Escola Superior de Agricultura “Luiz de Queiroz” – ESALQ/USP

Third Lemann DialogueAgricultural and Environmental Issues in Brazil

November 7-8, 2013University of Illinois

Márcia Azanha Ferraz Dias de Moraes Professor at the Department of Economics, Business and Sociology

ESALQ - University of Sao Paulo

1. Social indicators in sugarcane, sugar and ethanol production

2. Brazilian Ethanol Program: main drivers

3. Can it be replicated in other countries?

4. Sustainability issues

5. Final considerations

Sugarcane-bioethanol workforce in Brazil: employment, education, social inclusion

1. Social indicators in sugarcane, sugar and ethanol production

Job creation

large number of people

inclusion of low schooling workers

Official employment (formal contracts)

Job penetration: production spread all over the country

Sugarcane-bioethanol workforce in Brazil: employment, education, social inclusion

Production Growth

Ethanol Production: has risen from 4 to 28 billions liters

Sugarcane Production: moved up from 100 million tons to 620 million tons

Positive impact on jobs→ creation of jobs for thousands of workers→Agriculture (sugarcane): poorly educated workers

520% 600%

Number of formal workers by producing regions and sector 2011

Source: Prepared based on data provided by RAIS, 2011

Sugarcane Production Chain: Main AgentsIndustrial Sugar and Ethanol ProductionSugar Cane Fields

70,000 sugarcane growers

440 SugarMills/Ethanol Distilleries

Source: MAPA – MME – MDIC – 2005PNAD (2008) , GEMT (2010)

439,922 employees

600,000 employees

Sugar cane field The sector comprises 70k independent

producers , accounting for 25% of national sugarcane production

75% of sugarcane comes from self supply of vertically integrated mills

(mills have sugarcane fields plus processing plants)

50% harvest manually and 50%

mechanically

Sugarcane processing plants in Brazil can produce sugar and/or ethanolBy products:- Vinasse: used as biofertilizer- Bagasse: eletrical power

generation- all plants are self sufficient in eletric

power- most efficient sell the energy

surplus to the market

Production and Job Position in 2011

Operating Sugarcane MillsSugarcane Mills under construction

Jobs in Sugarcane (2011):439,922

NNE CSIndustrial Units

78 (20.7%) 298 (79%)

Ethanol Production

7% 93%

Sugar Production

13% 87%

Job Positions

36.6% 63.4%

Source: Prepared based on data provided by PNAD 2011

160,809 employees36.6%

279,113 employees63.4%

CS produces about 90% of main products, with 63.4% of the workforce

This is explained by higher agricultural productivity in this region: better soil and climate conditionsuse of mechanized harvesting and

planting

2,258,276 agricultural workers in Brazil

Agricultural workers in Brazil, 2011

Sugarcane employees accounts for almost 20%

followed by corn (15.5%)and coffee (12%)

Sugarcane:very impressive number

inclusion of many low schooling people

Source: Prepared based on data provided by PNAD 2011

Sugarcane

Corn

Coffee

Cassa

vaCitro

sSoya

Rice

Banan

a

Grapes

0

50

100

150

200

250

300

350

400

450

500439.9

349.5

269.9

153.2129.1116.3

82.656.3 49.0

(thousand people)

Agriculture 4.4

Average Schooling of Crop Workers Brazil, 2011

The average schooling of agriculture workers is 4.4 years of study

Sugarcane: The workers of

sugarcane sector have about 4.8 years of study

20% (about 100k workers ) are illiterate

Source: Prepared based on data provided by PNAD 2011

Grapes

SoyaCitro

sRice

Sugarcane

Coffee

Banana

Cassa

vaCorn

0

1

2

3

4

5

6

76.2

5.85.3

5.0 4.8

4,1 3.9

3.2 3.1

Sugarcane: Average Schooling 2011

Source: Prepared based on data provided by PNAD 2011

Brazil NNE CS SP0

1

2

3

4

5

6

7

4.8

3.1

5.96.3

Ave

rage

Sch

oolin

g

4.8 years of study is the average, considering both regions under survey

NNE region has lower education level

The state of São Paulo has the highest level: 6.3 years of school, which still is very low

Rules and NormsNorms: federal, state and municipal- Federal Decree # 2.661, July/1998- SP state

- State Decree # 42.056, 1997- State Decree # 28.848, 1988- State Decree # 10.547, 2000:- State Law # 11.241, 2002 – Deadlines for the end of Sugarcane Burning

- Mechanized areas (flat): 2021- Non mechanized areas: 2031  Environmental Protocol- June, 2007: SP state and UNICA signed a cooperation Protocol- Although non mandatory, producers’ adhesion was close to 100% New deadlines for sugarcane burn halt are:

Flat areas: 2014 Non flat areas: 2017

THE BANNING OF SUGARCANE BURNING

Mechanical versus Manual Harvesting

Burnt sugarcane (manual harvesting) or green cane (mechanical) ?green cane: it is more efficient the usage of mechanized harvesting

Prohibition of sugarcane burning: constitutes an advance in environmental terms it demands fewer workers (one harvester substitutes about 80 workers) it changes the worker’s profile

it requires training and qualifying programs

Agriculture 39.0%

Labour Rights - Brazil, 2011

The proportion of workers who are formally employed in the Brazilian agriculture is very low: 40%

Sugarcane shows the best indicator: about 81% of the employees are

formally hired

These employees have all labor rights established in the legislation:

enjoy the right to receive unemployment insurance;

remunerated annual vacations

Extra month of salary per year

….Source: Prepared based on data provided by PNAD 2011

Sugarcane

Grapes

Citros

Soya

Coffee

Banana

RiceCorn

Cassav

a0

102030405060708090

100

81.076.7

69.864.1

33.527.6 24.1

8.53.7

%

Sugarcane: contrasting number of formal and informal workers.

Brazil, NNE, CS and São Paulo, 2011

Source: Prepared based on data provided by PNAD 2011

Brazil NNE CS SP0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

81.0

67.9

88.5 91.9

19.1

32.1

11.6 8.1

Formal Informal

Total 439,922 Total 142,185

Total 160,809

Total 279,113

The state of SP has a very impressive proportion of formally hired workers: 92%

The proportion of formally hired workers in NNE region is lower

Sugarcane: Number of employees by Age Bracket

Source: Prepared based on data provided by PNAD 20

10-15 95,576 15.3 2,095 0.5

15-20 128,578 20.6 27,306 6.2

20-30 134,033 21.4 134,962 30.7

30-40 106,516 17.0 111,345 25.3

40-50 84,041 13.4 97,693 22.2

50-60 51,886 8.3 58,287 13.2

> 60 24,396 3.9 8,234 1.9

Total 625,016 100.0 439,922 100.0

Age Bracket

1981 2011

Number of Employees

Number of EmployeesTotal % Total %

Sugarcane sector successfully reduced the proportion of child labor

from 15.3% in 1981 to less than 0.5% in 2011

This is a the results of multiple efforts:

Better law observance

Requirements of the market itself

Government social programs: Bolsa Familia, Bolsa Escola

Increased the proportion of adult workers

There is an extensive legal and regulatory apparatus governing the Brazilian labor market, covering all sectors of the economic activity, including workers in the sugarcane, sugar and ethanol sectors

The main regulations for the labor market in Brazil are: (i) The Federal Constitution; (ii) Consolidation of Labor Laws (CLT),(iii) Rural Workers’ Law (5889/73; (iv) Law No. 10.192/2001 that establishes the wage policy.

The organization of workers’ unions is covered in article 5 of the Federal Constitution. – There are annual negotiations (Collective Agreements) between

workers’ unions and the sector’s syndicate (in compliance with the legislation)

Labor Market Regulations

Wages: sugarcane and other crops19

92

1993

1995

1996

1997

1998

1999

2001

2002

2003

2004

2005

2006

2007

50

100

150

200

250

300

350

400

450

Rice Coffee Sugarcane Cassava CornSoya

US$

The wages of soya sector are the higest ones

Earning Equation estimated showed that: After the control of other

variables that influence wages:

Schooling Age region, color, gender, etc

The average montly wage of other crops workers in comparisson with sugarcane wages are: Coffee: 9,9% lower; Cassava: 23,2% lower;Corn: 30,1,% lower; Rice: 30,1% lower;Soya: 0,2% lower

Brazilian soil and climatic conditions are also found in many underdeveloped and developing countries with a large poorly-educated population excluded from the labor market

With appropriate public policies that aim both: to reduce greenhouse gases emissionsalso to include thousands of workers to the labor market

Brazilian experience could be replicated, generating jobs, income, and contributing to mitigate CO2 emissions in the

world

Brazilian Experience: Could it be replicated in other countries?

Biofuels production: which are the drivers?Brazil (1975): macroeconomics

problems due the oil shocks1973 and 1979 oil shocks: bad impacts on national inflation and on balance of payments

1975 - Proalcool: to stimulate the production of anhydrous ethanol

Second oil crisis had a devastating impact on Brazil’s trade balance, inflation

- Brazilian MILITARY government sought to reformulate Proálcool: production of hydrous ethanol

Nowadays: international marketing is emerging

- Oil importers: reduction of oil dependence - Environmental issues: to develop strategies towards a low carbon economy- There are regulatory policies encouraging the use of biofuels in at least 46 countries at the national level and 26 states and provinces by early 2012(REN, 2012).(production subsidies, transport fuel-tax exemptions, share in total transport fuel obligations, blending mandates)

There is a global demand for biofuels

Biofuels production: where to produce?África- Natural conditions for developing sugarcane based industry as good as or even better than Brazil- There is available land

Host countries perspective: what are the positive aspects?- To improve economic and social development- To reduce dependency on fossil energy (many countries will suffer with increased oil prices and climate change)- To modernize its agricultural sector through sugarcane industry

- the investments in rural infrastructure (water, electricity, roads, school, training programs), distribution channels, housing, banking, health programs), can have a positive impact in the agricultural sector as a whole

- To avoid ecological destruction - Sugarcane (bagass) and ethanol: there are sinergies with other energy needs (fuel for cooking)

must be produced in a sustainable way

Biofuels production: where to produce?AfricaHost countries perspective: what are the priorities?- Food security (physical and economic access) - Modernize the agricultural sector- Improve (create) infrastructure - Creation of employment and income- Improve rural and urban development

Could biofuels contribute?

Challenges

- Food versus fuel debate: must be overcome- Land tenure: land for foreigners is a very controversy issue- Large versus small scale: inclusion of small producers - Coordination and rent distribution along the supply chains- To ensure equitable distribution of income along the production chain

(sugarcane suppliers, workers)- To accomplish with the existing sustainability criteria

Sustainable Business models

Labor Market(i) Workers’ profile (manual or mechanical agricultural activities);(ii) Workers’ availability;(iii) Institutional framework (existence of workers’ unions and of

legislation and rules regulating the labor market, minimum wage policies)

(iv) Local habits

Production modes: (v) Size, structure, and distribution of land and property

(patriarchal and matriarchal systems of inheritance, community organization);

(vi) Small versus large scale; (vii) Transaction costs and coordination issues (agricultural

producers’ cooperatives)

There are several patternso Bonsucro (Better Sugarcane Initiative) o ISCC (International Sustainability & Carbon

Certification)o 2009/28/CE European Union Diretiveo Roundtable On Sustainable Biofuels (RSB)o Greenergyo Protocolo Agroambiental (Brasil)o GBEP

Do all the requirements make sense?How will the new producers deal with them?Several social and environmental principles

Sustainability Criteria

Economic Viability of Hydrous Ethanol

Viability of the hydrous ethanol is dependent on the federal fuel pricing policy, which currently aims to control inflation by maintaining prices of gasoline at the refinery, regardless of fluctuations in production costs and oil prices on the international market this police reduces hydrous ethanol competitiveness with gasoline,

in terms of the relative pump prices The government must set a nationwide energy policy and establish an

energy matrix, making it clear to society what is the role of each fuel from a long-term perspective. the energy mix would allow planning ethanol production, which

becomes particularly important when one considers that ethanol is made from agricultural raw materials, making its production subject to adverse weather conditions as well as to the seasonal nature of sugarcane cultivation

The lesson to be learned from the Brazilian experience is that, in a free market environment, without clear rules, the sugarcane ethanol industry cannot garner the level of investment needed in order to meet the potential demand for biofuels

Socioeconomic aspects of the Brazilian production

Solid institutional apparatus that regulates the labor market

Large number of jobs created in the three sectors (sugarcane crops, sugar and

ethanol): surpass one million formal jobs

Positive impacts on development of rural areas , spillover effects

There have been an improvement of the indicators of the sugarcane:

Better observance to labor and environmental legislation

Better working conditions

Greater number of formal jobs in sugarcane sector

Reduction in underaged workers

Investment in training and qualification

Social and environmental certification programs adopted by companies

Lessons from the Brazilian experience can be useful for new producers

FINAL CONSIDERATIONS

Production of Ethanol from Sugarcane in Brazil: from State Intervention to a Free Market

Book co-authored with Prof David Zlberman (UC Berkeley) - Origin of Proalcool, the role of the military

government, and the deep state intervention existing on the sugarcane, sugar and ethanol sectors at that time

- The process of deregulation occurred from the late 90s, and the challenges and changes faced by the stakeholders in a free market environment

- The new rules and changes since 2000, the international interest in alternatives to oil, the new environmental and social agendas, the financial constraints, and ultimately how we see the future of biofuels in Brazil.

Marcia Moraes and David Zilberman

http:www.esalq.usp.br/gemt

LABOR MARKET RESEARCH AND EXTENSION GROUP

Thanks for your attention

Feel free to contact

madfmora@usp.br

Food versus Fuel

Several authors (Adami et al. 2012, CGEE 2012, Goldemberg 2008, Goldemberg et al. 2008, Nassar and Moreira 2013, Neves et al, 2011) have presented evidence that the food versus fuel debate in Brazil is not an issue, given the large availability of raw materials and agricultural land in the country;

The expansion of biofuel production in Brazil is regulated by several standards These include the Agro-ecological Zoning standard, which considers maps of soil, climate and rainfall, topography, environmental regulation, and the desire to respect areas that should be preserved. It also aims to reduce competition in areas dedicated to food production (MAPA 2009).

According to Rosillo-Calle (2012), biofuel production and food security needs to be complementary. It is important to assess food security impacts from biofuel production, and it is equally important to assess the benefits that these alternative fuels generate if they meet their most important objective, which is the reduction of GHG emissions. Under appropriate conditions, biofuels can even be an important factor for improving the food security in some African countries (Lynd and Woods 2011).