Sugarcane, sugar and ethanol production costs in Brazil:

Monitoring 2010/2011 crop year – Center-South

Programa de Educação Continuada em Economia e Gestão de Empresas
“Luiz de Queiroz” College of Agriculture of the University of Sao Paulo
 
PECEGE/CNA release new research of Sugarcane, sugar and ethanol production costs in Brazil:
monitoring the 2010/2011 crop-year – Center-South

The Continuing Education Program in Economics and Business Administration – PECEGE, a

research group of the "Luiz de Queiroz" College of Agriculture (ESALQ) of University of São Paulo,
with support from the Agriculture and Livestock Confederation of Brazil - CNA announces the final
report of the costs of production of sugarcane, sugar and ethanol, monitoring of the 2010/11 crop in the
Center-South region. These reports of costs of production of sugarcane, sugar and ethanol in Brazil have
been conducted for four crops and assume the task of developing a research that enables the creation and
dissemination of information into society, looking for the development of companies of this sector.
Initiated to analyze the 2007/2008 crop, the series of surveys originally aimed to calculate the
regional indicators of sugarcane, sugar and ethanol production costs for the main Brazilian regions. New
aims were added in the others reports: i) definition of a cost accounting methodology common to all
research participants, ii) development of performance indicators of technical processes and, iii) creation
of indicators of prices paid by a group of agribusiness production inputs in the sugar-ethanol industry.
The survey has the essential contribution of nearly one hundred institutions, including mills,
associations, sugarcane farmers, unions, associations, equipment manufacturers, research centers, input
suppliers and lenders receiving as consideration of technical, and comparative information on economic
conditions for its management costs, prices of inputs and production processes.
Costs of the 2010/2011 crop in the Center-South region
The costs of the 2010/2011 crop has set the estimate cost for final harvest by players in the
region called ‘Traditional”, bounded by the states of SP, PR, RJ, and ‘Expansion’ region, referring to
states of GO, MG, MS and western Brazilian region. The research involved the collaboration of 65
institutions, with 55 mills and 10 associations of sugarcane farmers and, in addition to that, it had the
support of information published or made available by CTC, Orplana, UDOP and UNICA. The survey
sample was responsible for production and processing of 116 million tons of sugarcane, or the
equivalent of 21% of the total amount produced in South-Central region.
The 2010/11 crop compared to previous crops was characterized by higher farm costs, decreased
crop yields, raw material with high quality, increased manufacturing costs, improvement of the income
coefficients and losses from industrial processes and sugarcane prices, sugar and ethanol are more
favorable to producers and processors. High prices were a major driver of improved profitability.
The survey results highlighted that, on average, the sugarcane farmers in the ‘Expansion’ region
have achieved a sufficient price to cover all factors of production. While ‘Traditional’ region’s farmers
had enough prices to pay for their costs with cash flow and depreciation, but failed to pay their
opportunity costs of capital and achieving economic profitability. Since the cost of cane produced by
mills itself, in both regions, were lower than those of farmers and market prices. Overall, there was a
noticeable improvement in earnings in the sector in the current crop compared to previous ones, due to
good market conditions for sugar and ethanol, since the costs of production have slightly increased.
Table 1 outlines the summary of the total economics cost of the 2010/2011 sugarcane crop. Table 2

Av. Pádua Dias, 11, P.O. Box 252, CEP 13400-970, Piracicaba – SP – Brazil
Phone (19) 3375-4250 – projetos@pecege.esalq.usp.br – www.pecege.esalq.usp.br
 Sugarcane, su
ugar and ethanol
e pro
oduction costs
c in Brrazil:
Monitorin ng 2010/20011 crop year
y – Cen
nter-Southh
Program
ma de Educcação Continnuada em Economia e Gestão
G de Em mpresas
“Luiz de
d Queiroz”” College of Agriculture
A e of the Univversity of Saao Paulo
 
prresents the division off operating costs for the agricultu ural producction processs of sugarcane farmeers,
w
while Figure 1 illustratess the breakddown of thee main trainiing costs factors.

Taable 1 – Results of the sugarcane costs

c of prooduction (R$
$/t) and the contributioon margin in
n the 2010/111
Operationnal Costs Economiic Costs
A
Agent Regionn Econommic Margin
(TOOC) (TC
C)
Faarmer Expansion 43,,30 49,74 6,,5%
Faarmer Traditiional 47,,27 59,58 -10
0,2%
M
Mill Expansion 40,,12 45,65 166,1%
M
Mill Traditiional 45,,69 51,72 3,,5%
Soource: PECEG
GE (2011)

Taable 2 – Costs by sugarrcane stage of productiion (R$/ha) in the 20100/11 crop faarmers.
Sttage of prodduction Traditiional Expansion
n
I – Farming* 3.229
9,27 3.227,43
Sugarcanne areas formmation 3.157
7,45 3690,00
Plant Canne Managem ment 353,3
30 321,50
Ratoon Cane
C Managgement 828,15 873,96
Harvestinng Practice 1.864
4,60 1.736,16
II – Rent of land 805,14 522,25
IIII – Adminisstrative Cossts 497,86 209,84
IV
V – Total deepreciation 306,30 132,44
Machineryy Depreciattion 230,4
41 101,34
V –Return onn capital 301,00 207,89
Tootal Costs 4.909
9,15 4.198,52
* The
T stages and sub-stages of
o production I include deprreciation costss of machineryy deployed inn stage IV
Soource: PECEG
GE (2011)

MO
M 14% M MO
31% I 40% 13%
166%

A
2%
DA I
3% 22%
RC D RC
6% 6%
% 5% RT A
RT RP RP D DDA
15% 7% 8% 3% 3% 2%
% 4%

(a) Tradiitional (b) Expansion

E
M=Mechanizatiion; MO=Labbour; I=Input; A=Rents; DA=Administr
M D rative Expenses; D=Deprecciation; RP=R
Return to ownner;
RT
T=Rent of lannd; RC=Returrn on capital
Fiigure 1 – Graphical representati
r ion of sugaarcane costss and pricess by the meethod of Operating Coost
farmers.

Av. Pádua
P Dias, 11, P.O. Box 252,
2 CEP 1340 00-970, Piraciicaba – SP – B
Brazil
Phone (19)
( 3375-42550 – projetos@
@pecege.esalq
q.usp.br – wwww.pecege.esallq.usp.br
 Sugarcane, sugar and ethanol production costs in Brazil:
Monitoring 2010/2011 crop year – Center-South
Programa de Educação Continuada em Economia e Gestão de Empresas
“Luiz de Queiroz” College of Agriculture of the University of Sao Paulo
 
The economic results obtained by the production of sugar and ethanol did not differ from those of
sugarcane. It was identified that both the market prices of ethanol and sugar market were sufficient to
pay the total industrial costs (TC) in the two regions analyzed, except hydrated ethanol produced in the
‘Traditional’ region, which only covered a portion of the cost of opportunity cost of capital. Although
both have shown good performance, should be highlighted the best performance of the sugar market,
which once again outperformed the market for ethanol. Table 3 presents the summary results of the
major products, VHP sugar and hydrous ethanol.

Table 3 – Results of production costs and contribution margin of VHP (unit cost R$/ton) sugar and
ethanol (unit cost R$/m³) at the 2010/11 crop.
Operational Cost Economic Cost
Product Region Economic Margin
(TOC) (TC)
VHP Sugar Expansion 505,09 589,10 23,9%
VHP Sugar Traditional 549,27 631,87 15,5%
Hydrous Ethanol Expansion 757,63 874,19 1,9%
Hydrous Ethanol Traditional 803,82 916,30 -2,8%
Source: PECEGE (2011)

The maintenance of good profitability in the sector was caused by the improvement in prices,
combined with increased manufacturing productivity, which occurred mainly due to higher
concentration of sugar in the raw material. However, improvements in efficiency of use of agribusiness
production factors have not been identified as well as their prices have suffered following the inflation
adjustments. This diagnosis confirms the interpretation that is extracted in the last harvest, which
confirms that the performance of the sector is heavily dependent on market prices for sugar and ethanol.
A continuous search for cost control is needed, in its constant search for improvement of the production
system, ensuring the sustainable development of the sugar-energy activity. Figures 2-4 highlight trends
in key costs indicators measured in this survey, developed by PECEGE / CNA.

70
60
Sugarcane - R$/t

50
40
30
20
10
-
2007/08 2008/09 2009/10 2010/11 2007/08 2008/09 2009/10 2010/11

Expansion Traditional

TOC TC Average Price

Figure 2 – Evolution costs (TOC, TC) and average price for cane farmers of Center-South
Av. Pádua Dias, 11, P.O. Box 252, CEP 13400-970, Piracicaba – SP – Brazil
Phone (19) 3375-4250 – projetos@pecege.esalq.usp.br – www.pecege.esalq.usp.br
 Sugarcane, sugar and ethanol production costs in Brazil:
Monitoring 2010/2011 crop year – Center-South
Programa de Educação Continuada em Economia e Gestão de Empresas
“Luiz de Queiroz” College of Agriculture of the University of Sao Paulo
 
800
700
VHP Sugar - R$/t

600
500
400
300
200
100
-
2007/08 2008/09 2009/10 2010/11 2007/08 2008/09 2009/10 2010/11

Expansion Traditional

TOC TC Average Price

Figure 3 – Evolution costs (TOC, TC) and VHP sugar average price – Center-South
1.000
Etanol Hidratado - R$/m³

900
800
700
600
500
400
300
200
100
-
2007/08 2008/09 2009/10 2010/11 2007/08 2008/09 2009/10 2010/11

Expansion Traditional

TOC TC Average Price

 
Figure 4 – Evolution costs (TOC, TC) for hydrous ethanol in the Center-South.
The regular publication in production costs of sugarcane, sugar and ethanol increases the
seriousness and credibility of this work with stakeholders in the sector, which is reflected in the
increased number of participants. We highlight the role of this study to disseminate methods of cost
estimates that could serve as a reference for identifying, analyzing and comparing the practices of
agribusiness to show factors in the production cost and generate indicators that reflect the best practices
management and production control.
This paper presents the survey developed by PECEGE/CNA and invites those interested to
contribute with our research. The full reports with results from the four crops analyzed in the recent
years are freely accessible to the public and are available at www.pecege.esalq.usp.br. For extra
information please contact projetos@pecege.esalq.usp.br or phone + 55 (19) 3375-4250. All study
participants have exclusive access to a benchmarking report and analysis on your business. In April
2011, the survey starts PECEGE consolidation of the production costs of the Center-South and Northeast
in the 2010/11, and once again hopes to have the contribution of sugar and bioenergy sector institutions.

Av. Pádua Dias, 11, P.O. Box 252, CEP 13400-970, Piracicaba – SP – Brazil
Phone (19) 3375-4250 – projetos@pecege.esalq.usp.br – www.pecege.esalq.usp.br