Opportunities and Challenges Considering the Socioeconomic Dimension for Brazilian Ethanol Industries in the Recent Past

Opportunities and challenges considering the socioeconomic dimension for Brazilian ethanol industries in the recent past.

The sugarcane sector in its evolution have a history of ups and downs that was influenced by several factors, sometimes causing structural changes, sometimes superficial in industry dynamics . However, the transformations experienced in the last 10 years have had a significant impact on the sector. In this latest expansion process, new elements and obstacles were put to groups of entrepreneurs and the new ways to overcome those obstacles have created a new profile for the sector with significant impacts to the communities where the projects are implemented.

Among the variables to be considered on an expansion greenfield project there are elements in the agricultural , industrial and commercial steps that can be more or less aligned with the best practices of sustainability into force . The set of criteria for adoption of these elements often depends on technological factors, endafoclimáticos, legal or even structural elements of the chosen region (topography, availability of manpower).

This paper presents a description of these agricultural, industrial and commercial stages of a sugarcane company with the various technological and procedural options possible. The following focuses attention on one of the fundamental aspects of the business that has impact on the whole processing chain and in the communities where the company operates. This aspect concerns the way how the access to sugar cane has being done

In fact, the format of access to sugarcane (and so to say, land) has changed significantly in the recent expansion cycle (2000-2012). That comes to changing the role of land ownership. Before, the cultivation areas and expansion were the only states in the Northeast and São Paulo, now the crop expands to the Midwest and South. Before, planting on their own land used to be the preference and dominance of the sector who has justified by the dependence of the flow of raw materials, now, other forms of access to cane become the preference of some groups and land ownership becomes a subsidiary or complementary strategy in portfolio of raw material to be processed.

When it analyses the expansion to the state of Goiás where this author worked for 4 years, the differences leap to the eye. A simple implementation of a performance model from São Paulo to the new territory had to undergo several changes. The most striking and impactful to society differences concern the impact on agrarian structure of the region since this element brings to the company and external community consequences of long-term duration.

Then, when it analyses the expansion to the state of Goiás where this author worked for 4 years, the differences leap to the eye. A simple implementation of a performance model from São Paulo to the new territory had to undergo several changes. The most striking and impactful to society differences concern the impact on agrarian structure of the region since this element brings to the company and the external community the consequences of long-term duration.

This vertical integration strategy, when used for the expansion of the sector in the Midwest, this brings about the concentration of income in the hands of a few producers mill owners. Economic activity in the region decreases due to the increased use of larger suppliers capable of endereças the demands of large-scale owner / mill owner.

On the other hand, the strategy of horizontal coordination, where land acquisition gives rise to new contractual arrangements through the lease and formalizing partnerships production, causes a greater extent, the landowner and agricultural entrepreneur, continue ahead of production, and thus using more intensively local resources as manpower, suppliers of implements, products or services. The economic activity of such regions tends to be more dynamic and diverse.

But the question is what leading the adoption of vertical or horizontal strategy by sucroalcoleiras companies in the process of expanding into the region in southern Goiás? Which specificities found on the sector´s expansion to the Midwest have caused or intensified such behavior?

The hypothesis with which it works is that from the mid-2000s changed the profile of new entrants who favour new contractual arrangements in order to guarantee the flow of sugarcane production, at the expense of the vertical integration model adopted until that time by traditional entrants.

The reasons for this change is based on 2 elements: the change of profile of the owner-investor and prior presence of an established culture of using these institutes of lease and partnership that allows the new business owner to access the areas of planting without necessarily having to acquire the land

But why the new business owner profile do not accept or not prefer land acquisition anymore? Research shows that this type of investor now has a profile of predominantly large business group , who pay attention on the scale production and at generating business cash flow instead of traditional family business which has in the real estate valuation of the land one of the attractive for the business.

The consequences of these differences for the community that receive the projects are various and belongs to social and economic dimension. To illustrate the two types of situation, the research presents two case studies of mill that expanded to the territory of Goias after 2000s - The Vale do Verdão - family management mill with access to vertical cane (sugarcane own strategy on own land acquired from the owners of the region ) and the Tropical Bioenergy, a BP group business that uses horizontalized strategy, ie, does not have its own land for planting sugarcane and its supply is 100 % coming from the partnership , independent leasing and cane supply contracts .

The methodology used for the research was based on analysis of primary data collected from the companies presented, representation of business institutions. In addition, secondary data helped explain some impacts initially planned in the surrounding communities. Such analyzes and conclusions were validated with two field visits where interviews with community members and businesses surveyed supported the conclusions presented here.