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Cablegate: Brazil's Ribeirao Preto: Sugar and Ethanol Bring Prosperity

VZCZCXRO4570
PP RUEHRG
DE RUEHSO #0754/01 2541904
ZNR UUUUU ZZH
P 111904Z SEP 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC PRIORITY 7440
INFO RUEHBR/AMEMBASSY BRASILIA 8553
RUEHRG/AMCONSUL RECIFE 3764
RUEHRI/AMCONSUL RIO DE JANEIRO 8307
RUEHBU/AMEMBASSY BUENOS AIRES 2860
RUEHAC/AMEMBASSY ASUNCION 3100
RUEHMN/AMEMBASSY MONTEVIDEO 2432
RUEHSG/AMEMBASSY SANTIAGO 2134
RUEHLP/AMEMBASSY LA PAZ 3477
RUCPDOC/USDOC WASHDC 2896
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEHRC/USDA FAS WASHDC 0687
RHMFIUU/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 03 SAO PAULO 000754

SIPDIS

SIPDIS

STATE FOR WHA/BSC, WHA/EPSC FOR FCORNEILLE
STATE ALSO FOR E FOR GMANUEL AND EEB/ESC/IEC FOR BHAENDLER
STATE PASS USTR FOR KATE DUCKWORTH
STATE PASS FED BOARD OF GOVERNORS FOR ROBITAILLE
STATE PASS EXIMBANK
STATE PASS OPIC FOR DEMROSE, NRIVERA, CMERVENNE
NSC FOR TOMASULO
TREASURY FOR JHOEK
USDOC FOR 4332/ITA/MAC/WH/OLAC
USDOC ALSO FOR 3134/USFCS
DOE FOR GWARD AND CGILLESPIE
USAID FOR LAC/AA

E.O. 12958: N/A
TAGS: EAGR ECON PGOV ENRG ELTN BR
SUBJECT: BRAZIL'S RIBEIRAO PRETO: SUGAR AND ETHANOL BRING PROSPERITY
TO INTERIOR

Summary
-------

1. (U) During an official visit to Ribeirao Preto, an agri-business
center in northeastern Sao Paulo state, the Consul General visited a
sugar mill and met with the Mayor and the President of the City
Council. Once part of the state's coffee belt, the Ribeirao Preto
area is now best known for its sugar and ethanol production, much of
it increasingly mechanized. The Mayor boasted of Ribeirao Preto's
export industries and said the city is actively seeking more foreign
investors for its agro-industrial plant. End Summary.

Copersucar: Principal Sugar Cane Producer
-----------------------------------------

2. (U) On August 29-30, the Consul General (CG), accompanied by
USDA Agricultural Trade Director, Poloff, and Econoff, visited
Ribeirao Preto, a city of about half a million people approximately
300 km north of Sao Paulo. The municipality of Ribeirao Preto is
the acknowledged center for ethanol production, accounting for more
than 10 percent of Brazil's annual sugar crop and boasting at least
21 ethanol plants. The CG visited the Pedra Agroindustria sugar
mill and ethanol processing plant.

3. (U) The Pedra plant director, Luiz Roberto Kaysel Cruz,
explained the company's operations and led a tour of the facilities.
Pedra is one of five mills in the region belonging to the private
Copersucar cooperative formed in 1959, which today has 85 member
companies and 31 active sugar and ethanol production facilities.
Copersucar produces about 15 percent of total cane production in
Brazil's south-central region, which encompasses Sao Paulo, Parana,
Goias, Mato Grosso, Mato Grosso do Sul, and Minas Gerais states. In
all, Copersucar was responsible for 7 percent of world sugar exports
last year. Unlike Copersucar's other mills, Pedra exports most of
its sugar because Pedra has a dedicated railway to transport sugar
to Santos, Brazil's largest port on the coast of Sao Paulo state,
where the cooperative has exclusive port facilities for its sugar
exports.

4. (U) Pedra's producers harvest 85 percent of their sugar cane
mechanically, and hope to have the entire harvest mechanized within
3 years. Mechanically harvested cane is much less labor-intensive
(6-7 workers can replace about 100) and less destructive to the soil
than hand-cut cane. Mechanization, however, requires much closer
attention to logistics, as mechanically harvested cane must be
milled within 24 hours, while manually harvested cane has a shelf
life twice that long. This just in time mechanization process has
resulted in Pedra developing an intensive training program.
Employees spend three hours a day learning to read and write and
three hours a day training alongside more experienced colleagues.
When asked about the social impacts of needing fewer laborers for
the mechanized operation, Cruz commented that the sugar/ethanol
sector actually needs workers, but many do not want to accept formal
employment because the income would render them ineligible to
receive Bolsa Familia (BF) payments.

Ethanol Production Expanding
----------------------------

5. (U) Pedra almost evenly splits its cane production between sugar
and ethanol production. Coperasucar supplied about 3 billion of the
16 billion liters of ethanol produced last harvest in Brazil's
south-central region, and exported about 20 percent if its ethanol
production. Most of Copersucar's ethanol exports go first to the

SAO PAULO 00000754 002 OF 003


Caribbean for further processing. This allows for duty-free access
to the U.S. market under the Caribbean Basin Initiative. Unlike
sugar, ethanol currently has no specific Brazilian export terminal,
and the cooperative exports via a variety of smaller locations in
Santos. Pedra has discussed the possibility of building a terminal
as the ethanol export market expands. At the moment, however, its
principal concern is keeping Petrobras, Brazil's parastatal oil and
gas company, from controlling ethanol exports. Petrobras currently
dominates Sao Sebastiao, the primary port where Brazil's oil and gas
trading occurs, and Cruz told the CG's delegation that Pedra fears
it could do the same for ethanol exports if the proposed ethanol
pipeline also uses Sao Sebastiao.

Making Environmentally Friendly Plastics From Sugar
--------------------------------------------- ------

6. (U) Cruz also introduced the CG to PHB Industrial, S.A., the
newest arm of Pedra, still in the testing phase of developing a
biodegradable plastic polymer, Biocycle, made from sugar cane.
According to two PHB managers, Eduardo Brondi and Sylvio Filho, the
sugar-based product is a white powder which can be used to
manufacture a variety of environmentally friendly plastic products
that biodegrade within 120 days. In the production phase, Biocycle
actually reduces carbon emissions both as a derivative of sugar cane
byproducts and by virtue of its biodegradability. In addition, it
has the potential of reducing plastic buildup in landfills. Filho
explained that the goal is to diversify the company's production mix
to include this value-added niche product to minimize its exposure
to commodity price fluctuations. Three kilograms of sugar cane
produces one kilogram of the biopolymer powder. PHB outlined
potential markets for Biocycle including Europe, which prizes
products derived from clean energy, and Japan, given that country's
limited space for waste disposal. PHB produces Biocycle more
cheaply from Brazilian sugar cane than similar corn-based products
developed in the U.S., but, as is usually the case with Brazilian
products, higher transportation costs reduce the advantage.

Mayor Wants More Investment
---------------------------

7. (U) Following the sugar mill tour, CG's delegation and Pedra
management lunched with Welson Gasparini, Mayor of Ribeirao Preto;
Jorge de Oliveira, his Chief of Staff; and Wandeir Silva, President
of the City Council. Mayor Gasparini, a lawyer and educator who
began his political career in 1959 when he was elected to the
Ribeirao Preto City Council at the age of 23 and is now in his
fourth term as Mayor - he was elected in 1963, 1972, 1988, and 2004
- said the city's economy is strong, the workforce well educated,
and the poverty rate relatively low. He said the city is always
looking for more investment for its export industries and asked the
CG to encourage potential U.S. investors to visit. (Note: In
November, Florida Governor Crist is leading a large private-sector
group on a visit to Sao Paulo, Sao Jose dos Campos, Ribeirao Preto,
and Rio de Janeiro. End Note.) He also noted that AMCHAM Brasil
has a chapter in the city.

8. (U) The Mayor outlined Ribeirao Preto's importance as a
regional hub; some of the principal cities and economic centers of
the interior of Sao Paulo and Minas Gerais states are located within
a 200-km radius of Ribeirco Preto, including Araraquara, Campinas,
Franca, Limeira, Sao Carlos, Sco Jos do Rio Preto, Uberaba (MG),
and Uberlandia (MG). This is due to the city's accessibility, which
is facilitated by its high quality rail system; unusual in Brazil.
Overall, the Mayor pointed out that Ribeirco Preto's convenient

SAO PAULO 00000754 003 OF 003


location, positive social indicators, rich agricultural land, and
well-developed infrastructure have made it a magnet for commercial
investment in Brazil. In addition to sugar cane, the region
produces soy beans, citrus products (especially oranges), peanuts,
and other fruits and vegetables. Agriculture makes up about 19
percent of the municipaity's GDP, with 26 percent devoted to
commerce ad the rest to other services. The sugar and ethanl boom
has generated complementary industries, sch as agricultural
machinery and factory equipmet.

Not Immune from Poverty
----------------------

9. (U) Though Ribeirao Preto has less povety and more equal income
distribution than many arts of Brazil, Gasparini acknowledged that
the ity does have some urban slums ("favelas"), mostlypopulated by
migrants from the northeast - princially Maranhao state - who came
to work in the agricultural sector (mostly in sugar cane) and then
don't leave. The city also has a number of participants in the
federal government's "Bolsa Familia" (BF) cash-transfer program,
though the Mayor wasn't sure how many. Gasparini said administering
the program represents a significant burden for the municipal
government and is probably even more challenging for smaller, less
prosperous towns with fewer government resources. In addition to
registering applicants, municipalities are responsible for reporting
on beneficiaries' compliance with BF's conditions, such as
children's school attendance and vaccinations. Beneficiaries also
rarely remove themselves from the program due to gainful employment,
he said. Gasparini added that it is very difficult and
time-consuming for the government to remove a recipient from the
rolls due to excess income or non-compliance with the conditions.


Comment
-------

10. (U) The Pedra ethanol operation is impressive, both in size and
efficiency. The plant is clean and working conditions appear to be
good. The city and surrounding region also appear to foster a
generally high quality of life, which it should be able to sustain
as long as demand for sugar and ethanol continues to grow. End
Comment.

WHITE

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