Booming biofuel demand to help Brazil top LatAm agribusiness

Growing biofuel demand is set to help increase Brazilian food production by more than 40 percent over the next decade, according to Moody’s.

In a sector profile, the agency said that ethanol and biodiesel markets are likely to get a big boost from rising demand for alternatives to fossil fuels that are less expensive and more accessible than electricity. Brazil and Argentina, in particular, stand to win big from the introduction of higher biofuel blending percentages in many of the largest automotive markets.

“Rising global demand for food, biofuels and paper products will support growth of South America’s far-reaching agribusiness sector, which boasts substantial advantages in terms of geographical diversification, economies of scale and competitive input costs,” the report said. “While the contribution of agribusiness to South American economies will vary depending on the strength of annual harvests, the sector will likely continue to contribute significantly to overall economic output and growth, as well as to exports and employment.”

‘It’s happening today’

One firm already focused on the opportunities emanating from the Brazil biofuel market is Iowa-headquartered Summit Agriculture Partners.

Last August, Summit inaugurated FS Bioenergia, a $115 million ethanol plant built in coordination with Tiger Infrastructure Partners that is the first large-scale biofuel facility in Brazil to use corn as a feedstock. Financed in part through a distinct $70 million vehicle devoted to renewables in Brazil, the facility is expected to produce 70 million gallons per year. It is set to be the first of several such facilities.

Updating Agri Investor on the status of Summit’s operations in Brazil, founder and chief executive Bruce Rastetter said the firm’s plans have moved forward and noted it is currently in the process of doubling annual production capacity at the FS Bioenergia plant, to 145 million gallons by February.

In addition, Rastetter said, Summit plans to break ground later this month on a second corn ethanol plant, this time with an initial 80 million gallon-per-year capacity, in Sariso, just north of the city of Lucas Rio Verde that houses FS Bioenergia. He noted that the Brazilian government’s stated plans to increase the total scale of the ethanol industry from 7 billion gallons to 13 billion gallons per year is likely to provide support for continued growth in the sector

“Double-cropping is continuing to expand, in particular in Mato Grosso,” he added. “Corn yields will continue to increase, similar to what’s happened, we believe, in the soybean production area, where they have soybean yields equivalent to the US today and use the same genetics and hybrids.”

He admitted that the Brazilian economy has been challenged of late by a retreat of banks that has complicated access to credit for some businesses, but said his firm expects  investors’ interest in the market will rise after October’s presidential election.

“It’s happening today there, both with the increase in production with double-cropping as well as the value-add that’s going on in terms of biodiesel ethanol and protein production,” said Rastetter.

Echoing recent comments by Eimaad Ahmed of Latitude 20 Capital Partners, Rastetter said  transportation costs had constrained Brazil’s ability to take advantage of opportunities presented by the decrease in soybean trade flows from the US into China. The USDA recently estimated that drop at a 23.2 percent year-on-year.

Addressing Brazil’s infrastructure requirements remains a priority, according to Rastetter. He mentioned Highway 163, which connects agricultural production zones in Mato Grosso to the city of Santarem in the neighboring state of Para to its north, as being a project that has seen slow progress despite being crucial to agricultural logistics.

“There are areas [of Highway 163] that don’t have hard-surface pavement on it yet. We believe that this a critical project in Brazil agriculture, in particular Mato Grosso, and the ability to utilize that highway to hit barge load-outs on rivers that flow into the Amazon,” Rastetter said. “You would have product moving north, instead of south and around the Horn [of Africa], to get through the Panama Canal.”

Also important, according to Rastetter, are long-discussed plans for a railroad linking Mato Grosso with the state of Tocantins, which border both it and Para.

“They [the Brazilian government] continue to be slow with issuing concessions for the railroad to be built, and that is an important infrastructure link as they have increased agricultural production.”