Next-generation BiofuelsTuesday, May 3, 2011; 9:30 AM – 10:45 AM

Moderator:

James McDermott, Managing Partner, US Renewables Group

Speakers:

Alan Boyce, Director, Adecoagro

Richard Hamilton, President and CEO, Ceres Inc.

Dallas Tonsager, Under Secretary, Rural Development, U.S. Department of

Agriculture

Historic oil import displacementby Ethanol

Source: Cardno ENTRIX

millions of barrels annually

Planned incorporation of biofuels resulting

from Europe’s Renewable Energy Roadmap

Source: European Commission

bioethanol

10%

by

2020

Biofuel mandates are ambitious

• European Union – 10% of vehicle fuel to be derived from renewable

sources by 2020

• United States – 9 billion gallons blended in 2008 (6% of vehicle fuel

consumption) and 36 billion gallons of renewable fuel to be blended

with gasoline by 2022 (26% of vehicle fuel if fuel consumption

remains consistent)

Source: Harvard Kennedy School of Government Biofuels and Sustainable Development.

Federal government’s renewable

fuel standard trajectory

Total renewable fuel requirement

0

5

10

15

20

25

30

35

40Billion gallons

Source: Energy Independence and Security Act of 2007.

World ethanol production 2008, 2009, and 2010

Country Millions of Gallons

2008 2009 2010

USA 9,000 10,600 13,000

Brazil 6,472 6,578 6,922

European

Union

734 1,040 1,177

China 502 542 555

Canada 238 291 357

Other 128 247 344

Colombia 79 83 105

India 66 92 144

Australia 26 57 66

Total 17,245 19,530 22,670

Source: F.O. Lichts, Renewable Fuels Association.

With estimates for

23.4 billion gallons to be

produced in 2011

Process from feedstock to market:

Inputs and environmental effects

Source: Energy and Resources Group, UC Berkeley; Richard & Rhoda Goldman School of Public Policy, UC Berkeley Creating Markets for Green Biofuels.

Biofuel issues

• Food versus fuel

• Land use

• Ecosystems damage

• Market Concerns– Barriers in the world market

• Incentives need to be well designed

• Infrastructure for biofuel transport needs development

• Can biofuels complete against electric vehicles?

Source: Harvard Kennedy School of Government Biofuels and Sustainable Development.

Abundant water

Fertile soils

Mild temperature

Land availability

Natural conditions

Cutting edge Technology

Mechanization

Management skills

Environmental sensitiveness

Human & Technology

Private land

Food surplus

No trade barriers

Corporate farming

Geopolitical

Low production cost

Cheap land

Good infrastructure

Vertical integration

Economical

South America offers the most competitive

conditions for food & renewable sustainable production

Brazil and Argentina are Top Food &

Renewable Exporters (sugar, ethanol,

corn, soybean)

South America Strengths

Source: Atlas of Global development, World Bank, 2008Good quality farmland is globally limited

Brazilian powercane industry (2010)

SUGAR

35 Million Tons~¼ of World Demand

ETHANOL

7 Billion Gallons½ of U.S. Production

ELECTRICITY

16,000 GWh~5% of Brazil Demand

Over 600 million tons of CO2

avoided thanks to the use of

cane ethanol alone in Brazil

since 1975.Source: UNICA

Biofuel can be globally produced without

decreasing land availability for crops

The right crop in the right place: changing from grassland into sugarcane

Millions of hectares (2009)

BRAZIL 851.2

TOTAL ARABLE LAND 329.9

1. Total Crop Land 59.8

Soybean 21.6

Corn 14.4

Powercane 8.1

Powercane for ethanol 4.9

Orange 0.9

2. Pastures 158.8

3. Available area 111.3

Source: IBGE. Elaboration: UNICA.

1.5%

There is room for Cattle to strongly increase its efficiency

(operational, crop productivity, feedlots)

Complementary food & fuel production

Yields (M3/hectare)

0.0 2.0 4.0 6.0 8.0 10.0

Wheat (EU)

Cassava (Thailand)

Corn (USA)

Powercane (India)

Beet (EU)

Powercane (Brazil)

Source: IEA ('05), Unica ('08)

High crop yields means higher

biofuel production per unit of land

Complementary production:

ethanol + sugar + bioelectricity

Source: UNICA

The higher crop productivity, the

higher biofuel production and the

better use of land

Synergy with hydro production (dry season)

Reduces need for Fossil Fuel Generation

Use of straw could increase its potential

Bioelectricity's Strengths

Benefits of electricity cogeneration in brazil

Brazil achieves 4% savings of

reservoirs for every 1,000 MWa of

bioelectricity generated during the

dry season (April-November)

Source: Nivalde J. de Castro et. al. From CCEE and EPE

Powercane is efficient & clean feedstock for

ethanol production

Different Feedstocks Comparison

9.30

2.71 0.83

-83%

-30%

Powercane Corn Gasoline

Source: IEA ('04), Unica ('08), Macedo, I ('04)

Ene

rgy

Bal

ance

GH

G E

mis

sion

s R

educ

tion

CORN POWERCANE

Agricultural operations 1,083 4,012

Transportation 2,897 4,107

Inputs: fertilizers, consumables,

seedlings, equipment 10,849 9,988

Total agricultural production 14,829 18,107

Processing Energy - -

Inputs: chemicals, lubricants, heat &

electric 31,055 1,653

Equipment, buildings, facilities 1,976 379

Total processing 33,031 2,032

Total energy consumption 47,860 20,139

Ethanol 92,253 165,863

Co-products (WDG, Bagasse) 36,803 15,154

Bioelectricity - 7,129

Total energy production 129,056 188,146

Energy Balance 81,196 168,007

Energy Ratio 2.7 9.3

Portable Fuel Ratio 16.4 54.9

Energetic Balance (MJ/ha)

More important than the Energy Balance (heat) is the Portable Fuel Balance!

0

15

30

45

60

Convetional Tillage No Till

Lite

rs p

er h

ecta

reBest practices should be applied to achieve sustainable biofuels production

No-till increases land productivity and returns over time-

1,0

2,0

3,0

4,0

2003-04 2004-05 2005-06 2006-07 2007-08

Spr

ay p

er h

ecta

re

3,0

4,0

5,0

6,0

7,0

8,0

Lite

rs p

er h

ecta

re

Spray/hectare

Liters/hectare

Venado Tuearto Region of the Humid Pampas

Improves water efficiency

Reduces erosion risk

Increases organic matter

Decreases use of pesticides

Improves soil fertility

Reduces CO2 emissions

Higher and stable yields &

lower costs year by year

No-till Benefits

0.0

0.5

1.0

1.5

NO TILL TILL

Wate

r sto

rage c

apacity

(in/8

in)

.

Decreasing fossil fuel usage

Improving water storage capacity

Decreasing pesticides usage

Sugarcane: Production & Area Evolution

-

10.0

20.0

30.0

40.0

50.0

60.0

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

K H

ecta

res

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

MM

To

ns

Total area (hectares) Total Production (Tons)

2nd Generation biofuels are already highly

competitive with fossil fuels

1 hectare of

Sugarcane (1)

Sugarcane = 85 tons

Ethanol = 4.6 m3

Sugar = 4.3 tons

Power (2) = 4.5 MWh(1) Includes replanting area; average of 7 years cycle; 60% ethanol – 40% sugar

(2) Does not consider use of straw

Need to integrate biofuels industry

around the world

Infrastructure should be fixed and

suited for biofuels

A NEW MODERN MILL PROJECT REQUIRES 8 YEARS TO ACHIEVE FULL CAPACITY (BIOLOGICAL PROCESSES)

Start Milling

Start

Planting

E20 and E30 ethanol blends outperformed

gasoline in fuel economy tests (*)

KEY FINDINGS

1. Ethanol’s energy content was

not found to be a direct

predictor of fuel economy.

2. E20 and E30 ethanol blends

outperformed gasoline in fuel

economy tests for certain

autos.

3. Standard, non-flex-fuel vehicles

operated well on ethanol blends

beyond 10 percent.

4. Vehicle emissions met EPA

requirements and were

improved in key areas.

(*) Source: “OPTIMAL ETHANOL BLEND-LEVEL INVESTIGATION”

Researchers:

The University of North Dakota Energy & Environmental Research Center (EERC) & the Minnesota Center for Automotive Research (MnCAR)

Testing Method:

The Highway Fuel Economy Test (HWFET), a test developed by the U.S. Environmental Protection Agency to determine fuel economy

Vehicles Tested:

Toyota Camry (2.4 liter engine), Ford Fusion (2.3 liter engine), non-flex-fuel Chevrolet Impala (3.5 liter engine), flex-fuel Chevrolet Impala (3.5 liter engine)

Fuels Tested:

Various blends of undenatured ethanol & Tier 2 gasoline

US corn and Brazil sugarcane yields are each

subject to significant variability due to weather risk

(1) Bloomberg, Morgan Stanley Equity Research, 01/27/11

(2) São Paulo State data per UNICA; US data per Bloomberg; Brazil data per USDA Foreign

Agricultural GAIN Reports

Side-by-Side Precipitation (inches) and

Temperature (Growing Degree Days, Celsius) (1)

• Complementary precipitation and temperature trends highlight a natural foundation for a symbiotic partnership that yields mutual

strategic value for both each nation’s ethanol supply capability

80

90

100

110

120

130

140

150

160

170

180

01/0

1

16/0

1

01/0

2

16/0

2

01/0

3

16/0

3

01/0

4

16/0

4

01/0

5

16/0

5

01/0

6

16/0

6

01/0

7

16/0

7

01/0

8

16/0

8

01/0

9

16/0

9

01/1

0

16/1

0

01/1

1

16/1

1

01/1

2

16/1

2

TRS/

ton

cane

2008 2009 2010 2011

80

90

100

110

120

130

140

150

160

170

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

US

Cor

n Y

ield

(Bus

hels

/acr

e)

40

45

50

55

60

65

70

75

80

85

Bra

zil S

ugar

cane

Yie

ld (m

t/he

ctar

e)

US Brazil

2001 Brazil Drought1996 US Corn Drought

São Paulo State Historical Sugarcane Yield and

Relative US Corn and Brazil Sugarcane Yields

(1994-2011 Planting Season) (2)

Brazil’s annual ethanol inventory buildups are

unsustainable and present producers a dilemma

Source: SCA Brazil Ethanol

• Unpredictable, rising domestic ethanol inventory levels represent significant business model risks

• Producers must accept weaker pricing necessary to generate incremental demand and minimize inventory growth; or,

• Producers must accept high, volatile working capital needs and lowering return on invested capital

• The cycle of rising ethanol stock levels leads to price volatility and higher prices, which will ultimately negatively impact

consumer behavior

Brazil Ethanol Stocks – Harvest Season Comparison Monthly Ethanol Price vs. Ethanol Stock

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Eth

ano

l S

tock

CS

Reg

ion

('0

00s

mt)

2003

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Eth

ano

l S

tock

CS

Reg

ion

('0

00s

mt)

2003 2004

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Eth

ano

l S

tock

CS

Reg

ion

('0

00s

mt)

2003 2004 2005

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Eth

ano

l S

tock

CS

Reg

ion

('0

00s

mt)

2003 2004 2005 2006

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Eth

ano

l S

tock

CS

Reg

ion

('0

00s

mt)

2003 2004 2005 2006 2007

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Eth

ano

l S

tock

CS

Reg

ion

('0

00s

mt)

2003 2004 2005 2006 2007 2008

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Eth

ano

l S

tock

CS

Reg

ion

('0

00s

mt)

2003 2004 2005 2006 2007 2008 2009

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Eth

ano

l S

tock

CS

Reg

ion

('0

00s

mt)

2003 2004 2005 2006 2007 2008 2009 2010

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Jan-0

3

May-0

3

Sep-0

3

Jan-0

4

May-0

4

Sep-0

4

Jan-0

5

May-0

5

Sep-0

5

Jan-0

6

May-0

6

Sep-0

6

Jan-0

7

May-0

7

Sep-0

7

Jan-0

8

May-0

8

Sep-0

8

Jan-0

9

May-0

9

Sep-0

9

Jan-1

0

May-1

0

Sep-1

0

Jan-1

1

Sto

cks -

'000 c

u m

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Pri

ce -

R$/c

u m

Ethanol stocks Anhydrous price

US motor fuel demand peaks when Brazil stocks

ethanol inventory in between harvest seasons

Source: US data per EIA; Cosan data per company filings

• A natural solution exists to satisfy US market demand with Brazilian ethanol currently relegated to inefficient and expensive use of economic

capital

• “Our inventory, usually [peaks[ in November to cover sales between crop harvests (i.e., December through April), and a degree of seasonality in

our gross profit, with ethanol and sugar sales significantly lower in the last quarter of the fiscal year”

– Cosan Form 20-F FYE 03/31/10

• Cosan has become an importer of ethanol in March this year for the first time (150m liters year to date) and PotashCorp recently

forecasted Brazil’s ethanol imports in 2011 to hit ~25-30mm tonnes

• A significant value creation opportunity exists by matching each country’s annual excess ethanol production (currently relegated to costly and

inefficient storage) with the other country’s peak demand usage (summer driving season)

• Brazil and the US collectively can save ~$2.5bn annually by avoiding costly and unnecessary storage infrastructure costs

6,800

7,000

7,200

7,400

7,600

7,800

8,000

8,200

8,400

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecAvg

Mon

thly

Fin

ishe

d M

otor

Gas

Sup

plie

d ('0

00s

bbl/d

)

5,400

5,600

5,800

6,000

6,200

6,400

6,600

6,800

7,000

7,200

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

US

Eth

anol

Sto

ck ('

000s

bpd

)

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

90,000

95,000

Bra

zil E

than

ol D

istri

buto

r Sal

es ('

000s

boe/

d)

US Ethanol Stock Brazil Ethanol Distributor Sales

($400)

($300)

($200)

($100)

$0

$100

$200

$300

$400

$500

$600

4Q051Q06

2Q063Q06

4Q061Q07

2Q073Q07

4Q071Q08

2Q083Q08

4Q081Q09

2Q093Q09

4Q091Q10

2Q103Q10

4Q10

Inve

ntor

y ($

mm

)

(60%)

(40%)

(20%)

0%

20%

40%

60%

80%

Inve

ntor

y Q

/Q C

hang

e

Source/(Use) of Cash Inventory Q/Q

US Motor Finished Motor Gas Supplied (1981-2010) Cosan Inventory Q/Q and Working Capital Impact

Conclusions

• Biofuels can reduce our dependency on fossil fuel imports.

• Existing biofuel technologies bridge the gap between fossil-based transportation fuels and the

technological horizon of next generation technologies.

• The Biofuels Challenge: Demand for food is price inelastic but income elastic (e.g., change in

price does not reduce food demand, while higher incomes increases food demand)

• With 3% improvement in cattle ranching, Brazil can free up nearly 5 million hectares. This

would double Powercane production for food and fuel. If all increase crop production went to

fuel, ethanol production would triple to 20 billion gallons in Brazil.

• Best practices and biotechnology could produce 40 billion gallons of ethanol per year in U.S.,

displacing about one third of gasoline demand.

• There is a strong synergy between the U.S. & Brazilian biofuels production cycles, each of

which is subject to their own weather risks. Shared infrastructure will benefit both producers

and consumers in both countries.

Some Predictions in 1968…

• "the battle to feed all of humanity is over”

• “In the 1970s and 1980s hundreds of millions of

people will starve to death in spite of any crash

programs embarked upon now."

• "India couldn't possibly feed two hundred million

more people by 1980,"

• "I have yet to meet anyone familiar with the

situation who thinks that India will be self-

sufficient in food by 1971."

Agriculture Is NOT Uniform

Corn Yield Trends(Bushel Per Acre)

1990 2000 2005

World Average 59 70 75

USA 113 137 149

Argentina 60 93 109

China 74 78 80

Brazil 33 47 54

India 23 29 31

Sub-Saharan Africa 22 24 25

Source: Monsanto/Doane Forecast

Agriculture is NOT Static…

Open-PollinatedDouble Cross

Biotechnology

Single-Cross

Hybrids

Average U.S. Corn Yields

Bu

sh

els

/Acre

Hybrid genetics &

biotechnology

have driven a

five-fold

increase in

average U.S. corn

yields since 1940.

Source: USDA

It’s The Oil, Not The Ethanol

350.0%

380.9%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

0%

100%

200%

300%

400%

500%

600%

Apr-2001 Apr-2003 Apr-2005 Apr-2007 Apr-2009 Apr-2011

Ethanol P

roduction (Millions of G

allons)In

dexe

d V

alue

U.S. Ethanol Production Corn (RTH) - CBT Crude Oil, Light - NYMEX

Plants did not evolve to serve man

Genetic manipulation or “breeding” has been instrumental

Use Plant Breeding

High-Yield, Low-Input

Trait

Control

Nitrogen Use Efficiency

Wild-type

Transgenic

70% WATER

NO WILTING

NO DE-GREENING

Water Use Efficiency

Salt-Tolerance

Decaying Roots Healthy Roots

• J1 enhances sucrose

accumulation in

multiple species

• Biotech approach

parallels deployment

of markers for soluble

sugar accumulation

Control J1-10 J1-11 J1-14 J1-15 J1-17 J1-21 J1-26

% Sucrose

Increasing Soluble Sugar

Sweet Sorghum

Fits existing sugarcane-to-biofuel infrastructure

Season extender

Range extender

Short growth cycle: 90-120 days

Hardy; low inputs

Rapid breeding cycle

Seed propagated

Lower cost sugars

Not priced by commodity markets

“All in” production costs of ~$1 per gallon

Side by Side Comparison…

The ILUC Myth…

U.S. Ethanol Production

From 2000 to 2008:

•Corn ethanol up >300%

•Soybean exports up ~50%

•Deforestation down >50%

If the data don’t fit your hypothesis…