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Four years ago
when I came to Brazil, ethanol and biodiesel plants were beginning to pop up
quite randomly in the U.S. Today it seems like every 100 miles or so in the
Midwest you can find one or the other. The push for alternative energy/green
fuel has become one of the largest commodity movers in our time.
Brazil has one of the friendliest environments in the world for
green fuel. Last year Brazilian President Lula signed into law a requirement for
all diesel fuel sold by 2008 to be a 2% biodiesel blend, with that mandate
moving to 5% by 2013. Last month the government moved the 5% mandate up to 2010.
With these mandates in place Brazil will need to increase its biodiesel
production from 240 million liters that it’s producing now to 2.5 billion liters
by 2010 – just to meet the domestic mandate.
None of this takes into account the hundreds of millions of
liters that are projected for export in the next few years. Brazil is the only
country that can help the U.S. meet President Bush’s objectives to take
renewable fuels from 7 billion gallons
a year to 35 billion by 2017. This is because the country has over 250 million
acres of land with agricultural potential (without touching the Amazon
rainforest). While much of this will be ethanol, the market for biodiesel will
not lag behind.
With all of the economic factors supporting biodiesel in Brazil,
it was kind of an easy decision to build our own plant. I began rolling around
the idea of creating a biodiesel company in May 2006. After contacting my
friend from Rio de Janeiro |
and explaining my
idea, he agreed. He was in fact thinking of the same project. We then
incorporated a few other partners and created Global Ag BioDiesel. We spent the
next seven months creating a business plan and working out logistical problems.
We hired KPMG
(one of the top
tax, audit and advisory firms in the
world) to do a feasibility study and
run the numbers for us. Their report
projects a ROI of over 45% per
year. With the report in hand we
were able to secure Letters of Intent
for long-term agreements and strategic
partners. We’ve locked in contracts
with our builders, and are finalizing all of our environmental and legal
permits. We should be breaking ground on the facility by June, and should be
producing our first biodiesel by April 2008.
Our biodiesel facility
will be unique when compared to other plants. We’ll even have our own crushing
facility to secure our oil
source. That way we aren’t dependent
on sourcing oil from one of the big multinational crushers. The crush margins
are more than twice as profitable in Brazil as in the U.S., thus creating a much
higher rate of return. The crushing operation also acts as a natural hedge if
the price of diesel and input commodities moves in different directions.
The 28 million
gallon/year plant will be located in the heart of
Luis Eduardo Magalhães (LEM), in the state of
Bahia,
and will be the only biodiesel plant in a 350-mile radius. |
We chose this area
because it puts us in the heart of one of the largest agribusiness producing
regions of Brazil, with over 3 million acres under production. Our farmers will
also benefit from having a
new option for selling their crops and investing in a new (for the region) and
potentially lucrative crop: sunflowers (which are planted after soybeans are
harvested).
We’re opening an equity drive to U.S. investors for a portion of the equity we
are raising, approximately 12% of the total project investment. Other investors
include
European private equity funds. As we now speak, building capacity for biodiesel
plants in Brazil is tied up for the next 24 months, and the delivery dates plant
manufacturers are quoting is extending further into the future as each month
goes
by. Lucky for us we have our builders
already locked up and can start building in the coming months. As a result, our
expectation is to have the U.S. equity drive completed before the beginning of
the U.S. planting season. ■
Published in Corn and Soybean Digest.
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