Brazilian Biodiplomacy in Africa The case of biofuels Report by John Wilkinson for Actionaid within the Framework of the Project: Impact of Biofuels on Food, Farmers and the Environment. Rio de Janeiro, August, 2014. 2 HISTORICAL BACKGROUND Brazilian biofuels are primarily associated with ethanol derived from sugar-cane whereas in the US ethanol is produced from corn, and, in the EU and China, wheat was initially the cereal of choice. This difference in feedstock has been an important argument in Brazil´s presentation of its sugarcane ethanol as an economically and environmentally superior biofuel in addition to being less of a threat to food security. For those acquainted with Brazil´s history this positive image of its sugar-cane sector is remarkable. In Brazilian literature, the “sugar baron” economy evokes colonial Brazil and large plantations run on slave-labor in the Northeast of the country. For some three centuries it was the main export earner before progressively ceding to coffee as the 19th century advanced and slavery was replaced with waves of immigrant wage labor. By the 1920s, sugar´s share in exports had shrunk to 1.4% (Ramos, 1999). Brazil´s economic history is often viewed as a succession of cycles defined by the principal export sector and within this narrative sugar disappears from view as coffee begins to dominate exports, the more so since this shift was also identified with the transition from slavery to wage labor. While, however, sugar declined in the Northeast, the sector was reborn in the Center-South stimulated now by the domestic demand of a rapidly increasing urban, industrial population. As Mintz (1985) has shown for Europe, sugar is second only to cereals as an energy source in the urban diet. Leading plantations now became household names for refined sugar. A third market opened up for the sugar sector as from the 1930s when President Vargas introduced the mixing of anhydrous alcohol with gasoline. During the Second World War this reached a high of 42% falling to some 13% by the 1960s. From the 1930s to the 1990s all the activities of the sugar sector – prices, labor, quotas from independent sugar-cane suppliers, and regional participation in production (this latter protecting the uncompetitive Northeaster sugar sector) – were tightly regulated by the Federal Government´s Institute for Sugar and Alcohol (IAA). In the 1970s, the quota system was abandoned and the sector underwent rapid concentration both in sugar factories and farms (Szmrecsányi, 1979). Far from being marginalized, therefore, sugar was one of the most powerful agricultural sectors when the Pro-alcohol Program was launched in the 70´s. The sector also benefitted from a first class research network for the development of new varieties and the improvement of production systems (PLANALÇÚCAR). On the other hand, sugarcane production was notorious for the appalling conditions of manual harvesting, based on informal recruiting schemes of migrant workers from the Northeast (Silva, 2013). This harvesting system required that the sugar-cane be previously burned to facilitate manual cutting which led to serious problems of air pollution in neighboring towns and concomitant respiratory illnesses (Lopes & Ribeiro, 2006). 3 PRO-ALCOHOL PROGRAM The oil price shock of 1973 was the main stimulus to the launching of the Pro-Alcohol program two years later and was enthusiastically received by the sugar-cane sector in a context of falling international prices for sugar. In its first phase, the program introduced a blending regulation of 20-25% anhydrous ethanol for a rapidly expanding gasoline market. With the second oil price rise in 1979, the all ethanol, (hydrous), car was introduced and by 1986, 90% of new cars were “all ethanol” and 12 billion liters per year were being produced (Wilkinson & Herrera, 2010). Sugar-cane production in São Paulo expanded rapidly in this period occupying areas until then dedicated to orange groves, pasture for beef and dairy and a variety of other crops, in addition to unused lands involving deforestation, provoking concern over the advance of sugar-cane monoculture in the State. Concomitantly there was a huge increase in the number of temporary workers and the emergence of labor struggles over the implementation of the “seven rows” system, increasing workloads which had been previously based on a target of five rows of sugar cane. Important strikes broke out in 1984-6 for basic workers´ rights and to contest the new productivity targets (Mendes, 2007). Rapidly increased production brought with it severe environmental problems in the form of the by-product known as vinhaça. Initially discharged into the nearby rivers, research enabled its use as fertilizer. Here again, however, excessive applications led to the contamination of underground water sources. Declining oil prices and improved export perspectives for sugar in the 90s led to shortages of ethanol at the pump and confidence in the all ethanol car collapsed. By the end of the 90s, a now deregulated sugar sector had increased sugar exports from 1 to 10 million tons, but the production of all ethanol cars plummeted to 1% and the Pro-alcohol Program was ended. Nevertheless, production of anhydrous ethanol continued with compulsory blending levels oscillating between 18-25%. Imports of ethanol from the US made up for shortfalls in the blending targets (Andrietta et al, 2007). The years of the Pro-Alcohol were dominated by increases in production via incorporation of new lands. At the same time, this was a period of more intense research in improving both agricultural and industrial productivity. The Pro-Alcohol also provided a decisive stimulus for the growth of the national capital goods industry which was able to produce state-of-the-arts turnkey plants. The expansion of the sugar cane sector was overwhelmingly endogenous, dominated by traditional plantation families. The pulverization of the sector was compensated by the dominant role of the Cooperative Copersucar, which was central to the rapid dissemination of the Proalcohol Program. Copersucar grouped together the leading players, made a significant contribution to the development of technology and led the way in promoting exports during the ´90s (Goldemberg, 2008). 4 BIOETHANOL FROM 2003-2008/9 The launching of the flex car in 2003, able to run on both ethanol and gasoline, with the choice being decided at the pump, provoked an extraordinary resurgence of ethanol production. Within five years, 87% of new light vehicle sales were flex and ethanol overtook gasoline sales. GRAPH Car sales evolution by sort of fuel used (Thousands of new cars) 2.500,00 Flex 23.292,47 2.000,00 1.995,09 1.500,00 1.430,33 1.152,45 1.077,95 1.000,00 812,10 Etanol 697,03 500,00 316,56 328,38 48,18 245,66 Pure ethanol 2.170,21 Gasoline 0,00 2003 2004 2005 2006 2007 2008 Source: União da Indústria de Cana-de-Açúcar (Unica). (Source: Schutte, 2012) Once again the rise in petrol prices provided a major stimulus. In addition, however, climate change now occupied center stage with the ratification of the Kyoto Protocol in 2005, and Brazil became conscious of the diplomatic gains to be made from its energy matrix. Although renewable energy accounted for only 14% of global energy production, 44% of Brazil´s energy was derived from renewables of which no less than 15% came from sugar-cane (MME, 2007). The Kyoto emissions reduction targets were seen as an important stimulus to ethanol exports and both biodiesel and sugarcane-based bioelectricity offered the possibility for accessing carbon credits through the Clean Development Mechanism (CDM) of the Kyoto Protocol (Lima, 2004; Meneguello & Alves de Castro, 2007) 2003 also saw the beginning of the first Lula government which positioned itself favorably with regard to biofuels and Lula officially filled the first flex car with ethanol (a Gol, launched by Volkswagen). The first year of the new government, however, was initially focused on macro-economic stability and the launching of the Zero Hunger Program. It also had to negotiate a delicate balancing act between a strongly committed Ministry of the Environment (MMA) and a Ministry of Agrarian Development (MDA) dedicated to the promotion of family farming, on the one hand, and a Ministry of Agriculture (MAPA) headed by Roberto Rodrigues, a leading representative of agribusiness, on the other. Already in 2003, however, both the EU (European Biofuels Directive, EBD) and the US (Renewable Fuel Standard, RFS) made formal commitments to biofuels and other major countries established blending targets – India, Japan and China (HLPE/CFS, 2013). Brazil, with its sugar and ethanol markets now deregulated, had been in frank recuperation as from 2000 (see Figure below) and was in a condition to respond to the new demand created by the flex car. 5 GRAPH - Global production of Ethanol (1997 - 2003) Global Production Brazil 40.00 17.00 37.50 13.00 32.50 30.00 11.00 27.50 9.00 25.00 7.00 22.50 Brazil Production (Billion of liters) Global Production (Billion of liters) 15.00 35.00 5.00 20.00 1997 1998 1999 2000 2001 2002 2003 Source: Plinio Mario Nastari. 2004. With the flex car accounting for the overwhelming majority of new car sales ethanol production increased sharply from 15 billion liters in 2003 to 25 billion liters by 2008-9. In addition, the formal commitments to biofuels targets in the US, the EU, Japan and major emerging countries such as China and India opened up the perspective of a global market for ethanol. Brazil´s sugar cane sector now became the privileged object of domestic and foreign investment (GAIN, Report, 2013). As from 2005, the BNDES dramatically increased its support for the sector, as can be seen in the graphic below, reaching R$7.5 billion by 2008. The importance of this sector for the BNDES led to the creation of a special Department of Biofuels in 2007 aim at aligning the Bank´s policy with the Federal Government´s biofuels programs. At this time, some 96 projects for ethanol were being appreciated by the Department involving R$11.3 billion. The BNDES operated with the perspective that by 2010 a hundred new ethanol plants would be concluded producing a further eight billion liters. Its support covered all aspects of the sector – industrial plants, engineering projects, capital goods purchases, bioelectricity, innovation, logistics and infrastructure (Agência Brasil, 2007). R$ BILHÕES GRAPH - BNDS DISBURSEMENTS TO THE SUGARCANE SECTOR (IN R$ BILLION)* Source: BNDES. * The General Price Index - Internal Availability (IGP-DI) was the indicator used to deflate the series, whose base year was 2011. From 2003 until the effects of the global financial crisis made themselves felt in 2009/10 Brazil´s sugar cane sector underwent a profound transformation involving acquisitions, new green field investments and the adoption of professional business models. Traditional firms in the sector became quoted on the stock exchange and entered into strategic alliances. Cosan, the leading firm in the sector acquired Exxon´s distribution network and Crystalev entered into a joint venture with Dow Chemical. The Cooperative Copersucar restructured itself into a public company to confront the new competitive 6 climate. At the same time the global traders – Dreyfuss, Tereos, Cargill, Bunge and ADM moved aggressively into the sector via acquisitions, partnerships and new investments. Brazil´s transnationals – Petrobras and Odebrecht (a leading construction company with strong interests in Africa) similarly acquired important stakes (Wilkinson & Herrera, 2010). Brazil´s ethanol also attracted new actors from global investment funds, often headed by Brazilian investors. Leading investors here included Sun Microsystems, AOL, Merril Lynch, Soros and Goldman Sachs with a preference for green-field investments on the savanna frontier in Brazil´s central region. Major countries committed to biofuels targets were also among the investors. China had a minor participation in Cosan and initiated negotiations for large-scale projects in the State of Bahia both for sugar and soy. Leading Indian firms, Bajaj Hindustan and Reliance Industries established a presence. Japan, for its part, entered into negotiations for an ambitious 1000 kilometer ethanol pipeline to ensure its import requirements. After an official visit in 2004 Japan proposed to make minority investments in 40 sugar mills to the value of US$8 billion to ensure supplies of ethanol (Gentile, 2008, Gordinho, 2010) Overnight a previously pulverized sector (over 300 mills) based almost exclusively on national capital suffered a process of significant concentration (some 40 firms controlling 50% of production by 2008) and transnationalisation (20% by 2010). The adoption of biofuels targets by the US, the EU, Japan and leading emerging countries led to the projection of a global ethanol market, which, on the assumption of the adoption of 10% blending, was calculated at 140 billion liters (Leite et al 2009). In spite of the dynamism of its domestic market, Brazil shows a marked increase in exports as from 2003 (see below). An indication of the scale of investments being considered at this time can be gauged from a report presented by the BNDES in 2007 which speaks of the need for 100 new sugar mills by 2010, each with a capacity of 2 million tons of sugar which would produce an extra 8 billion liters of ethanol (Bastos, 2007). At this time, the BNDES was supporting 68 investment projects for sugar mills to the tune of R$8.9 billion, in addition to 21 projects for the cogeneration of bioelectricity (a byproduct from the burning of the bagasse) involving R$1.4 billion, and seven operations in the capital market to the value of R$1 billion (Milanez et al, 2012). According to UNICA, there were 86 new distilleries in construction in 2007 involving investments of US$14 billion. GRAPH - Ethanol exportation evolution (Billion of liters) 6 5,1 5 4 3,4 3 2,4 2 1 0 0,3 0,8 2001 3,5 3,3 2,6 2 1,9 0,7 2003 2005 2007 Source: MDIC (2012) 7 2009 2011 BRAZILIAN BIODIESEL PROGRAM The Lula government showed its support for ethanol already in 2003 as we have mentioned in relation to the launching of the flex car. The following year, in a visit to South Korea, Lula laid a special emphasis on biofuels. In his speech on this visit he argued: “Along with biodiesel, ethanol will allow South Korea to diversify its sources of energy and at the same time reduce gas emissions”. With the exception of the blending regulation, however, ethanol was largely independent of the government by the beginning of the new millennium. The liberalization of trade and pricing was accompanied by a profound restructuring of the sector whose most notable result was the creation of UNICA, a new association of sugar firms which grouped together 110 of the more than 300 firms in the sector and was to become a decisive arm in the global promotion of ethanol (www.unica.com.br). In its first years, the Government´s main concern with regard to biofuels was the construction of a bio-diesel market. Here it was not a question of regulating an activity already in operation but that of creating a new market fully dependent on public policies (Abramovay & Magalhaes, 2007, Flexor, 2007). Not that the idea of a bio-diesel market did not have its pre-history. Already in the previous government of Fernando Henrique Cardoso proposals had been elaborated for the development of biodiesel using soy as its principal raw material. With increasing competition from palm oil soy had been steadily losing its share of the vegetable oils market and biodiesel presented itself as an ideal alternative (Tiburcio, 2011). The central innovation proposal by the Lula government was to take advantage of biodiesel´s flexibility with regard to feed stocks and gear the program to crops traditionally associated with family farming production systems, depending on the region. The goal therefore was to develop a biofuels program with social inclusion by providing a guaranteed cash crop market for the family farming sector. Palm-oil was to be the principal feed stock in the Northern region, castor oil in the Northeast, and a mixture of soy and other oils in the South,(Diniz, 2010). The program was launched in December 2004 and the biofuels market was created to guarantee a minimum participation of feedstock supplies from the family farming sector – 10% in the North and the Center-West, and 30% in the Northeast and the South. A firm´s eligibility depends on authorization by the National Petroleum Authority (ANP) which oversees the program. Access to the market is by auction and participants must be in possession of a Social Certificate awarded by the Ministry of Agrarian Development (MDA), revocable if the firm does not comply with the requirements for family farm participation. 2% compulsory blending (B2) was introduced in 2008 and was rapidly increased by stages to B5 in January, 2010 (Kato, 2012). In 2014, the scaled adoption of B6 and B7 was agreed on. The Program´s goal was to benefit 200.000 small farmers once fully operational. However, in spite of huge efforts and the increasing involvement of Petrobras Biofuels, it proved impossible to anchor the program on the regional oil crops proposed and by 2009 soy accounted for 78% and animal fats 18% of total biodiesel feedstock. Firms could use soy or animal fats and maintain the Social Certificate if they could show that they had bought the required percentage of accepted feedstock from family farmers participating in the program through cooperatives. If the feedstock, as in the case of the Northeast, were castor oil, this would be traded in alternative markets and substituted for soy in the production of biodiesel. By the end of 2008, the MDA identified the participation of some 37,000 family farmers, far short of the 200,000 target (Diniz & Favareto, 2012). In spite of these anomalies, setbacks were identified as teething problems and the Biodiesel Program was presented as a key complement to the Zero Hunger Program, later-reformulated as the Family Grant Program. Whether explicitly designed as such or not, the Biodiesel Program also served to counter the criticism that Brazil´s biofuels program benefitted only large-scale farmers and was characterized by unacceptable working conditions (Silva, 2013). 8 EMERGENCE AND CONSOLIDATION OF BRAZILIAN BIOFUELS DIPLOMACY The Ministry of Foreign Affairs (MRE), or Itamaraty, as it is known familiarly, has a long tradition of diplomacy, but with the Fernando Henrique Cardoso government a more presidential form of diplomacy emerged as Brazil tried to affirm its interests in a rapidly changing world. Presidential diplomacy was to assume a central position during the Lula governments. Already in 2003 with the “Declaration of Brasília”, India, South Africa and Brazil, via the IBSA Dialogue Forum, identified their common interests in consolidating a developing country approach to global questions. The BRICS group of emerging countries had already been identified as a new global force in 2001 reinforcing the sense of common interests among the emerging Southern economies. This attribution would be formally endorsed by the countries concerned in the first of what would become annual Summit meetings in 2009, in Russia, (Morazán, Knoke, Knoblauch & Schafer, 2012). Brazil was, at the same time, assuming a leading role in the G20 and was asserting itself in the WTO where in 2004 it would win an action against the US on cotton subsidies which also placed it as the champion of African cotton producing countries (Schnepf, 2013). Biofuels, as we have seen, were at the center of international concerns in 2003 with the blending targets adopted both by the US (RFS) and the EU (EBD). While energy concerns predominated in the case of the US and carbon emissions assumed greater visibility in the EU, the idea of clean energy became a central issue in the response to the Kyoto Protocol (Meneguello & Alves de Castro, 2007). Brazil presented itself as a model given its use of hydroelectric sources of energy and the importance of renewable biomass in its energy matrix, responsible in this period for 15% of total energy production (MME, 2010). The co-generation of bio-electricity from biomass was projected to substantially increase this sector´s contribution to renewable energy. Biofuels, therefore, became central to Brazil´s diplomacy in these forums (Jacomo, 2012). The early years of the new millennium saw a continuous surge in the sugar cane sector and in the production of ethanol. Petroleum prices showed a sharp increase and ethanol prices became very competitive even without subsidies. The flex car provided perspectives for rapidly increasing domestic demand and the US, the EU and Japan all began to provide export markets for ethanol, on the basis of targets which implied continuous medium to long term demand. By 2005, Brazil was exporting 2.5 billion liters of ethanol which would increase to more than 5 billion by 2007. GRAPH - Sugarcane area and production. Production Growth: 84% CAGR: 7% 1.000 Tonnes (million) 900 8,1 800 700 600 5,6 500 400 385,2 5,8 431,4 6,2 8,4 8,5 10 8,8 8 7,4 7,0 7,1 571,4 571,4 604,5 9 658,8 623,9 561,0 588,9 7 6 474,8 5 Growth: 64% CAGR: 6% 4 300 Hectares (million) Harvested area 3 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Source: Prepared by Markestrat from Conab’s data. (Source: Neves, 2014) for Between 2004 and 2008, Brazil signed some 22 cooperation agreements on biofuels, largely in the wake of Presidential visits (Moraes & Mattos, 2012). In 2006, the Ministry of Foreign Relations 9 (MRE) decided on the creation of a Division New and Renewable Energy Resources, motivated, in the words of its director Simões, by “the priority given by President Lula to the creation of an effective international market for biofuels. The innumerous missions undertaken by President Lula and the increasing interest of almost all international partners in biofuels required that Itamaraty develop an area for the institutional treatment of this question” (2008). It is clear here that Presidential diplomacy was the driving force behind the Government´s promotion of biofuels both as a policy to be adopted in international forums and as a global market to be created. The most decisive move in this direction was the Memorandum of Understanding (MoE) signed with the US Bush Administration in 2007 (US Department of State, 2007). This agreement covered joint cooperation in research, the promotion of ethanol in third countries of Latin America, and multilateral initiatives to promote a global ethanol market (definition of technical standards). The Bush administration had just launched its more ambitious increase in biofuels targets to 36 billion gallons by 2022 which opened up important opportunities for imports from Latin American countries with special trade agreements with the US (Hollander, 2010). Simões hailed this agreement as “..more than a document, it´s a point of convergence in the relationship that is denser and more intense than anything we´ve seen in the last 20 or 30 years. Brazil will profit, the United States will profit, and so will third world countries” (Andrews & Rohter, 2007 apud Hollander, 2010). The agreement provoked critical response at many levels – from the United National Environmental Program (UNEP), from the consortium of South American NGOs, Forum of Resistance to Agribusiness, and from countries (El Salvador, Peru) targeted by new ethanol investments (McDonald, 2012, Hollander, 2010). Brazil: Bilateral and Multilateral Agreements on Biofuels ACORDO/PARTES LOCAL/DATA DA ASSINATURA Memorandum of Understanding between Brazil and Netherlands The Hage, April 11, 2008 Memorandum of Understanding between Brazil and West African Economic and Monetary Union (UEMOA) Ouagadougou, October 15, 2007 Memorandum of Understanding between Brazil and Burkina Faso Ouagadougou, October 15, 2007 Memorandum of Understanding between Brazil and Denmark Copenhagen, September 13, 2007 Memorandum of Understanding between Brazil and Sweden Stockholm, September 11, 2007 Memorandum of Understanding between Brazil and Mozambique Brasília, september 6, 2007 Memorandum of Understanding between Brazil and Panama Panama, August 10, 2007 Memorandum of Understanding between Brazil and Mexico Mexico City, August 6, 2007 Memorandum of Understanding between Brazil and Chile Santiago, April 26, 2007 Memorandum of Understanding between Brazil and EUA São Paulo, March 9, 2007 Memorandum of Understanding between Argentina, Brazil, Paraguay and Venezuela Brasilia, December 15, 2006 Memorandum of Understanding between Brazil and China Peking, September 30, 2005 Memorandum of Understanding between India, Brazil and South Africa Brasilia, September 13, 2006 Protocol of Intentions between Brazil and Belize Guatemala City, September 13, 2005 Protocol of Intentions between Brazil and Costa Rica Guatemala City, September 13, 2005 Protocol of Intentions between Brazil and El Salvador Guatemala City, September 13, 2005 Protocol of Intentions between Brazil and Panama Guatemala City, September 13, 2005 Protocol of Intentions between Brazil and Guiana Guatemala City, September 13, 2005 Memorandum of Understanding between Brazil and Jamaica Kingston, May 16, 2005 Memorandum of Understanding between Brazil and Venezuela (Ethanol) Caracas, February 14, 2005 Memorandum of Understanding between Brazil and Venezuela (Biodiesel) Caracas, February 14, 2005 Memorandum of Understanding between Brazil and Ecuador Quito, August 25, 2004 (Source: DAI-MRE, 2010 apud Johnson, 2010) 10 Brazil was seen to be strategic in the promotion of such markets given its experience with sugar cane ethanol. Brazil, for its part, in addition to a direct interest in the US market, recognized that a global market required a diversification of producer countries. The potential for as many as 100 or more countries to produce ethanol from sugar cane was used as a contrast to the tight global oligopoly governing petroleum markets. The Bush administration, in its turn, was keen to provide a counterweight to Venezuela´s petroleum power in the region. A similarly important agreement was signed two years later at the Third European Union-Brazil Summit. The joint statement: “stressed the commitment of the EU and Brazil to work together in a joint initiative for the sustainable development of bioenergy in Africa, focusing on biofuels and bioelectricity. They look forward to their intensified cooperation in this field, together with the African Union Commission, as a first step towards broader action on energy in third countries. They note that developing bio-energy on a socially, environmentally and economically sustainable basis can give an important contribution to tackling climate change, fighting poverty, and promoting access to modern forms of energy, such as for transport, cooking fuels and electricity for rural and urban areas. The initiative envisages the elaboration of country studies analyzing the potential for the production and development of sustainable bioenergy, as well as its impact on poverty reduction, in interested countries and regional economic communities in Africa; private and public investment will be encouraged aiming at the implementation of bioenergy projects; a Coordination Group will examine the modalities of this initiative and its work program.” (2009) Here again the EU and Brazil had mutual interests in the development of biofuels in Africa. The EU had increased its renewable fuels target to 10% by 2020 and recognized that meeting these targets would require imports, and in addition that these imports would have to be produced with levels of sustainability which would justify their use in substitution to fossil fuels. For Brazil this represented further support towards the development of a global ethanol market and also, to the extent that Brazilian ethanol investments in Africa would be stimulated by this cooperation, the perspective of privileged access to the European market (Seibert, 2012). By the middle of this first decade the honeymoon with biofuels was wearing thin. The US and EU targets provoked growing criticism from civil society groups who argued that this increased demand would lead to an acceleration in deforestation and further threats to biodiversity. The use of corn for US ethanol raised the issue of impacts on global agricultural commodity and basic foodstuffs prices. In addition, the economic efficiency and the advantages of ethanol for reducing carbon emissions were called in question (HLPE/CFS, 2013). The Brazilian sugar cane sector became particularly vulnerable given the prevalence of harsh working conditions and the noxious effects of burning the sugar cane prior to harvest. The tortilla riots in Mexico in early 2007 against the rise in corn prices brought the “food versus fuel” debate to the center of the global agenda (Actionaid, 2012). The Brazilian sugar cane sector, its national agricultural research system, EMBRAPA, and Brazilian biofuel diplomacy all reacted vigorously to defend the virtues of sugar cane ethanol which was now distinguished from the “bad” ethanol produced from corn. It was in this period that Marcos Jank, the head of the agribusiness research arm on international trade (ICONE) became President of the sugar sector´s main representative body, UNICA. ICONE, for its part, dedicated itself to the defense of Brazil´s ethanol. It focused on the economic and carbon efficiency of sugar cane ethanol and defended this sector against the increasingly influential argument that ethanol was unable to pass these criteria if indirect land use effects (ILUC) were taken into account. ICONE´s success in these undertakings led to Brazil´s sugar cane ethanol being classified as an “advanced” fuel within the US biofuels targets opening up the perspective of an important extra export market to the US (Nassar et al 2009). 11 ICONE for its part took advantage of this international pressure to win support for important reforms and the acceptance of new regulatory restrictions by a sector until then very traditionalist and resistant to change. A Zoning Law was accepted which excluded sugar cane production from the Amazon, the Pantanal wetlands, and areas of rich natural biodiversity. The mechanization of the harvest was accelerated and the ban on pre-harvest burning of the sugar cane brought forward. UNICA established offices in Washington and Brussels and, in a very effective publicity campaign, insisted on the advantages of ethanol produced from sugar cane, focusing particularly on the relatively small areas under cultivation, the adoption of mechanization, the high productivity and the distance of producer regions from the Amazon (Wilkinson & Herrera, 2012). GRAPH - Participation by type of sugarcane crop in Central-South Harvested sugarcane percentage Mechanical harvesting Manual harvesting 100% 90% 80% 70% 60% 72% 70% 67% 65% 65% 66% 74% 58% 46% 39% 27% 20% 15% 11% 80% 85% 89% 50% 40% 30% 20% 10% 28% 30% 33% 35% 35% 34% 2000 2001 2002 2003 2004 2005 26% 42% 54% 61% 73% 0% 2006 2007 2008 2009 2010 2011 2012 2013 Source: Prepared by Markestrat from CTC and UNICA’s data. (Source: Neves, 2014) In addition to being recognized as an “advanced” fuel by the US, Brazilian sugar cane ethanol was successfully differentiated from ethanol produced by primary food crops and awarded “exceptional” status. Itamaraty and Presidential diplomacy based itself from this point onwards on this exceptionality of Brazilian sugar cane ethanol which was widely endorsed by leading NGOs and international bodies, (World Bank, FAO). At this time a UNICAMP study argued that Brazil could produce enough ethanol to permit a blending of 5% and even 10% of global gasoline with ethanol (Leite et al, 2009). The study calculated that this would require an extra 17 million hectares for the 5% target. The agro-ecological zoning carried out by EMBRAPA identified 64.7 million hectares as suitable for sugar cane which would allow for the 10% global target to be met without encroaching on the excluded biomes. These conclusions underpinned Government strategy and were complemented by a concerted effort to promote biofuels in Latin America and above all Africa (Seibert, 2012). Brazil´s Memorandum of Understanding with the EUA, in addition to the promotion of common standards and norms to enable the development of a global market, led to the realization of joint viability studies for sugar cane ethanol in Guatemala, El Salvador, Haiti, the Dominican Republic, Zimbabwe and Mozambique. The Central American region was also the object of Presidential diplomacy. An extemporary discourse by Lula at a Business Forum on Ethanol, Biodiesel, Cement, Gypsum, Soy and Aluminum in Jamaica, 2007 reveals the centrality of ethanol for the Brazilian government. In opening his address, Lula greets “the Brazilian businessmen who have accompanied me already for a long time in this pilgrimage around the world”. And then continues: “In fact, Prime Minister, talking about biofuels is for me a passion”. The discourse is in fact an impassioned defense of biofuels, contesting NGOs claim that they are incompatible with food security and presenting ethanol as a key development strategy. Lula concludes: “These are the reasons, Prime Minister, why I travel the world speaking equally to those who like biofuels and those who do not… This is the principal reason why I am on the go more than a ‘travelling salesman’.”(Silva, 2007). 12 BRAZIL BIOFUELS AND AFRICA Brazil´s ethanol and biofuels diplomacy coincides with a new phase in this country´s international cooperation (Chicava, Duran, Cabral, Shankland, Buckley, Lixia & Yue, 2013, Rizet, 2012). From being a recipient Brazil has become a donor country and consciously promotes a new style “cooperation for development” model based on South-South partnership (Santander, 2011, Rossi, 2013). The African continent becomes the principal focus of this cooperation and by the middle of the 2000s funding for Africa matched that for Latin America and was growing much more quickly (Alves, 2013, Leite, Suyama & Waisbich, 2013). Ethanol and biofuels have been a crucial component of this cooperation. As we have seen, the tripartite agreement between Brazil, the EU and the African Union Commission focused the promotion of technical cooperation for development on Mozambique given the similarity of its vast savanna regions with those of Brazil, its ports and strategic location for both European and Asian markets (Brunet, 2013). At the same time, during the two Lula Governments there were 29 official visits to African countries involving business delegations and with biofuels and sugar cane ethanol high on the agenda. At regional level, an agreement was reached with the West African Economic and Monetary Union (UEMOA), which groups eight West African countries, for the promotion of biofuels (Ouédraogo, 2010). Seminars have been organized in Africa on biofuels with the presence of INMETRO and the FGV, and the Federal University of Santa Catarina for the development of viability studies (Cabral, 2011). The BNDES launched a Public Tender for viability studies for the production of biofuels in the Western African countries which make up the UEMOA to implement the Technical Cooperation Agreement signed between the BNDES and the Brazilian Ministry of Foreign Affairs for the realization of these studies in the UEMOA countries (PortalÁfrica). The Ministry of Agriculture, MAPA, has promoted agro-ecological zoning for biofuels in Botswana, South Africa, Angola, Zimbabwe, Tanzania, Zambia and Mozambique. In 2006, an office of EMBRAPA was installed in Ghana with the ambition at that time to develop cooperation on a continental scale. Biofuels were a central concern and the major exception to its policy of being “demand driven”, responding to proposals arising from African governments and research centers. While ethanol was the predominant focus, EMBRAPA also promoted jatropha and biodiesel, a key demand of the European Union (Agroanalysis, 2011, De Pierro, 2013). The BNDES has been the key instrument for promoting outward investment in biofuels both in Latin America and Africa (Rosa, 2013). Although infrastructure, mining and petroleum have absorbed most resources, BNDES has financed ethanol projects in a number of African countries (Estadão, 16/11/2013). In Angola it has financed Odebrecht in association with the State firm Sonango and a private firm Damer (Sol, 2013). The firm in question, Companhia de Bioenergia de Angola (Biocom) begins operation in 2014. With some 36.000 hectares, 7.000 have already been planted and will be ready for processing in September, 2014, when production will be 18.000 tons of sugar and 3.000 cubic meters of ethanol. At full capacity it will produce 260.000 tons of sugar and 30 million liters of ethanol. Already the Brazilian Public Ministry has been notified of the slave like working conditions of the Brazilian sugar cane workers at this plant (Vieira, 2014). Angola was the first country which benefitted from BNDES financing beginning in 2007. Since then five credit lines have been approved to the tune of US$5.2 billion for 86 operations mostly to restore the country´s infrastructure (Magossi, 2013, Osava, 2013)). 13 Dedini, Brazil´s largest capital goods firm for the sugar cane sector, has received financing for the construction of a plant with the Kenana Sugar Company in the Sudan. Sudan was among the African countries whose debt with Brazil has been waived to facilitate financing by the BNDES, particularly in the areas of construction and agribusiness (Biofuels Digest, September, 2010). In addition, the BNDES has signed an agreement with the Ethiopian Development Bank and is financing ethanol investment in the country. In Mozambique, which will now be discussed in more detail below, BNDES has financed a biofuels project with Petrobras in association with the State firm Petromoc and the Companhia de Sena (BNDES, 2012). 14 THE CASE OF MOZAMBIQUE Brazil´s interests in Mozambique extend beyond biofuels and were consolidated from the first days of this country´s independence in the ´70s. Mozambique has attracted worldwide attention as the country with the largest agricultural savanna frontier, estimated at some 36 million hectares. Brazil and Japan are currently collaborating to repeat the “cerrados” experience, opening this region to grains/oil/energy production, and a reported 6 million hectares were offered to Brazilian farmers for investments. Various studies in Europe highlighted Mozambique as the most favorable African country for biofuels investments given these natural advantages which also include access to water and deep water port facilities (Batidzirai et al, 2006). The principal stimulus to investments was provided by the increase in the EU renewable fuels target to 10% blending by 2020. Large scale projects based on foreign investments were reported to be underway and rapidly became the object of critical analysis, categorized as part of the “land grab” phenomenon, (Adelson, 2011, Clements & Fernandez, 2013). Other studies focused rather on the role of the Mozambique government and local elites in promoting these foreign investments (Fairbairn, 2011). The EU, for its part, demanded that biofuels entering its market obey sustainable criteria. In line with this orientation and with Brazilian collaboration, Mozambique carried out an agro-ecological zoning study for biofuels which identified only 7 million hectares suitable for land-based economic activities, of which 3 million were judged appropriate for agricultural investments. All lands under formalized land use and benefits rights, where local communities possess what is known as a “DUAT”, were excluded. DUAT lands, however, are the most sought after, and investments tend to favor areas which have good infrastructure and access to resources rather than lands given priority within the agro-ecological zoning (Waterhouse, Lauriciano & Norfolk, 2010). At the same time, the Mozambique Government elaborated a Rural Development Strategy in 2007, and contracted a study on biofuels in 2008 (Ministry of Agriculture, 2008). This was followed in 2009 with the publication of a specific Policy and Strategy for Biofuels in 2009 (Boletim da Republica, 2009) to be guided by the goals of energy security, sustainable development and the reduction of fossil fuel imports. In 2012, Mozambique drafted its own biofuels sustainability criteria. The importance of Mozambique for biofuels in Africa is evidenced in the organization of one of the 2014 GBEP meetings in this country. A variety of factors led to a slowdown and a downsizing in investment projects – the realities of Mozambique´s land structure and particularly conflicts with local communities (Mello, 2013; the regulatory framework introduced by the Mozambique government (Nhantumbo & Salamão, 2010); and above all the world financial crisis which dried up more speculative investment funds. Individual investments such as Sun Biofuels and ambitious Projects such as the ProCana collapsed, in the context of opposition from increasingly organized peasant groups and international NGOs (Milgroom, 2013, Borras, Fig & Monsalve, 2011). A detailed investigation of the conditions under which investments are negotiated with local communities has concluded that the latters´ participation is reduced to that of debating compensation measures (Waterhouse, Lauriciano & Norfolk, 2010). A study, carried out in 2008, (Schutte, 2009), and whose results are presented below, identified only 5 sugar cane ethanol and 12 biodiesel projects, of notably more modest proportions than originally envisaged. Most of these investments were motivated by the EU biofuels market which would itself be called in question in the light of the food price hikes of 2008/9 (Grethe, Deppermann & Marquardt, 2013). The current proposal by the EU to freeze food crop biofuels targets at a blending of 6.25% would severely depress the demand for imports and has diminished the rhythm of new proposals (HLPE/CFS, 2013, GAIN, 2013). 15 Bioethanol projects Biodiesel projects Total # 5 12 17 Land formally requested (ha) 66,000 179,404 245,404 Total investment (US$) 1,003,000,000 298,000,000 1,301,000,000 15,197 1,663 5,303 Employment (jobs) Between 8,925 and 11,956 Between 25,093 and 30,264 Employment per requested ha Between 0.14 and 0.18 Between 0.14 and 0.17 Average investment per requested hectare (US$) Between 34,018 and 42,220 Between 0.14 and 0.17 Main crop Sugarcane Jatropha - Average estimated yields 113.3 cane ha-1 2.64 t Jatropha oil ha-1 - Market Mostly EU Mostly EU - Analysis of the 17 formal biofuel investment proposals (in collaboration with CEPAGRI) Another study (Nhantumbo & Salomão, 2010), carried out at the same time, identified more bioethanol and fewer biodiesel projects involving a much larger land area and with total investments calculated as over US$3 billion. (see Table below). In a personal communication the authors of the study were told that 25 projects were under consideration by June 2009. LAND DEMAND FOR BIOFUELS PROJECTS IN MOZAMBIQUE² Provinces Bioethanol Biodiesel Number Area (ha) Number Maputo Gaza Inhambane 1 2 29,000 2 1 Investors/Projects Area (ha) 21,000 634,346 1 Feedstock Coconut oil, jatropha, palm JATROPHA, SABIAL - oil, sugarcane Sabie, Petromoc, Maragra Sugarcane, jatropha, sweet ProCana, Agrihold, sorghum Grynberg Petroleum 11,000 Jatropha, coconut oil Geralco, SOMOIL, AfrecoJetro, Agrihold, C3, Deulco Sofala 1 10,000 1 1,001,000 Jatropha, sugarcane, ECOMOZ, MOPAC, Elaion palm oil Africa, Petro-Buzi, Principle Energy Manica 1 18,600 2 112,000 Sugarcane, jatropha Principle Energy, SUNBIOFUELS, ADAMA, Odeveza Zambezia 1 Tete 1 Niassa 1 Nampula 1 160,000 1 160,450 Jatropha, coconut oil, sweet sorghum Grown Energy Zambezia, MADAL, MOPAC N’zou Project Ltd 1 50,000 Soja oil, jatropha, palm oil, Mj3,Lagoas, C.I. Monapo sugarcane Cabo 1 120,000 Sweet sorghum, sugarcane, Haha Project, SEKAB or jatropha Ecoenergia Delgado Total 9 971,946 8 1,355,450 (Source: Schutte, 2012) A further study carried out in 2013 (Locke & Henley), whose results are presented in the two following Tables, confirms the still incipient nature of biofuels production in Mozambique and the more modest scale of existing projects. This study reports that in 2010 there were 48 registered projects of which 23 had land under cultivation. Since then, however the effects of the financial crisis and the changed perspectives with regard to the biofuels market have led to a decline in production and 16 to the cancelation of projects. As the Table below indicates, although 209,327 hectares have been authorized for biofuel feed stocks only 6,110 hectares are currently being cultivated. Overall land use for biofuel feedstock production in Mozambique of companies authorised to operate Ethanol feedstock Biodiesel feedstock Total Planned area for cultivation (ha) 98,000 127,732 225,732 Total area authorised (ha) 97,530 111,797 209,327 Current area under cultivation (ha) 2,080 4,030 6,110 Sources: Data gathered during this scoping exercise in January 2013 principally from the Centre for Agricultural Promotion (CEPAGRI), The National Directote for New and Renewable Energies (DNER), and the Ministry for coordination of Environmental Affairs (MICOA). Other sources consulted are listed in Aneex 1. Note: This table includes projects that currently have authorisation to operate (i.e with a land use license). Projects that have had their land use licenses revoked are not included. Of the 48 projects registered only 18 were formally in operation in 2013. In some cases, licenses were revoked while in others, projects were simply discontinued. Four of these 18 projects have suspended operations although their licenses have not been revoked. Only one firm, Cleanstar Mozambique, was at the production stage in 2013, and was using cassava as feedstock. Status of biofuel projects operating in Mozambique Feedstock Producing for biofuels Jatropha (12) Active but not producing/ experimental Producing for other purposes/ other crops Ceased/ Suspended Bioenergia Luambala Enerterra; Mozambique; Jatropha* Zamcorp-Indico; Still in planning phase Mocamgalp Sun Biofuels AVIAM; Mozambique Biofuel Industries; Sociedad Inveragro; SAB Mozambique; Deluco Emvest, NIQEL Sugarcane (5) Massingir Mozambique Envalor; Galp AgroIndustrial SA; Principle Energy Buzi Grown Energy Zambeze Cassava (1) Cleanstar Mozambique *Luambala Jatropha also has sunflower and soy production. (Sources: CEPAGRI, DNER, MICOA and others listed in Annex 1) In addition to the promotion of biofuels for export, whose future as we have seen is now uncertain, Mozambique, which imports 100% of its fuel needs, has introduced compulsory blending, 10 % in the case of gasoline (E10) and 3% for biodiesel (BS). Its domestic fuel market, however, is very limited and unlikely to influence investors motivated by the expectations of the EU biofuels targets. Brazilian investors, on the other hand, have seen this as an opportunity (Nascimento, 2012, Mello, 2013). Petrobras has announced plans to construct a biofuels plant to supply this demand. In addition Petrobras via the Brazilian Guarani company has a majority stake in the Companhia de Sena´s sugar plant in Mozambique. Odebrecht, through its subsidiary ETH Bioenergia, is similarly proposing to invest in an ethanol plant. Cosan, Brazil´s leading sugar/ethanol is understood to be 17 interested in investing in Mozambique, as also is Copersucar. Brazil has also been involved in the production of biodiesel in Mozambique, both through the provision of jatropha seeds, through the promotion of the social inclusion aspects of its Biodiesel Program and in direct investments, again via Petrobras (Garcia, Kato & Fontes, 2012, Schlessinger, 2012)). 18 2009-2013 A CHANGED SECTORIAL, NATIONAL AND INTERNATIONAL CONTEXT FOR BIOFUELS DIPLOMACY While many of the agreements reached on biofuels in the years 2006-09 have developed a dynamic of their own and continue to generate cooperation and investment activities, Brazilian biofuels diplomacy suffered a radical inflection as from 2008-09. Many factors converged towards this shift. Brazil discovered the deep sea “pre-Sal” reserves of petroleum in 2007 and production began in 2008 (BBC, 2013). It was possible to envisage an alliance with ethanol via future exports of blended gasoline, but the immediate effect was to focus on the transformation of Brazil into a leading petroleum exporter. The sugar cane sector, for its part, which had been the privileged object of investments and had experienced years of unprecedented growth in the first half of the decade, was the sector most affected by the world financial crisis (Forero, 2014). Many firms found themselves unable to honor their debts and became easy prey to acquisitions by both domestic and foreign capital. This latter shifted its focus from new greenfield investments to the safer option of buying up indebted firms. Production stagnated through lack of new investments and productivity declined as the plantation crops were not renewed (Wilkinson & Herrera, 2010). The face of the industry was changed overnight as many of the leading firms were bought by foreign capital, as shown in the Table below: Ranking Capacidade de moagem em MMt e Internacionalização Ranking 2005/2006 Capital Volume produção Ranking 2010/2011 Capital Volume produção Cosan Brazil 36 Cosan/Shell (Raízen) Brazil/anglo-dutch 65 Vale do Rosário Brazil 11 LDC-Sev (Louis Dreyfus) Europe 38 São Martinho Brazil 10 ETH-Odebrecht Brazil/ USA/ Japanese 37 Zilor Brazil 8 Guarani Tereos/Petrobras French/ Brazil 21 Lincoln Junqueira Brazil 8 Bunge EUA 20 Irmões Biagi Brazil 7 Sta. Terezinha Brazil 18 Moreno Brazil 6 Lincoln Junqueira Brazil 16 Sta. Terezinha Brazil 5 Renuka India 15 Guarani French 5 Coruripe Brazil 13 Sta. Terezinha Brazil 5 São Martinho/Petrobras Brazil 13 Fonte: Itaú BBA. Elaboração própria. (Fonte: Schutte, 2012) The sugar cane sector found itself unable to meet the demand for ethanol and its prices became uncompetitive with gasoline at the pump as world petroleum prices began to fall, (Batista, 2013). The crisis was such that Brazil found itself having to import the “bad” ethanol from the US to meet its blending requirements1. 1 U.S. corn ethanol has been widely condemned as inefficient from economic, energy and carbon emission standpoints (HLPE, 2013). Even in the U.S, it is not accepted as an advanced fuel. Brazil´s ethanol diplomacy involved successfully distinguishing Brazil´s sugarcane ethanol as “good” ethanol in contract to the “bad” ethanol produced from corn. Brazil´s arguments have been widely endorsed and its ethanol is accepted as an advanced fuel in the U.S. which provides it with a privileged window for exports to fulfil the U.S. biofuels targets. Lack of investments, combined with prolonged droughts, has led to shortages of ethanol in Brazil during the interharvest months leading to imports from the U.S. to fulfil Brazil´s blending obligations.. 19 GRAPH - Ethanol sales (hydrated and anhydrous) and type A gas (disregards the anhydrous ethanol added to it). Gas A Ethanol +74% 35 Liters (Billion) 30 +173% 20 16,7 8,4 18,9 17,7 17,4 18,5 22,8 19,6 18,9 22,2 22,8 19,1 19,2 17,8 19,1 15,2 15 10 27,1 +14% 25 33,1 31,8 -16% 10,3 10,6 11,3 5 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: ANP. (Source: apud Neves & Trombin (2014)) This situation was aggravated by the new Dilma government´s policy of holding down domestic gasoline prices to dampen inflationary pressures. In addition, the new government took its distance from the sugar cane sector and showed itself unwilling to come to the sector´s rescue. From being an integral part of Brazil´s biofuels diplomacy, UNICA, the sector´s business association, became isolated and its President, Marcos Jank resigned (Estado de São Paulo, 09/05/2014). Coming out of the crisis, the sector itself, as the Table above makes clear, had assumed a radically different “transnationalized” profile. The perspectives for the development of a world biofuels market also became less convincing as the EU moved to lower the food crop participation in the blending mandate and US corn ethanol was already hitting the blending wall of 10% and the ceiling set for the use of first generation biofuels at 15 billion gallons, (GAIN, 2013). Other countries too are revising their targets as food security concerns undermine the legitimacy of first generation food crops as feedstock and second generation cellulose technology refuses to come on line as projected2 . Brazil´s crusading image, has anyway been tarnished by the resort to imports of “bad” ethanol from the US and the, now accepted, dominance of soy in the biodiesel program3. Indebtedness, lack of investment in agriculture, and repeated prolonged droughts continue to characterize the sector. The BNDES has opened up new lines of credit to stimulate innovation and the renovation of sugar-cane plantations which may contribute to restoring competitiveness (BNDES, 2014). Nevertheless, the current government has subordinated the energy sector as a whole to the control of inflation, although it has introduced some measures to alleviate costs and expand the domestic market (Estado de São Paulo, 12/06/2014). The decisive market challenge over the next decade will be provided by the expansion of domestic demand as the flex vehicle makes up an increasing proportion of Brazil´s light vehicle fleet (Folha de São Paulo, 11/08/2014). It is likely that Brazil will reassert itself as the world´s most important exporter but this market will in all likelihood be basically limited to the existing markets created in the US and the EU4. 2 O etanol dos EUA obtido a partir do milho tem sido amplamente condenado como ineficiente do ponto de vista econômico, energético e no que tange às emissões de carbono (HLPE, 2013). Mesmo nos EUA, não é classificado como combustível avançado. A diplomacia brasileira do etanol foi bem sucedida ao distinguir o etanol da cana-de-açúcar como etanol “bom”, em contraste com o etanol “ruim” produzido a partir do milho. Os argumentos do Brasil foram amplamente endossados e seu etanol foi classificado como combustível avançado nos EUA, o que lhe fornece uma janela privilegiada para exportações voltadas ao cumprimento das metas de biocombustíveis dos EUA. A falta de investimentos, combinada com secas prolongadas, tem levado à escassez do etanol no Brasil durante os meses de entresafra, levando o país a importar dos EUA para cumprir o teor obrigatório da mistura. 3 O Brasil hoje produz etanol a partir do mlho, e o BNDES apoia as usinas flex, que usam tanto o milho quanto a cana-de-açúcar (Milanez et al, 2014). A APROSOJA, a associação de produtores de soja, sustenta que todas as usinas na região centro-oeste usarão o milho (Folha de São Paulo, 16/06/2014). Tal mudança irá, de forma mais veemente, por em dúvida a superioridade do etanol brasileiro, limitando suas exportações como combustível avançado a um número restrito de usinas de cana-de-açúcar certificadas. 4 Brazil is now producing ethanol from corn and the BNDES is supporting flex plants which can use either corn or sugar cane (Milanez et al, 2014). APROSOJA, the soybean producers´ association argues that all plants in the Center-West will begin to use corn (Folha de São Paulo, 16/06/2014). Such a development will further call in question the superiority of Brazilian ethanol, limiting its exports as an advanced fuel to a limited number of certified sugarcane plants. 20 In such a situation it is unlikely that there will be a new edition of Brazil´s biofuels diplomacy which in retrospect can be seen to have ridden on a wave created by a very unique conjuncture, whose components have now all disappeared. On the other hand, Africa, and particularly, Mozambique, continues to represent a strategic platform for agribusiness access to Asian markets. In a recent paper, Thaler (2013) cites the director of Mozambique´s Investment Promotion Center, Mahomed Rafik who envisages as the result of his country´s Free trade agreement with China, a sugar cane project in which “a South African company in partnership with a Mozambican company, and with the raw material being processed by a Brazilian company, may gain access to the Chinese market, because the product will be regarded as Mozambican.” Whether the product in question will be biofuels or grains, and whether the specific advantage will be free trade agreements or Mozambique´s privileged location and conditions, some such scenario is certain to be a key factor in the future plans of Brazilian agribusiness. Large scale agricultural investments, therefore, will continue to present a decisive challenge to Mozambique´s rural development whether on the basis of biofuels or other strategic agricultural commodities. 21 REFERENCES Abramovay, R., & R. 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