Leverage to reshape Brazil ethanol sector

Brazil is the world's most efficient ethanol producer hands down

but with the debt that the biofuel sector took on in past years to fuel expansion, many mills will
not be around to benefit from the promising future expected for
the cane industry.

 Weakened by its own indebtedness when credit dried up, the Santelisa Vale cane milling group -- one of the crown jewels of
Brazil's sugar and ethanol sector -- was forced a few weeks ago into the hands of French commodities giant Louis Dreyfus, which
will roughly double its cane crushing capacity with the deal.

 It will not be the last mill to fall under control of deeper pocketed rivals. Mergers and acquisitions are expected
to continue.

 The effects of the credit crunch caused by the international financial crisis is a leitmotif at the biennial
Ethanol Summit sponsored by Brazil's Sugar Cane Industry Association (Unica) June 1 to 3 in Sao Paulo.

 Specialists, researchers, business executives and government officials from around the world, including former
U.S. President Bill Clinton, are presenting at the conference.

 Following are some facts about Brazil's ethanol industry:

 -- As a world pioneer in biofuels, Brazil began its sugar cane-based ethanol program 30 years ago after the world oil
crisis sent its economy into a nose-dive. It was importing nearly 90 percent of its oil needs at the time.

 -- Brazil's cane-based ethanol industry made major advances in efficiency in the 1990s after the government began to phase
out price controls, tax breaks and subsidies for the sector.

 -- The sector is now subsidy free, unlike the U.S. corn-based ethanol industry that relies heavily on government
support, though the government does mandate a 20-25 percent blend of ethanol in all commercial gasoline, aside from the
pure ethanol sold at filling stations.

 -- Brazilian ethanol yields eight times more energy than is used in its production process, compared to U.S. ethanol that
yields at best two times the energy that goes into the production process, a major criticism of U.S. ethanol.

 -- Brazil and the United States account for about 70 percent of world ethanol output.

 -- Brazil is the world's largest exporter of ethanol, with the United States accounting for around half of its sales
abroad despite a U.S. 54 cent import tariff on direct ethanol imports. U.S. exports are expected to ease, however, with the
recent end of a drawback loophole used to avoid the tariff.

 -- Brazil has the most advanced biofuels program in the world with over 30,000 filling stations that offer pure ethanol
fuel and gasoline that is blended with 20-25 percent ethanol.

 -- Brazil's 2009/10 ethanol output is expected to grow to over 28 billion liters from 26.7 billion liters last year as
the momentum of heavy investment in the sector continues to drive cane production to annual records in Brazil.

 -- Investors in the sector include large millers such as Cosan (CZZ.N), Copersucar and Crystalsev, multinationals such
as Cargill Inc, Bunge Ltd (BG.N), ADM Co (ADM.N) and Louis Dreyfus, and now even oil majors such as BP (BP.L) and
Petrobras (PETR4.SA)(PBR.N). Several private equity funds have also invested in production of the biofuel, such as Clean
Energy Brazil (CEB.L).

 -- Domestic demand for ethanol is being driven by the popularity of the flex-fuel car technology that was launched in
2003 and now makes up around 90 percent of all new vehicle sales.

 -- Many of Brazil's 400-odd cane mills are still family owned in complex ownership structures.

 -- Sugar is the other side of Brazil's cane industry. Brazil is the world's largest producer and exporter of the
sweetener and the alternative demand for the cane and shared infrastructure of sugar and ethanol helps mills be all that
more efficient.

 -- Many modern mills are fitted with cogeneration energy plants that run on bagasse, the cane stock left after its sweet
juices are crushed out. The plant provides heat for distillation and electric energy, some of which is sold back to
the local community, further improving mills' efficiency and margins.