Foreign investments in Brazilian biofuels heating up

News about foreign investments in Brazil's thriving biofuels industry has almost become a weekly affair. This week was no different. A selection:

1. U.S. farmland investment group Global Ag Investments LLC is investing US$35 million in a biodiesel plant targeting the European alternative fuels markets.

• Capacity: the facility will be capable of producing 28 million gallons of biodiesel per year
• Feedstocks: soy and sunflower oils
• Hectarage: Global Ag Investments manages some 4,500 hectares in the western Bahia, a state in northeast Brazil. The property they own will supply only 10% of their soybean needs. The group will have to contract with soy farmers in Bahia 70,000 hectares, required to produce the 28 million gallons of biodiesel.
• The fund will have its own crushing capacity making it independent from buying oils from the large multinationals.
• Investors: A Swiss-based fund is currently in talks with the group to provide upwards of $5 million in equity financing and create a strategic partnership for exporting the fuel out of northeast Brazil to Europe. The fund will turn to the U.S. private equity markets for another $4 million in financing, ultimately seeking a total of $9 million, in which more than half is presently expected to come from the E.U. fund.
• Return on investment: According to KPMG International in Rio de Janeiro, an accounting and risk advisory firm, return on investment from the Global Ag Investment project was put at 40%.
• The biodiesel facility will be built by two Brazilian firms.

2. Bermuda-based Infinity Bio-Energy group, already active in Brazil's ethanol industry from which it wants to export 1 billion liters per year (earlier post), announced a series of extra investments towards that goal:

• 85 million reais (US$41 million) to raise ethanol output at its Alcana distillery in Nuanuque, Minas Gerais state, to 84 million liters in 2009.
• it is to nearly triple its sugar cane crush capacity to 1.5 million tonnes a year, raise sugar output to 1.75 million 50-kg bags, and produce 10 MWh a year of electricity from cane waste.
• one of the company's aims is to create a new sugar and ethanol frontier in the Mucuri valley which stretches across northern Espirito Santo into southern Bahia. For this reason, Infinity is considering the construction of two new factories in the Mucuri valley and expanding the Cridasa mill in Espirito Santo.
• its joint partnership with the Itauna distillery results in the construction of a new factory in Montanha, Espirito Santo state, and plans to build another mill in Bahia.

At the end of 2006, Infinity announced plans to crush 15 to 20 million tonnes of cane annually within two years and invest US$300 million to US$500 million in the next 18 months.

3. Paris-based Louis Dreyfus & Cie., a closely held commodities trader, buys four sugar and ethanol mills in Brazil to become the second-biggest sugarcane processor in the country:
biomass :: bioenergy :: biofuels :: energy :: sustainability :: ethanol :: biodiesel :: foreign direct investments :: Brazil ::

The company already owns four sugar and ethanol mills in Brazil and expects the acquisition to boost its sugarcane processing to 18.5 million metric tons by 2009, from 11.8 million tons this year. Financial terms of the acquisition weren't disclosed. "There's a lot of room for growth," says Bruno Melcher, executive director at Sao Paulo-based Louis Dreyfus Commodities Bioenergia, the company's biofuels unit in Brazil. "Domestic demand for ethanol is growing rapidly every year." Melcher expects ethanol use in Brazil to double over the next four to five years from about 14 billion liters (4 billion gallons) in 2006.

Louis Dreyfus bought the four mills from closely held Grupo Tavares de Melo:

• The mills Agroindustrial Passa Tempo and Usina Maracaju are in the southwestern state of Mato Grosso do Sul.
• The Usina Estivas mill is in Rio Grande do Norte state and Giasa is in Paraiba state, both in the northeast of Brazil.
• The company also bought Grupo Tavares de Melo's ethanol mill project Usina Esmeralda in Mato Grosso state. Construction of the mill began recently.

In order to make biodiesel and bioethanol a globally traded commodity, Brazil's government is actively encouraging foreign direct investments into the sector by creating a beneficial investment climate. It has recently announced a large national biofuel strategy with US$ 6.2 billion of investments planned, part of which it wants to attract from local and foreign investors (earlier post).

In a broader context, the Brazilian government recently announced an ambitious agenda to invest up to US$5 billion into the biobased economy, which aims to substitute petroleum-based products with plant-based alternatives. The 'bioeconomy' plan is in essence a series of investments in biotechnology, focused on utilizing both the biodiversity of Brazil's rich eco-systems to produce novel products (from vaccines to plastics), and its large agricultural potential (earlier post).