ANDRÉ LUÍS DA CUNHA MARTINS. CHALLENGES OF THE ETHANOL SUPPLY CHAIN IN BRAZIL: an analysis of production, distribution and price policies

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1 UNIVERSIDADE FEDERAL DO RIO DE JANEIRO INSTITUTO COPPEAD DE ADMINISTRAÇÃO ANDRÉ LUÍS DA CUNHA MARTINS CHALLENGES OF THE ETHANOL SUPPLY CHAIN IN BRAZIL: an analysis of production, distribution and price policies Rio de Janeiro 2018

2 ANDRÉ LUÍS DA CUNHA MARTINS CHALLENGES OF THE ETHANOL SUPPLY CHAIN IN BRAZIL: an analysis of production, distribution and price policies A thesis presented to the Instituto Coppead de Administração, Universidade Federal do Rio de Janeiro, as part of the mandatory requirements for the degree of Doctor of Sciences in Business Administration (D.Sc.). SUPERVISOR: Peter Fernandes Wanke Rio de Janeiro 2018

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4 CHALLENGES OF THE ETHANOL SUPPLY CHAIN IN BRAZIL: an analysis of production, distribution and price policies ANDRÉ LUÍS DA CUNHA MARTINS A thesis presented to the Instituto Coppead de Administração, Universidade Federal do Rio de Janeiro, as part of the mandatory requirements for the degree of Doctor of Sciences in Business Administration (D.Sc.). Approved by: Prof. Peter Fernandes Wanke, D.Sc. - Supervisor (COPPEAD/UFRJ) Prof. Vicente Antonio de Castro Ferreira, D.Sc. (COPPEAD/UFRJ) Prof. Otavio Henrique dos Santos Figueiredo, D.Sc. (COPPEAD/UFRJ) Prof. Virgílio José Martins Ferreira Filho, D.Sc. (COPPE/UFRJ) Prof. Henrique Ewbank de Miranda Vieira, D.Sc. (Consultor Independente) Rio de Janeiro 2018

5 To my Wife and Parents.

6 ACKNOWLEDGMENTS This thesis is the result of a long, four-year journey, with multiple stages that were overcome one by one. I would like to thank each colleague who helped me along the way, in all of the disciplines through which I have advanced. I would also like to thank Ticiane Lombardi for her support during all these years. To professors Peter Wanke, Virgilio Ferreira Filho and Marcelino Aurelio, for the teachings that contributed to the conclusion of this work. A special thanks to my advisor, Peter Wanke, who was, in addition to brilliant, a friend during these four years. I will never forget them. I would like to dedicate this work to my beloved wife, Carla, for her unconditional support and for encouraging me every day. Thanks to my parents, who encouraged and supported me during this long period. To my brother Marcus Vinicius. To three people who have shown themselves dedicated to me each in their own way I am immensely grateful: My mother in law and my sisters-in-law Feliz Maria and Tatiana Martins. I thank God for having succeeded.

7 ABSTRACT Martins, André Luis da Cunha. CHALLENGES OF THE ETHANOL SUPPLY CHAIN IN BRAZIL: an analysis of production, distribution and price policies f. Tese (Doutorado em Administração) - Instituto COPPEAD de Administração, Universidade Federal do Rio de Janeiro, Rio de Janeiro, This thesis will address four innovative and original papers that seek to relate the main problems experienced by ethanol produced in Brazil in recent years. To do so, we will use innovative studies on ethanol production, ethanol efficiency and productivity, ethanol distribution logistics, and pricing policies. All the methodologies used are cutting edge and capable of indicating solutions that can contribute to the development and competitive capacity of biofuel. The papers also seek to analyze and understand the relationships between the various variables considered. Keywords: Ethanol, Brazil, Ethanol Mills, MCMCglmm, Two Stage DEA, Transshipment, righttailed ADF tests.

8 RESUMO Martins, André Luis da Cunha. CHALLENGES OF THE ETHANOL SUPPLY CHAIN IN BRAZIL: an analysis of production, distribution and price policies f. Tese (Doutorado em Administração) - Instituto COPPEAD de Administração, Universidade Federal do Rio de Janeiro, Rio de Janeiro, Este trabalho abordará 4 papers inovadores e originais que buscam relacionar os problemas principais vividos pelo etanol produzido no Brasil nos últimos anos. Para tal utilizaremos estudos de caráter inovador sobre produção de etanol, eficiência e produtividade do etanol, logística de distribuição de etanol, e políticas de preço. Todos as metodologias usadas são de vanguarda e capazes de indicar soluções que podem contribuir para o desenvolvimento e a capacidade competitiva do biocombustível. Os trabalhos também visam analisar e compreender as relações entre as diversas variáveis consideradas. Palavras Chave: Etanol, Brasil, Usinas de Etanol, MCMCglmm, DEA em dois estágios, Transshipment, right-tailed ADF tests.

9 TABLE OF FIGURES Figure 1: Location of sugar and ethanol mills in Brazil Figure 2: Efficient modes for ethanol transport in São Paulo State: pipeline and waterway Figure 3.a): Maap for the ethanol production per municipality...39 Figure 3.b): Mbap for the number of sugarcane mills per municipality Figure 4: Correlogram for the dependent and predictor variables Figure 5: The three types of flows in fuel distribution in Brazil Figure 6: Multimodal system of ethanol transport by pipeline or waterway Figure 7: Representation of the flows in the network and the model s indexes 97 Figure 8: GSADF statistics of the ethanol-gasoline price ratio

10 TABLE OF TABLES Table 1: Descriptive statistics of the variables and their underlying rationale for ethanol production.. 24 Table 2: Results of the MCMCglmm forecast model Table 3: Results of MCMCglmm Model with standard variables Table 4: Results for the two-phase special regression with endogeneity correction Table 5: DEA Models Table 6: Descriptive Statistics for input, output and contextual variables Table 7: Beta regression results Table 8: Simplex Regression Results Table 9: Tobit Regression Results Table 10: Summary of the Literature Review Table 11: Terminals of the multimodal system of ethanol logistics before and beyond Paulinia Table 12: Descriptive Statistics of the Input Data Table 13: Volume of Ethanol Allocated to the Origin Terminals by the Linear Programming Model up until Table 14: Volume of Ethanol Allocated to the Origin Terminals by the Linear Programming Model up until Table 15: Volume of Ethanol Allocated to the Destination Terminals by the Linear Programming Model up until Table 16: Volume of Ethanol Allocated to the Destination Terminals by The Linear Programming Model from 2021 to

11 Table 17: Evolution of the Volume Share of Each Mode in the Transportation of Ethanol in Brazil Table 18: Evolution of the Share of Road Transportation at the Destination Terminals in the Region of the Multimodal System Table 19: Tests for Explosive Behavior in the ethanol-gasoline price ratio

12 TABLE OF CONTENTS 1 INTRODUCTION ETHANOL OVERVIEW PROBLEMS PAPERS REFERENCES ST PAPER: ETHANOL PRODUCTION IN BRAZIL: AN ASSESSMENT OF MAIN DRIVERS WITH MCMC GENERALIZED MIXED MODELS INTRODUCTION CONTEXTUAL SETTING REVIEW OF THE LITERATURE Price ratios Ethanol transportation modes Cooperative mills Ramping-up of mills METHODOLOGY The data Markov chain Monte Carlo methods for generalized linear mixed models (MCMC GLMM) Robustness analysis Spatial data analysis and regression Endogeneity correction DISCUSSION OF RESULTS CONCLUSIONS AND POLICY IMPLICATIONS REFERENCES ND PAPER: EFFICIENCY IN ETHANOL PRODUCTION A TWO STAGE DEA APPROACH INTRODUCTION CONTEXTUAL SETTING LITERATURE REVIEW METHODOLOGY... 62

13 3.4.1 The Data DEA ANALYSIS AND DUSCUSSION OF RESULTS CONCLUSIONS AND POLICY IMPLICATIONS REFERENCES RD PAPER: EVALUATION OF ETHANOL MULTIMODAL TRANSPORT LOGISTICS: A CASE IN BRAZIL INTRODUCTION CONTEXT LITERATURE REVIEW Transshipment Transshipment models applied to the distribution of ethanol and fuels in general METHODOLOGY Model Assumptions Description of the proposed model ANALYSIS AND DISCUSSION OF RESULTS CONCLUSIONS REFERENCES TH PAPER: ARE THERE MULTIPLE BUBLES IN THE ETHANOL GASOLINE PRICE RATIO OF BRAZIL? INTRODUCTION BACKGROUND ON THE SUGARCANE INDUSTRY IN BRAZIL THE RIGHT-TAILED ADF TESTS RESULTS AND DISCUSSION CONCLUSIONS REFERENCES CONCLUSION PAPERS SUMMARY FUTURE CHALENGES AND SUGGESTIONS REFERENCES