1. 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

2. 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

3. Source: UNICA – April 2006 Mill SUGAR CANE IN BRAZIL

4. Evolution of Sugar Production in Brazil - 1964/65 to 2004/05 Source: Ministry of Agriculture - Brazil CROP-YEAR

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

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

7. SUGAR CANE DESTINED TO SUGAR AND ETHANOL PRODUCTION IN BRAZIL

8. SUGAR CANE PERFOMANCES IN BRAZIL

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

10. FORECAST FOR THE NEW MILLS IN BRAZIL STATERestarting activities (old mills) Mills under construction Approved projects Projects under anlyses (intention) TOTAL NORTH / NORTHEAST REGION208010 CENTER / SOUTH REGION92838479 BRAZIL - TOTAL112846489 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

11. HOW TO EXPAND SUGAR CANE WITH SUSTAINABILITY? SLOPE > 12% AMAZON REGION ATLANTIC FOREST TOTAL AREA WITHOUT ENVIRONMENTAL RESTRICTIONS............ 437,2 MM hectares AREA WITH SLOPE ABOVE 12%.............. 75,6 MM hectares TOTAL AVAILABLE AND SUITABLE LAND.......... 361,6MM 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).

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

13. 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.

14. 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 2003158,00,757208,56548,02,640207,48 -0,5% 2004498,02,408206,68570,02,002284,49+37,7% 2005766,02,592295,311.066,02,857373,01+26,3% Source: MDIC (Alice System) ETHANOLGASOLINE PRICE RELATIONSHIP Ethanol x Gas YEARS EXPORTATIONS: ETHANOL AND GASOLINE PRICE RELATIONSHIP

15. 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.

16. ENERGY EFFICIENCY Raw materialEnergy output / Energy input Wheat 1 1.2 Corn 1 1.3 – 1.8 Sugar Beet 1 1.9 Sugar Cane 2 8.3 1 F.O. Licht, 2004. 2 Macedo, I et al., 2004 – Under Brazilian production conditions.

17. 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

18. 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: 3.000 MW – 14.000 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

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

20. BRAZILIAN ETHANOL PRODUCTION

21. 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.

22. THANK YOU! OBRIGADO! MUCHAS GRACIAS! MERCI! Alexandre Strapasson + 55 61 3218-2945 / 3218-2147 alexandrestrapasson@agricultura.gov.br www.agricultura.gov.br