São Paulo,

May 02nd, 2012

Luana Maia

Institutional Relations

Brazilian Sugarcane Industry Association (UNICA)

SUGARCANE ETHANOL:

MAJOR CHALLENGES AND OPPORTUNITIES

University of Texas at Austin

The Brazilian Sugarcane Industry Association (UNICA) is the leading sugarcane

industry association in Brazil. Its more than 130 member companies, voluntarily

engaged, represent over 50% of the ethanol and 60% of the sugar produced in

Brazil.

UNICA has around 60 staff and its expertise covers key areas including the

environment, energy, technology, international trade, corporate social

responsibility, sustainability, regulation, economics and communications.

It has offices in five locations: São Paulo (headquarters), Ribeirão Preto (in the

heart of the sugarcane producing region), Brasília (Brazilian capital),

Washington D.C, and Brussels.

ABOUT UNICA

1. A look at the current domestic market

2. The development of biofuels programs worldwide

3. Sustainability aspects

4. Final Remarks

OUTLINE

1. A look at the current domestic market

2. The development of biofuels programs worldwide

3. Sustainability aspects

4. Final Remarks

OUTLINE

Source: LMC, F.O.Licht’s, Secex, UNICA e Rais.

Number of mills: 430

Sugarcane growers: 70,000

Direct employment: 1.2 million

Sector annual revenue: US$ 48 billion

Foreign revenue (Exports): US$ 15 billion

% Energy Matrix: 18% - 2nd source (behind

oil) and 1st source of renewable energy

1st SUGAR PRODUCER IN THE WORLD

25% of world production

50% of world exports

2nd ETHANOL PRODUCER IN THE WORLD

20% of world production

20% of world exports

KEY NUMBERS - BRAZILIAN SUGARCANE SECTOR

Petroleum

and derivatives

37.6%

Sugarcane17.8 %

Hydro

14.0%

Wood and

other biomass

9.7%

Natural Gas

10.3%

Coal and

derivatives5.2%

Other

renewables4.0% Uranium

1.4%

Source: Balanço Energético nacional BEN (2011) and International Energy Agency. Key World Statistics 2010. Elaboration: UNICA

World Energy Supply Structure (%)

54.5 87.1 92.4

45.5 12.9 7.6

Brazil (2010) World (2008) OECD (2009)

Non-renewable

BRAZILIAN ENERGY MATRIX INPUT

0

10

20

30

40

50

01 02 03 04 05 06 07 08 09 10

#1 Source of Renewable Energy in BR

(million toe)

Toe: tons of oil equivalent

0

100

200

300

400

500

600

700

0

5

10

15

20

25

30

35

40

45

75/7

6

77/7

8

79/8

0

81/8

2

83/8

4

85/8

6

87/8

8

89/9

0

91/9

2

93/9

4

95/9

6

97/9

8

99/0

0

01/0

2

03/0

4

05/0

6

07/0

8

09/1

0

11/1

2*

Sugarc

ane (

mill

ion t

ons)

Sugar

(mill

ion t

ons)

Eth

anol (b

illio

n liters

)

Sugarcane Sugar Ethanol

Source: UNICA and MAPA. Note: 11/12* - estimated data.

Proalcool program

1st phase: strong

government

intervention; pure

ethanol vehicles &

distribution

FFV Automakers

decision

NATIONAL SUGARCANE CRUSHING

SUGAR AND ETHANOL: HISTORICAL OVERVIEW

Overview of

the last decade

0

10

20

30

40

50

60

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mill

ion

s

Flex Fuel Gasoline Ethanol Only

50%

86%

Source: UNICA.

NATIONAL LIGHT VEHICLE FLEET

Today, 12 automakers offer over 90 models of flex fuel

vehicles, which already account for almost 50% of the

Brazilian light vehicle fleet.

Cane stalks

Cane juice

(Sucrose)

Bagasse

(Cellulose)

Straw

(Tops and Leaves)

(Cellulose) Bioelectricity

Ethanol

Sugarcane

Sugar

Biopolymers

(bioplastics,

isoprene, etc)

Current

technology

SUGARCANE PRODUCTS: STEP BY STEP

Technology under

development Detergents &

solvents

Cosmetics

Lubricants

Flavors and

Fragrances

Food

Drop-in fuels

(diesel, jet fuel,

gasoline)

3° generation

BIOELECTRICITY USE Brazilian potential to generate bioelectricity

Note: 1 t of cane produces 250 kg of bagasse and 204 of straw and points, 1 t of cane (bagasse + straw) generates 199,9 KWh for export, Lower Calorific Value

(LCV) of straw = 1,7 LCV of bagasse, capacity factor = 0,5 (Koblitz), using a 65 bar boiler. In 2008/09, it should be considered a use of 75% of available bagasse and

5% of available straw and, from 2015/16, a use of 75% of available bagasse and 70% of available straw. Up to 2010, it was considered the energy traded at Energy

Auctions in a Regulated Contracting Environment, for 2011 an increment of 1600 MW was considered, and by 2012 an increment of 2000 MW per year. Source:

UNICA, Cogen, Koblitz (2009).

2 Itaipus

2nd Largest

hydroelectrici

ty power

plant in the

world

ONS data indicate a 4% savings

of reservoirs for every 1,000 MWa

of bioelectricity generated during

the dry season (April-November)

BIO-PACKAGING FROM SUGARCANE

Sugarcane is replacing traditional fossil fuel

inputs in the petrochemical industry

BIOPLASTICS FROM SUGARCANE

Sugarcane is replacing traditional fossil fuel

inputs in the petrochemical industry

Bio-Isoprene

DECADE OVERVIEW

-

100

200

300

400

500

600

700

2000/0

1

2001/0

2

2002/0

3

2003/0

4

2004/0

5

2005/0

6

2006/0

7

2007/0

8

2008/0

9

2009/1

0

2010/1

1*

2011/1

2**

Mill

ion

tons

Sugar Ethanol - exports Ethanol - domestic use

Sourcee: UNICA and Ministry of Agriculture,Livestock and Supply. Nota: 11/12 – estimate

Launch of flex fuel vehicles in 2003

Global interest in ethanol

Ethanol: 10.5% a.a.

Sugar: 8.9% a.a.

555 MT

1. World financial crisis acquisitions involving affected companies

2. Weather problems in three consecutive harvests

3. Loss of domestic competitiveness for ethanol compared to gasoline

Stagnation

Moema

Group

Higher concentration increases competitiveness

(economies of scale and scope)

Despite recent M&A, the industry remains fragmented

STRONG CONSOLIDATION

Estimate of the Brazilian fleet of light

vehicles (Otto cycle)

Source: Estimate of UNICA.

-

10

20

30

40

50

60

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Mill

ion

s o

f ve

hic

les

Flex fuel Gasoline Ethanol (only)

51% Flex/total

70% Flex/total

81% Flex/total

0

5

10

15

20

25

30

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Fle

et

moto

rcycle

s (

mill

ion)

Flex fuel Gasoline

61% Flex/total

Fleet of motorcycles: 53% of bikes sold, in the

first half of this year, were flex

Brazil will need to double the supply of fuels (ethanol and gasoline) to

attend the demand in 2020

WHAT COMES NEXT

ETHANOL: ACCELERATED GROWTH OF THE FLEX FLEET

140

340 450

0

200

400

600

800

1.000

1.200

1.400

2011/12 2015/16 2020/21

Su

ga

rcan

e P

rod

uctio

n in (

MT

)

Sugar Anhydrous Ethanol Hydrous Ethanol

555 Million tons

886 Million tons

1,2 Billion tons

SUGARCANE DEMAND SCENARIO

To supply 50% of the country’s automotive fleet with ethanol (anhydrous+hydrous)

and maintain Brazil’s current share in world sugar market (~50%):

Increasing production

depends on the ability

to restore

competitiveness for

hydrous ethanol in the

domestic market

Source: UNICA. Note: the hydrous ethanol is pure sold at the pumps and used without modification by the flex-fuel vehicles,

then it competes directly with gasoline by the preference of consumers (this product is 4.9% water), the anhydrous ethanol is

blended with gasoline in proportions ranging from 18% to 25% (the anhydrous ethanol has a lower water content - 0.4%).

ASSUMPTIONS

Sugar exports: Maintenance of Brazil’s share of 50% in the global sugar market until 2020/21.

Ethanol domestic market: 50% of ethanol share in the total fuel consumption by the light vehicle fleet in 2020/21.

Ethanol exports: Gradual growth in ethanol exports, aiming to reach the estimated volume in the American mandate for “advanced

ethanol” (13.5 billion liters in 2020/21).

Non-fuel Ethanol: Projected demand of 5 billion gallons/year by 2020.

Elaboration: UNICA, Copersucar and Cogen (2012).

2010/2011 2015/2016 2020/2021

Sugar (million t) 38.0 44.8 51.1

% Exports (72%) (73%) (73%)

Ethanol (billion liters) 27.4 44.3 70.0

% Exports (7%) (8%) (20%)

Bioelectricity (GW average) 1.0 8.6 15.3

Share in Brazilian electric matrix (%) (2%) (13%) (18%)

Sugarcane production (million t) 620 1,206875

GROWTH SCENARIO IN THE SUGARCANE SECTOR (with restoration of the hydrous ethanol competitiveness)

1. A look at the current domestic market

2. The development of biofuels programs worldwide

3. Sustainability aspects

4. Final Remarks

OUTLINE

WORLD BIOFUELS PROGRAMS

Oil consumption

Current Mandates

In discussion

0

10

20

30

40

50

60

70

80

90

100

110

120

2004

2005

2006

2007

2008

2009

2010

20

11

e -

1,0

2,0

3,0

4,0

5,0

6,0

2003

2004

2005

2006

2007

2008

2009

2010

20

11

e

WORLD ETHANOL PRODUCTION AND EXPORTS

PRODUCTION X EXPORTS EXPORTS BY COUNTRY

Source: LMC. Elaboration: UNICA. Note: e - estimate

Billion liters Billion liters

Production

Exports

Brazil

USA

Others

Consumption Targets

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Biomass based diesel 1.89 2.46 3.03 3.79 3.79 3.79 3.79 3.79 3.79 3.79 3.79 3.79 3.79 3.79

Celulosic advanced 0.38 0.95 1.89 3.79 6.62 11.36 16.09 20.82 26.50 32.18 39.75 51.10 60.57

Non-celulosic advanced 0.38 0.76 1.14 1.89 6.62 7.57 9.46 11.36 13.25 15.14 17.03 17.03 17.03 18.93

Conventional 15.14 17.79 34.07 39.75 45.42 47.70 49.97 52.24 54.51 56.78 56.78 56.78 56.78 56.78 56.78 56.78 56.78

0

20

40

60

80

100

120

140

160

Bill

ion l

iters

Conventional

Non-celulosic advanced

Celulosic advanced

Biomass based diesel

Sources: EISA of 2008, U.S. Environmental Protection Agency (RFS-2), Final Rule.

US - RENEWABLE FUEL STANDARD 2

2022 mandate: +136

bln. liters, of which

58% must come from

advanced biofuel

EU LEGISLATIVE FRAMEWORK

10% of renewable energies in the transport sector by 2020 without specific

targets for certain renewable energy sources and without intermediate targets.

Source: based on the 27 NRAP . Elaboration: UNICA

Bill

ion

litr

es

Ethanol estimates according to the National Renewable Action Plans (EU 27)

0

2

4

6

8

10

12

14

16

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

EU import tariffs on ethanol are 0.19 and 0.10 € /liter.

EU DIRECTIVE

MULTISTAKEHOLDER INITIATIVES

NATIONAL INITIATIVES (GOVERNMENTAL OR PRIVATE)

LCFS

Low Carbon Fuel Standard

Renewable Transport Fuel Obligation

RTFO

G8+5

Task 39

Liquid Biofuels from Biomass

INTERNATIONAL BODIES’

INITIATIVES

RTRS

Roundtable on Responsible Soy

RSPO

Roundtable on Sustainable Palm Oil

Bonsucro

Better Sugarcane Initiative

Equator Principles

CEN European

Committee for Standardization

Renewable Fuel Standard

RFS ISCC

Biofuel Quota Law- Ordinance for sustainability

requirements

GBEP

Global Bioenergy Partnership

RSB

Round Table on Sustainable

Biofuels

Rainforest

SAN Rainforest Alliance

BEFSCI Bioenergy and Food Security Criteria and Indicators

Source: UNICA. January 2012 (v.6)

GLOBAL NATIONAL

SUSTAINABILITY INITIATIVES FOR BIOENERGY: A “UNIVERSE” IN CONSTANT EXPANSION

REGIONAL INITIATIVES

VSE Verified

Sustainable Ethanol

FAO OECD IDB IFC IEA UNEP ISO

Green Protocol

Sugarcane Zoning

National Commitment

National Commitment for the Improvement of

Labor Conditions in Sugarcane

CBD

Substa-CBD

IFC Principles

BNS

Biomass Nippon Strategy

etha STAR

NEN NTA 8080

Greenergy Greenergy Brazilian

Bioethanol verification programme

PC 248

Sustainability Criteria for Bioenergy

Scorecard

IDB Biofuels Sustainability

Scorecard

Biomass Biofuel Sustainability

2BSvs RBSA

Abengoa RED Bioenergy

Sustainability Assurance

CSBP

Council on Sustainable

Biomass Production

Ethanol production in 100 countries would also enhance energy security by

reducing world reliance on only 20 oil producing countries.

British Sugar

WORLD SUGARCANE MAP

1. A look at the current domestic market

2. The development of biofuels programs worldwide

3. Sustainability aspects

4. Final Remarks

OUTLINE

Source Cana-de-

açúcar

Milho

(EUA) Trigo (UE)

Beterraba

(UE)

Feedstock Sugarcane Corn Wheat Beets

Energy balance (units of rewable energy

per unit of fossil fuel

input)

9.3 1.4 2.0 2.0

Productivity (liters/hectare)

7,000 3,800 2,500 5,500

GHG reduction (from US and EU

legislations)

61%-91% 0%-38% 16%-69% 52%

Advantages of sugarcane ethanol

*Note: reduction of avoided emissions with ethanol as a gasoline substitute and calculated according to life-cycle analysis. Source: World

Watch Institute (2006) and Macedo et al. (2008) – energy balance. Productivity: IEA – International Energy Agency (2005), MTEC, EU

Commission, EPA and UNICA. GEE: IEA – International Energy Agency (2004) and Macedo, I. de C. et al. (2004 and 2008). Elaboration:

UNICA

SUGARCANE ETHANOL ENVIRONMENTAL PERFORMANCE

Million Ha* LAND USE IN BRAZIL

* Area refers to 2010 civil year

Source: ICONE, ESALQ and IBGE. Elaboration: Cosan and UNICA.

Total Area Protected Area Arable Land Others

851 496 330 26

100% 58% 39% 3%

Pastures

Crop Land

Sugarcane

Other

9.5

2.9%

60

18%

159

48%

111

34%

Arable Land Others

Sugarcane

FOR ETHANOL

4.6

1.4%

0

4.000

8.000

12.000

16.000

70´s Today Future

Ethanol Productivity

SUGARCANE AGROECOLOGICAL ZONING IN BRAZIL

1. It excludes sugarcane

expansion in the most

sensitive biomes – e.g.

Amazonia and Pantanal.

2. It excludes sugarcane

expansion on any type of

native vegetation (Cerrados,

Campos, etc.)

3. Authorized areas for sugarcane

expansion: 64.7 ml hectares,

equivalent to 7.5% of the

Brazilian territory (Currently

0.9% of the area is used for

sugarcane)

Response to the process of mechanizing the

sugarcane harvest to eliminate burning;

Project to train and requalify 3,500 workers per

year for jobs in sugar mills and ethanol plants as well

as to work in other sectors;

Similar programs are now being adopted by the

mills.

The Green Protocol is a voluntary agreement established

between UNICA and the government of state of São Paulo to end

the use of fire in sugarcane harvesting and to adopt other

conservation measures, such as the protection of riparian areas.

260 thousand ha of riparian areas are already protected by the

sector and 70% of the cane is to be harvested mechanically in

harvest year 2011/12.

SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

A “trilateral” agreement - Government, Private

Sector and Labor Unions - which sets around 30 better

work practices that goes beyond legislation demand.

It is an agreement of voluntary participation where

verified companies will be placed in a “Positive List”

in the website of the General Secretary of the

Presidency of the Republic.

UNICA was the first agribusiness association in the

world to publish a sustainability report following the

Global Reporting Initiative Framework.

In its last version (2010) it achieved an “A+ Grade”.

Dissemination of the practice within the Sugarcane sector:

around 75 mills have now their own GRI Sustainability

Report!

GRI Sustainability Report

An international multi-stakeholder

certification of best sustainability

practices

SOME BONSUCRO MEMBERS

14 Brazilian mills

certified:

1.4% of global

surface under cane

1. A look at the current domestic market

2. The development of biofuels programs worldwide

3. Sustainability aspects

4. Final Remarks

OUTLINE

1. Consumer demand and public policies will drive increased use of

biofuels.

2. Key factors favoring the commoditization of ethanol:

Adoption of targets for the use of biofuels by a growing number of

countries

Global corporations from a wide range of sectors investing in ethanol

production, generating economies of scale and scope

Ethanol helps countries achieve emission reduction targets and mitigate

climate change, increasing energy security

Ethanol can be produced in more than 100 countries (energy

diversification and economic development factor)

FINAL REMARKS (I)

3. Factors preventing ethanol from becoming a global commodity:

Tariffs and trade-distorting measures

Excessive non-tariff barriers.

Proliferation of sustainability requirements

4. What needs to be done?

Repeal fallacious myths and inform about benefits to climate change mitigation

Elimination of trade-distorting domestic support mechanisms

Increased technical, scientific and economic cooperation between producing

countries

FINAL REMARKS (II)

Thank you

www.unica.com.br

www.sugarcane.org