Cosan:

Thinking OutsideThe Barrel

Case Analysis by:

Elena Assenza

Ina Freimut

Andrés Sánchez

18/08/2016IBS – São Paulo

Intro & History of the Case

The company was founded in 1936 in the sugarcane heartland of São Paulo

It is the largest grower and processor of sugarcane in the world since then

It is the largest ethanol producer in Brazil

Rubens Ometto is the company's CEO and main shareholder

What about Brazil ?

Agriculture and agribusiness are among

the fastest growing and most dynamic

sectors in Brazilian economy

Brazil is #1 producer of sugarcane

worldwide, followed by India and China

Together they are responsible for almost

60% of world production

Analysis #1

Porter´s5 forces

Industrycompetition:

LOW

Threat ofnew

entrants:

HIGH

Customerpower:

HIGH

Threat ofSubstitutes

:

MEDIUM

Supplierpower:

LOW

Industrycompetition: LOW

- Biggest producer ofsugar ethanol in Brazil;

- Partner with Shell in production anddistribution of ethanol;

- Highly diversified andpresent nationwide.

Supplier power: LOW

- THEY are mainly thesuppliers;

- In the case of theirsmaller businesses (Comgas), prices ofcommodities might be a drawback.

Customer power: HIGH

- Inelastic demand ofsugarcane ethanol –dependence on ethanol orflex-fueled cars;

- Prices of gas may vary, andso it’s consumption;

- Logistics and farmmanagement have to meeta demand price.

Threat of entrants: HIGH

- Many farmlandcompanies – threat of a company creating a holding;

- Big joint venture between its main competitors –(Archer-Daniels, Cooperativa Cana de Açucar SP).

Threat ofsubstitutes:

MEDIUM

- Established operations;- Customer´s trust;- Customer loyalty

responds to price;- Electric cars as substitute

of ethanol powered cars.

Analysis#2

Political Factors:- market orientated policies in the 80's (elimination of export licenses and quotas)- USA (largest ethanol market) & Europe put taxes on imported ethanol- Political Situation

Economic Factors:- Brazil is the No 1 producer of sugarcane worldwide- Brazil is the largest exporter of ethanol- growing demand for ethanol in Brazil (expected to double between 2007 -2013)- Credit crunch in 2007- 70% of vehicles produced in brazil are flex-fuel (Ethanol sales for this Industry grew 29%/ year)

PEST

Analysis

Social Factors:- Ethanol counted as renewable energy- Producing Ethanol instead of Sugar has a impact on food prices - impact on brazils natural habits (water, rainforest)- ill-treatment of sugarcane workers (child- and unregulated labor)

Technological Factors:- production research is developing in biotechnology, genetic research, new techniques in Production- Brazil has a cheap and big production

Brazil: 7,000 l produced /hectare in 2007 with costs: 0.42 %/lUSA: 4,100 l /hectare with costs: 0.71 USD /lEurope: 5,500 l /hector beet with costs: 0.55 USD /l

Analysis #3

SWOT Analysis

Strengths:

-one of largest business groups in Brazil

-segments in infrastructure and energy companies

-world leader in logistics for sugar production

-expected growth with organized operations and acquisitions

Weaknesses:

-volatile prices of ethanol in world market

-low transportation: delay in sugarcane crop in center-south regions

-competitiveness in ethanol industries

Opportunities:

-investment in cutting-edge logistics platform in Brazil

-acquisition of agricultural properties for growing sugarcane

-enhancement of environmental practices

Threats:

-government interventions

-depend on world prices

-oversupplied market

Idea 1: Invest in natural fertilizer

PROS:

- Environmentally friendly company - better image

- Benefit from using fertilizer in order to increase the efficiency of sugarcane

ethanol production

- Make a new business out of it – sell to other agricultural producers.

- Benefit from vertical integration – cheaper than to buy fertilizer to another

company.

Idea 2: Expand production with the creation of an Investment Funds

PROS:

- More surface of fertile land – this means more sugar ethanol to be produced

- The Investment Funds would serve as a crowdfunding in order to invest in lands

overseas.

- Would give an investment alternative to personal investors

CONS:- We will still rely on the environment and ethanol prices. - There will be a high uncertainty for predicting how much money the Funds get

each period.

Idea 3: Invest in R&D of vehicles/machinery powered by flex-fueled

PROS:

- Growing market for flex-fueled cars

- Diversification strategy – new product offerings: machinery/vehicles

- The machinery produced could be used in Cosan’s production/distribution

process

CONS:- Uncertainty of entering a new market

- Capital intensive market – high investment required

- Big competitors in the flex-fuel industry