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INVESTMENT OPPORTUNITIES IN COTTON PRODUCTION IN THE SÃO FRANCISCO AND PARNAÍBA VALLEYS

INTEGRATED PROJECT OF SUSTAINABLE BUSINESS. INVESTMENT OPPORTUNITIES IN COTTON PRODUCTION IN THE SÃO FRANCISCO AND PARNAÍBA VALLEYS. Equipe do Projeto. PRESIDENT NATIONAL INTEGRATION MINISTRY

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INVESTMENT OPPORTUNITIES IN COTTON PRODUCTION IN THE SÃO FRANCISCO AND PARNAÍBA VALLEYS

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  1. INTEGRATED PROJECT OF SUSTAINABLE BUSINESS INVESTMENT OPPORTUNITIES IN COTTON PRODUCTION IN THE SÃO FRANCISCO AND PARNAÍBA VALLEYS

  2. Equipe do Projeto PRESIDENT NATIONAL INTEGRATION MINISTRY Luiz Inácio Lula da Silva Geddel Vieira Lima CODEVASF DIRECTORS President Orlando Cezar da Costa Castro Integrated Development and Infrastruture Director Clementino Souza Coelho Irrigation Project Management Director Raimundo Deusdará Filho Hydrographic Basins Revitalization Director Ricardo Luiz Ferreira dos Santos

  3. Presentation Structure 1. Introduction; 2. Cotton Market; 3. Biodiesel Market; 4. The Viability of Producing biodiesel from cotton seed in the Brazilian semi-arid; 5. Export logistic;

  4. 1. Introduction

  5. Introdução The PINS Project? The project is a governmental initiative, aiming to attract investments to the São Francisco Valley (webpage: http://www.fundace.org.br/pins). PENSA Agribusiness Intelligence Center. PENSA researchers are responsible for the business models proposition, economic and marketing analysis and for interacting with potential investors tailoring the analysis to their particular needs (web page: http://www.pensa.org.br). CODEVASF São Francisco and Parnaíba Development Company, which the mission is to develop economically and socially the Valley of the São Francisco and Parnaiba Rivers (web page : http://www.codevasf.gov.br).

  6. 2. The Cotton Market

  7. Cotton Brazilian Production Crop 2007/08 Source: Conab

  8. Cotton Market • The main demand driver for cotton is the textile industry. • Growth of 3,8% in 2007 and 0,7% in the first half /semester of 2008. (MDIC, 2008) • Cotton supplies approximately 60% of internal industry demand for fibers and filaments.(only natural fibers and filaments, its share grows to 97%). (ABRAFAS, 2008) • In thefiber world market , cottonrepresents 40%. • Driven by growth in emerging markets, the world demand for cotton grews 7% annually between 2005 and 2007 • Global demand should fall 2% in 2008 and 1% in 2009. (Rabobank apud Algodão Brasileiro, 2008)

  9. Balance ofSupplyand Demand Fiber Cotton (thous. ton) 374% -80% 29% 89%

  10. Prices Index Source: CONAB

  11. “Turbulence Time”: Low Prices and High Costs • 65% da safra 2007/2008 recebeu o Prepo. • Média de setembro do índice Esalq (R$ 1,2166/lp) foi a mais baixa desde julho/96. * 04-30-10 (70%) e sulfato de amônia (30%) Source: Conab • High costs and decrease of credit to imputs purchase. • Planted are should decline 10% in the U.S. and between 10 and 20% in Brazil. Source: Cepea and Conab.

  12. 3. Biodiesel Market

  13. Direct Sale is not permitted Biodiesel Agro Industrial System By-product Market Alcohol Fertilizer Production Animal Feed Glycerin Torta Agricultural Chain Consumers biodiesel B3 B3 Oil Grain B100 Resellers Distributors Biodiesel Producers Pressing Plantation B100 Refinaria B100 Processing and Distribution Chain (regulated by ANP) Consumers Source: ANP

  14. Biodiesel Agro Industrial System: B – 3 PETROBRÁS REFAP INPUTS DISTRIBUTORS AGRICULTURE INDUSTRY Blending and Distribution Seeds Pesticides Machinery Fertilizers SOYBEAN COTTON CASTOR OIL PALM JATROPHA SUNFLOWER Auctions Acquisition Biodiesel Production Processing INSTITUTIONAL ENVIRONMENT(laws, norms, costums)

  15. Public Auctions The auctions are conducted by the NPA (National Petroleum Agency) in order to ensure the supply and the compulsory demand • Provides: - Participation criteria of producers: authorized by NPA to produce; registered in SICAF; “Social Fuel” certificate. - Price - fixed rate(reverse auction, lots are sold with lower prices). - Percentage of purchases by buyers (diesel fuel producers and importers) according to their market share. - Deadlines and delivery conditions.

  16. Public Auctions Source: ANP

  17. EuropeDiesel Consumption : 354 bil./l Biodiesel DemandB2: 7,08 bil./lB5: 17,7 bil./lB10: 35,4 bil./l JapanDiesel Consumption : 70 bil./lBiodiesel DemandB2: 1,4 bil./lB5: 3,5 bil./lB10: 7 bil./l USADiesel Consumption: 219 bil./lBiodiesel DemandB2: 4,38 bil./lB5: 10,95 bil./lB10: 21,9 bil./l BrazilDiesel Consumption: 39 bil./lBiodiesel DemandaB2: 0,78 bil./lB3: 1,17 bil/lB5: 1,95 bil./lB10: 3,9 bil./l ChinaDiesel Consumption: 91 bil./lBiodiesel DemandB2: 1,82 bil./lB5: 4,55 bil./lB10: 9,1 bil./l IndiaDiesel Consumption : 46 bil./lBiodiesel Demand B2: 0,92 bil/lB5: 2,3 bil./lB10: 4,6 bil./l Diesel Demand vs Biodiesel Production

  18. Raw Materials Production Harvest Production Energy Type Grains (Kg/ha) % of oil Oil (Kg/ha) Start Months Time Balance Perenial 2º ano 12 30 / 50 years 5 a 12 thous 38 1,9 a 4,56 thous - Jatropha Perenial 3º ano 12 30 years 10 a 20 thous 23 2,3 a 4,6 thous 9 Palm Annual 1º ano 3 2 years 750 a 1,5 thous 48 370 a 735 - Mamona Annual 1º ano 3 1 year 2,2 a 2,8 thous 18 400 a 500 3 Soybean Cotton Annual 1º ano 3 1 year 1,8 thous 15 270 - seed Annual 1º ano 3 1 year 1,85 thous 40 a 48 740 a 890 2,5 Rape-seed Source: Embrapa 2007

  19. 15,2% OIL Cotton pit Extraction Plant Biodiesel Plant Biodiesel Commercialization Fuel Distributors 46,7% BIOMASS Cake/ cotton Biomass for the Boiler Organic Fertilizer Industry rações/fertilizers Biodiesel from Cotton Pit “Biodiesel is most viable when it is made from cotton seed”Pólo Nacional de Biocombustíveis da USP • Cost of $ 0.81 against the U.S. $ 0.90 for soybeans (07/2007). Easy access and made from a sub product. • Embrapa works to increase the oil inside the pit.

  20. 4. The viability of Producing Biodiesel From cotton seed in the Semi-Arid Brazil

  21. Business Model Futures Contracts, Public Auctions or Spot Market (oil or biodiesel sales) Producer A Cooperative Producer B Supplying Contract (Cotton pit) Extration + Biodiesel Industry (“SPE-2”) Producer n Partnership Contract Cotton Ginning and Pit Originating Emtrepeneurs Associatedor individuals Tradings/ Central Cooperatives Funds Cotton Producer “SPE-1” Financing Contracts Financing Lint Wool Supplying Contract (Lint, Fibers)

  22. PINS PROJECT – BIOENERGY Agroindustrial System VIABILITY ANALYSIS OF PRODUCING BIODIESEL FROM THE COTTON SEED Calculation Premises Operating Results Final Results Agricultural Agricultural Incomeflow Cotton Revenues and costs Extraction Industrial Plant Financial Planning Operating and Financial Flows Sensibility Analysis

  23. Investments • Drip irrigation: • R$ 6.800/ha • R$ 13,6 millons / 2 thous. ha • Cotton tree 30 bales/hour: • R$ 5,3 millions • Extraction/Partner 100 ton/day • R$ 6,7 millions • Biodiesel Plant 10 ton/day: • R$ 2,6 millions

  24. Agricultural Premises – Opening Areas Source: adapted from Conab Source: elaborated by the author based on Seagri, Conab, interviews with producers from west Bahia.

  25. Agricultural Premises Source: Agrianual, Netafim

  26. Agricultural Premises - Cotton Source: Elaborated by the author based on interviews with producers from West Bahia region; Netafim ** @ = 15 kgs

  27. Industrial Premises

  28. Results

  29. 5. Export Logistic

  30. Ports • Juazeiro – Salvador (Aratu Port) • Modality: railroad • Centro-Atlântica Railroad (FCA). • Distance: 573 Km. • Petrolina – Recife (Suape Port) • Modalidade: rodovia • BR-128; BR-122; BR-428; BR-316; PE-360; BR-110; BR-232. • Distance: 715 Km.

  31. Cost of Road Transport - Simulation • Petrolina – Recife (Porto de Suape) • Modality: road • BR-128; BR-122; BR-428; BR-316; PE-360; BR-110; BR-232. • Distance: 715 Km. Source: Interview with fuel and distributors CVRD.

  32. Cost of the Rail Transport - Simulation • Juazeiro – Salvador (Aratu Port) • Modality: railroad • Centro-Atlântica Railroad (FCA). • Distance: 573 Km.

  33. TEAM CODEVASF Integrated Development and Infrastructure Director Clementino de Souza Coelho Integrated Development and Infrastructure Directory Assistant Alvane Ribeiro Soares Irrigation Project Management Production Unit Chief Nair Emi Iwakiri PINS Coordinator : Prof. Dr. Marcos Fava Neves Project Executive Manager : Luciano Thomé e Castro Project Executive Manager : Ricardo Messias Rossi Project Executive Assistant: : Marina Darahem Mafud Researcher Responsible : Marco Antônio Conejero Researcher Assistant : Mairun Junqueira Alves Pinto Colaborators César Augusto Mendonça Zambrano

  34. http://www.codevasf.gov.br/principal/estudos-e-pesquisas/pinshttp://www.codevasf.gov.br/principal/estudos-e-pesquisas/pins

  35. PROJETO INTEGRADO DE NEGÓCIOS SUSTENTÁVEIS Details contact: E-mail address: pins@fundace.org.br http://www.fundace.org.br/pins/ Av. Pres. Vargas, 2001- Conj. 143/144, Jardim AméricaRibeirão Preto - SP - CEP: 14.020-260Tel.: +55 (16) 3456-5555 

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