January 11, 2011

Sugarcane Expansion Meeting Local Resistance in Brazil

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

The rapid spread of sugarcane production in Brazil is starting to generate a backlash in at least one municipality in the state of Goias. The municipality of Jatai, which is located in southern Goias, proudly claimed the title as the largest soybean producing municipality in the state, but that title may now be in jeopardy.

Sugarcane/ethanol processor Cosan has invested R$ 1 billion in the construction of a new processing facility in the municipality and in order to supply the facility with sugarcane, the company has started to rent large areas of land for the production of sugarcane. The land being converted to sugarcane was formally in soybean production and cattle ranching.

City officials are concerned that if sugarcane production is allowed to continually expand, their municipality may end up with a monocrop of sugarcane production and reduced economic activity. As a result, in December the city council in conjunction with the mayor, rural labor organizations, and the local chamber of commerce passed a new ordinance that stipulated that the city council had the authority to authorize any additional expansion of sugarcane production in the municipality as well as the construction of any new processing facilities. If it was up to city officials, sugarcane production will not be allowed to expand in the municipality and no new processing facilities would be built.

The ordinance faces legal challenges and it could well be declared unconstitutional. A nearby municipality Rio Verde attempted to limit sugarcane production as well, but land owners sued claiming that city officials had no right to decide what they could or could not do with their land and as a result, the ordnance was declared unconstitutional.

The source of their concern is the fact that when sugarcane becomes the dominate agricultural activity in a region, rural employment declines, sales of inputs such as seed, fertilizers, and chemicals decline, sales of agricultural equipment declines, livestock production declines, grain elevators and grain processors move away, and the general economic activity in the region declines. At least that is the scenario being laid out by city officials.

Land owners in the municipality have a completely different take on the situation. Land owners are eager to rent land to the sugarcane/ethanol processors because they pay much more for land rental than soybean farmers or cattle ranchers. Soybean farmers in the region pay an average of 12 sacks of soybeans (26.4 bushels) to rent a hectare of land. Cosan has already offered land owners in the region rental payments as high as18 sacks of soybeans (40 bushels) to rent land for sugarcane production, which is 50% more than for soybean production. It's not hard to see why land owners are anxious to rent their land for sugarcane production.

The conversion of a diverse agricultural base to a monocrop of sugarcane production has very predictable affects on a community. In Jatai a local cooperative has suspended plans for an expansion of their grain storage facility, the local poultry processor has expressed concerns about future poultry production in the region, and meat packers in the region are threatening to move out if cattle production declines.

The center west region of Brazil has been targeted by the sugar/ethanol industry as the primary region for expansion of their industry. During the last six years, the number of sugarcane/ethanol processors in the center west region of Brazil (Mato Grosso, Mato Grosso do Sul, and Goias) has increased 106%. In 2010 there were nine new facilities brought on line in the center west region and in 2011 it is estimated that five more will start operations.

According to some politicians in the state, the solution to situations such as this is to develop a statewide system of agricultural zoning in which sugarcane expansion can be more controlled and predictable. In fact, Embrapa and the Ministry of Agriculture have been promoting such a system for many years. They feel that degraded pastures, which have a very low carrying capacity, could be better utilized by converting them to crop production or sugarcane production. This is easier said than done of course due to the whole issue of property owners deciding what to do with their property.