December 28, 2012

Producers in Mato Grosso Want More Areas Opened for Sugarcane

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

While the state of Mato Grosso is the principal producer of soybeans, corn and cattle in Brazil, it is a minor producer of sugarcane compared to the states in southern Brazil. In Conab's latest assessment of the Brazilian sugarcane crop, they estimated that 235,000 hectares of sugarcane are grown in the state or just 2.7% of Brazil's total sugarcane acreage. Many farmers in the state attribute this anemic showing to recent restrictions put in place on where sugarcane is allowed to be grown in the state.

In 2009, a presidential decree limited the areas where sugarcane could be grown in the state and it restricted the availability of credit for planting sugarcane in what is considered environmentally sensitive areas. It put off limits sugarcane production in the Amazon Biome, the Paraguay River Basin, and the Pantanal Wetlands. Collectively, these three regions represent a significant portion of the state.

The Brazilian Minister of Agriculture at the time of the decree, Reinhold Stephanes, feels the restrictions were put in place for political and not technical reasons. At the time of the decree, worldwide commodity prices were at record levels, riots due to food shortages had erupted in many countries, and there was much discussion concerning the use of agricultural land to produce fuel instead of food.

Much of that discussion though was misdirected due to the erroneous belief that sugarcane production was taking away land in Brazil used for grain and food production. The vast majority of new sugarcane productions come from the conversion of pasturelands to sugarcane production. Many people believed though that the situation in Brazil was similar to the U.S. where ethanol production consumes approximately 40% of the corn produced in the country.

When the restrictions were put in place, the National Development Bank in Brazil (BNDES) was looking to finance 105 new potential sugar/ethanol mills and the associated land needed to grow the sugarcane. Public opinion though had turned against sugarcane production for fear it would further reduce food production.

The situation in Brazil today is very different and BNDES is not looking to finance any new mill construction despite the fact that Brazil needs to nearly double its sugarcane production by the year 2020 just to meet domestic demand for ethanol.

Technicians from the state Environmental Protection Agency and the State Department of Agriculture are currently in discussions with the Minister of Agriculture in an attempt to modify these restrictions. They want to open up degraded pasturelands to sugarcane production even though it might be one of these restricted areas. The sugarcane acreage in Brazil currently stands at 8.5 million hectares, but there is a potential 63 million hectares of land in Brazil that would be suitable for sugarcane production.