supply ALEXANDRE STRAPASSON General Coordinator for Ethanol and Sugar Affairs ISO WORKSHOP - ISTANBUL - May 23, 2006

INDEX 1. OVERVIEW ABOUT THE SUGAR CANE PERFORMANCES 2. FORECAST FOR THE SUGAR CANE EXPANSION 3. ALTERNATIVES TO BE MORE COMPETITIVE REGARDING THE NEW EU SUGAR REGIME: - ETHANOL - BEST USES FOR THE WASTES

Source: UNICA – April 2006 Mill SUGAR CANE IN BRAZIL

Evolution of Sugar Production in Brazil /65 to 2004/05 Source: Ministry of Agriculture - Brazil CROP-YEAR

SUGAR IN BRAZIL: PRODUCTION X CONSUMPTION Source: Ministry of Agriculture - Brazil

SUGAR IN BRAZIL: RAW X WHITE SUGAR Source: Ministry of Agriculture - Brazil VHP and Demerara Crystal and Refined sugar

SUGAR CANE DESTINED TO SUGAR AND ETHANOL PRODUCTION IN BRAZIL

SUGAR CANE PERFOMANCES IN BRAZIL

BRAZIL: RAW X WHITE SUGAR Source: MDIC (Alice System)

FORECAST FOR THE NEW MILLS IN BRAZIL STATERestarting activities (old mills) Mills under construction Approved projects Projects under anlyses (intention) TOTAL NORTH / NORTHEAST REGION CENTER / SOUTH REGION BRAZIL - TOTAL Source: UNICA – April 2006 Sugar cane conservative foresight for 2013: - More 3 million ha (to produce sugar and ethanol) - More 13 million tons of sugar to the international market Situation in May 2006: Current installed capacity: 344 Mills

HOW TO EXPAND SUGAR CANE WITH SUSTAINABILITY? SLOPE > 12% AMAZON REGION ATLANTIC FOREST TOTAL AREA WITHOUT ENVIRONMENTAL RESTRICTIONS ,2 MM hectares AREA WITH SLOPE ABOVE 12% ,6 MM hectares TOTAL AVAILABLE AND SUITABLE LAND ,6MM hectares PANTANAL (SWAMPLAND) SLOPE > 12% SLOPE < 12% Source: MCT; Unicamp; CTC, 2005 Land classification Country size: 855 million ha. Unexplored areas for expanding agriculture with sustainability: 90 million ha (source: Embrapa).

ADEQUATED SOIL AND CLIMATE FOR SUGAR CANE Without any irrigation systemWith some irrigation system Source: MCT; Unicamp; CTC, 2005 Legend: High Middle Low Improper

SUGGESTIONS FOR THE THIRD COUNTRIES TO BE MORE COMPETITIVE REGARDING THE NEW EU SUGAR REGIME AND WORLD SCENARIO - TO PRODUCE ALSO ETHANOL IN THE SAME INDUSTRIAL UNIT THAT PRODUCE SUGAR (BIOREFINERY CONCEPT), INCREASING THE GLOBAL EFFICIENCY. - TO TAKE ADVANTAGE FROM THE VINASSES AS A FERTILIZANT. - TO MAKE ENERGY COGENERATION FROM BAGASSE, EXPORTING ELECTRICITY TO THE GRID.

ETHANOL: The Brazilian Experience - Total production: 16 billion liters - Production per ton of sugar cane: 82 L/t - Production per hectare: 7000 L/ha - Production ratio: 160 thousand ha to produce 1 billion liters ethanol Million US$ F.O.B. Liters (Billion) Average US$/m³ Million US$ F.O.B. Liters (Billion) Average US$/m³ ,00,757208,56548,02,640207,48 -0,5% ,02,408206,68570,02,002284,49+37,7% ,02,592295, ,02,857373,01+26,3% Source: MDIC (Alice System) ETHANOLGASOLINE PRICE RELATIONSHIP Ethanol x Gas YEARS EXPORTATIONS: ETHANOL AND GASOLINE PRICE RELATIONSHIP

WHY ETHANOL? - Renewable energy; - Safe and efficcient; - Easy to produce in large scale; - Low pollutant; - Generate new jobs, specially in the rural area; - Easily to indroduce in the cosumer market (pure or mixed with gasoline); - Sugar cane has high productivity and minimum environment impacts; - Relatively low production costs (~ R$ 0,65/L at the mill, without taxes); -The sugar cane wastes are important products; -Low consumption of external energy in the production process.

ENERGY EFFICIENCY Raw materialEnergy output / Energy input Wheat Corn – 1.8 Sugar Beet Sugar Cane F.O. Licht, Macedo, I et al., 2004 – Under Brazilian production conditions.

THE USES OF VINASSES IN BRAZIL Good fertilizant: high amount of potassium (K 2 O) Vinasses can be applied on the soil by irrigation A new technology is being developed in Brazil: to dehydrate and transform vinasses into a new commercial product

CO-GENERATION WITH SUGAR CANE BAGASSE IN BRAZIL CURRENT POWER: ~ 2200 MW (700 MW are exported to the grid and 1500 MW are consumed in the own mills) ACTUAL MEASURED POTENTIAL: MW – MW (extra) Depending of the technology applied in the generation process. - Possibility to obtain carbon credits from CDM Projects (Kyoto Protocol) - Complementary to the hydraulic generation in the Center-South Region

BRAZILIAN CROP-YEAR PERFORMANCES 2003/2004 AND 2004/2005 SUGAR CANE

BRAZILIAN ETHANOL PRODUCTION

HOW TO START A PROGRAM TO MIX ETHANOL WITH GASOLINE? GENERAL ASPECTS: - Technology and high level human resources - Legislation and tributary issues - Plan for supply guarantee and economic viability - Loggistic and infrastructure investments - Marketing plan for the consumers THERE IS NO FIXED RULE, EACH COUNTRY WILL ESTABLISH THE BEST WAY.

THANK YOU! OBRIGADO! MUCHAS GRACIAS! MERCI! Alexandre Strapasson /