Carlos Eduardo O Xavier PhD Researcher PECEGE

University of Sao Paulo

Tools for Assessing Production Costs

Ministry of Mines and Energy of Brazil

Expert Workshop for the How2Guide for Bioenergy

Biomass Resources and Bioenergy Potential in South America

Piracicaba – Brazil

November 29th, 2014.

1. The university extension project

2. Methodology

3. Key results

4. Take-way messages

AGENDA

2

Started in 2008 organized by PECEGE (University of Sao Paulo Extension Group) and 100% funded by CNA (Brazilian Confederation of Agriculture and Livestock);

Goal of create a methodology to measure and survey crop-year average costs of sugarcane, sugar and ethanol in Brazil.

3

The extension project

Adaptado de CONAB (2014) e UNICA (2014)

4

Northeast

Expansion

Traditional

• Define crop-year averaged costs of 3 Brazilian production regions;

• Collect the average farmer cost in the 15 most important cane farmers unions

• Invite all the mills in the main areas of the analysis to participated of the survey

The extension project

Sugarcane

5

Sample in 2014: • 1/3 of Brazillian cane production (213 million tons); • 16 of the 30 top players.

The extension project - Sample

* Subscribers of “Portal PECEGE de Informações Sucroenergéticas”

FARMERS “PAINEL” – MEETING WITH FARMERS TO DEFINE THE “TYPICAL” FARMER

IN THE AREA ESPECIFING TECHNOLOGY, CONSUMPTION AND PRICES.

GOIATUBA - GO CATANDUVA - SP SERTÃOZINHO - SP

6

Methodology

MILLS– PHONE CONTACT, FOLOWED BY QUESTIONNARY FILLED USING PECEGE’S

SYSTEMS ASSISTANCE.

STEAM AND

ENERGY

MODULE

(R$ 60/t)

SUGAR

AND

ETHANOL

MODULE

(R$ 135/t)

Steam

and energy

Bagasse

And water

Sugar and Ethanol Electricity

Sugarcane

INDUSTRIAL PLANT INVESTIMENT (R$195/t)

7

ASSUMPTIONS: Sugarcane planting is considered stable each year Mill of 2,4 million tons cane crushing capacity Linear depreciation: 30 year Opportunity cost to capital investiment: real interest rate 6% a.y.

Methodology

LAND

PREPARATION

PLANTING

CULTIVATION AFTER PLANTING

RATOON CULTIVATION

HARVESTING AND TRANSPORTATION

4 x before replanting in the area

5 x before replanting in the area

*Management costs, working capital, assets depreciations, Farmers wage and capital cost (but land)

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CCT; 32%

Land; 22%

Others*; 15%

Ratoon Cultivation;

14%

Cultivation; 1%

Land Prep.; 4%

Planting; 11%

Cane Instalation

17%

LAND

PREPARATION

PLANTING

CULTIVATION AFTER

PLANTING

RATOON CULTIVATION

HARVESTING AND TRANSPORTATION

Methodology/Key Results

400

150 80 80

200

100 120

1000

400 460

350

500

140 85

170

17,500

20,000

10,000

0

5,000

10,000

15,000

20,000

25,000

0

200

400

600

800

1,000

1,200

1,400

1,600SP

- A

ssis

SP -

Cat

and

uv

a

SP -

Jau

SP -

Pir

acic

aba

SP -

Ser

tão

zin

ho

PR

- J

acar

ezin

ho

PR

- P

ore

catu

Ty

pic

al M

ill

GO

- G

oia

tub

a

GO

- Q

uir

inó

po

lis

MS

- M

arac

aju

MT

- N

ov

a O

lím

pía

MG

- U

ber

aba

Ty

pic

al M

ill

AL

- M

acei

ó

PB

- J

oão

Pes

soa

PE

- R

ecif

e

Ty

pic

al M

ill

Traditional Expansion Northeast

Ty

pic

al

mil

l's

Are

a (

ha

)

Ty

pic

al

farm

ers

' A

rea

(h

a)

9 9

Only in Goiatuba and Maracaju region the typical famer share its cane production area with another crop which is soybeans in both cases and use 50% of the area

Key Results

0

16

32

48

64

80

96

0

2

4

6

8

10

12SP

- A

ssis

SP -

Cat

and

uv

a

SP -

Jau

SP -

Pir

acic

aba

SP -

Ser

tão

zin

ho

PR

- J

acar

ezin

ho

PR

- P

ore

catu

Ty

pic

al M

ill

GO

- G

oia

tub

a

GO

- Q

uir

inó

po

lis

MS

- M

arac

aju

MT

- N

ov

a O

lím

pía

MG

- U

ber

aba

Ty

pic

al M

ill

AL

- M

acei

ó

PB

- J

oão

Pes

soa

PE

- R

ecif

e

Ty

pic

al M

ill

Traditional Expansion Northeast

ton

s o

f su

ga

rca

ne

/h

a

ton

s su

ga

r/h

a*

ton sugar/ha ton cane/ha

10 10

* The sugar production considers the use of all sugar content of cane (sucrose and other) considering the production of 0,95 ton of sugar per ton of ATR . This assumption is only possible if there is a join production of sugar and ethanol as happens in the Brazilian industry.

The average sugar production in Center-South (Traditional and Expansion) of Brazil was 10 tons of sugar/ha while in the Northeast was 6.3 tons/ha

Key Results – Productivity in 2014 (farmers)

11 11

1/3 of cane produced by farmers get 50% discount in the price paid to harvesting and transportation services (its represent around USD 45/ton of sugar)

* The exchange rate considered was 2,15 R$/USD

241

312

334

298 295 296 290

314

215

252 239 246

248

316 313 309

393 374

0

50

100

150

200

250

300

350

400SP

- A

ssis

SP -

Cat

and

uv

a

SP -

Jau

SP -

Pir

acic

aba

SP -

Ser

tão

zin

ho

PR

- J

acar

ezin

ho

PR

- P

ore

catu

Ty

pic

al M

ill

GO

- G

oia

tub

a

GO

- Q

uir

inó

po

lis

MS

- M

arac

aju

MT

- N

ov

a O

lím

pía

MG

- U

ber

aba

Ty

pic

al M

ill

AL

- M

acei

ó

PB

- J

oão

Pes

soa

PE

- R

ecif

e

Ty

pic

al M

ill

Traditional Expansion Northeast

US

D/

ton

of

sug

ar

Cost of production (USD/ton) Price (USD/ton)

Key Results – Cost of production in 2014 (farmers)

Key Indicators Values

sugar cane yield (ton/ha) 80

sugar content (kg of sucrose equivalent per ton) 125,77

working hours per ha 17,5

labour costs per (USD/h) USD 4,90

sugar cane price (USD/ton) USD 28,15

sugar cane seeds use (ton/ha) 15

seed costs (USD/ha) USD 514,92

harvest cost (USD/ton) USD 6,29

loading costs (USD/ton) USD 1,94

transport costs to sugar cane mil (USD/ton) USD 3,22

type of mechanisation Mechanized

harvesting and transportation contracted

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Key Results – Farmers costs

* Avegared number for 2014 considering R$/USD= 2,15

735 831

962 967

1,302

664 723

826

1,035 1,277

0

200

400

600

800

1,000

1,200

1,400

1,600

2007/08 2008/09 2009/10 2010/11 2011/12

R$

/m³

Safra

Etanol Hidratado na região Tradicional

CT Preço

13

-12% -14% -14%

6%

-3%

-12% -11% -15%

752 841

966

974

1,316 1,286 1,374

1,471

664 723 826

1035

1277 1135

1216 1253

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

-

200

400

600

800

1,000

1,200

1,400

1,600

R$

/m

³

Margem CT CT Preço

Averaged annual losses of R$ 106/m³ (-9% do TC) in the last 8 crop-years. Only 50% of the cost of the investment was paid In 2013/14 crop-year electricty profits could recovery 50% of ethanol losses

Key Results Hydrated rthanol cost, price and margin evolution in Traditional region

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LOW: ↓ R$ 1.200 m³

16% of mills

31% of mills Tradictonal 11% of mills Expansion

REGULAR: R$ 1.200-1.350/m³

28% of mills

32% of mills Expansion 32% of mills Traditional

HIGH: R$ 1.350-1.500/m³

27% of mills 25% of mills Expansion 26% of mills Traditional 38% of mills Northeast

VERY HIGH: ↑ R$ 1.500/ m³

29% of mills 32% of mills Expansion 11% of mills Traditional 62% of mills Northdeast

Key Results Distribution of Ethanol cost in Brazil in 2013/14 crop-year

735 831

962 967

1,302

664 723

826

1,035 1,277

0

200

400

600

800

1,000

1,200

1,400

1,600

2007/08 2008/09 2009/10 2010/11 2011/12

R$

/m³

Safra

Etanol Hidratado na região Tradicional

CT Preço

15

100.0

68.5

93.9 102.9

162.4

91.9

135.5

95.5

73.2 63.7 68.5 66.9

0

30

60

90

120

150

180

Bra

sil (

usi

na

SP)

Bra

sil (

pai

nel

Go

iatu

ba)

Bra

sil (

pai

nel

Ser

tão

zin

ho

)

Bra

sil (

pai

nel

Mac

eió

)

Áfr

ica

do

Su

l

Au

strá

lia

Co

lôm

bia

Tai

lân

dia

Ale

man

ha

Fra

nça

Po

lôn

ia

Ucr

ânia

Cana Beterraba

Índ

ice

de

cu

sto

ag

ríco

la d

e 1

to

ne

lad

a d

e a

çúca

r (v

alo

r b

ase

10

0 é

o c

ust

o a

grí

cola

de

usi

na

típ

ica

de

SP

)

Source: PECEGE (2010, 2013a, 2013b), Agribenchmark (2014) adapted by the author Averaged number of 2014 considering R$/USD=2,15

Key Results Sugar content agricultural cost – World Benchmark

Take-away messages

Huge opportunity for average producers follow the best practices examples;

Reduction in costs will be deeply foster by higher productivity levels and quality of the use machines, mainly harvesters and planters;

It is highly probably that the path for lower cost practices will be long! The plans should consider the goal of a cane cycle .

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OBRIGADO!

Carlos E. O. Xavier

Phone: +55 (19) 3435-1022 Mobile: +55 (19) 98112-5860

ceox@pecege.usp.br

www.pecege.esalq.usp.br/portal