Economic, social and ecological impacts on Brazil of accelerated liberalisation of the European sugar market

Economic, social and ecological impacts on Brazil of accelerated liberalisation of the European sugar market A study on behalf of the GTZ (Deutsche Gesellschaft für Technische Zusammenarbeit GmbH) within the scope of the sector project Agricultural trade: Strengthening LDCs integration into the global economy Conducted by FIAN (FoodFirst Information & Action Network) INTERNATIONAL e.v. October 2002

Study conducted by: FoodFirst Information & Action Network International International Secretariat Willy Brandt Platz 5 69115 Heidelberg Germany Project Manager: Thomas Hirsch (FIAN International - Director) Vilmar Schneider (FIAN International Regional Co-ordinator South America) Project Officers: Klemes Laschefski (Geographer, Brazil) Bruno Ribeiro (Lawyer, Brazil) FIAN International, represented by T. Hirsch, is responsible for the contents of this study.

Zusammenfassung Brasilien ist mit einer Anbaufläche von 5 Mio ha weltweit der größte Erzeuger von Zuckerrohr. Mehr als die Hälfte der Produktion wird derzeit zu Ethanol als Treibstoff für Kraftfahrzeuge für den inländischen Verbrauch verarbeitet. Durch die duale Struktur der Zucker- und Alkoholproduktion kann Brasilien flexibel auf Preisentwicklungen reagieren und ist damit einer der dominierenden Akteure auf dem Weltmarkt. Brasilien verfügt über einen bedeutenden inländischen Zuckermarkt. Allerdings nahm der Exportanteil in den 90er Jahren ständig zu. Im Jahr 2000 betrug die Produktion 9,45 Mio Tonnen Zucker für den inländischen und 7,7 Mio t für Exportmärkte, was einem Weltmarktanteil von 25% entspricht. Mit durchschnittlich US$200 pro Tonne hat Brasilien weltweit die geringsten Produktionskosten. Moderne, exportorientierte Firmen produzieren sogar zu etwa US$160 / t. Im Falle einer uneingeschränkten Marktöffnung ist Brasilien in der Lage, die Importe Europas vollständig zu decken. Bezüglich der daraus resultierenden Auswirkungen ergeben sich unterschiedliche Perspektiven in den wichtigsten Anbauzonen Brasiliens: In den südlichen Landesteilen ist seit den 70er Jahren durch die staatliche geförderte Produktion von Alkoholtreibstoff (PROALCOOL-Programm) die weltweit größte Konzentration des Zuckerrohranbaus entstanden. Seit Mitte der 90er Jahre wurden und werden mit Blick auf den Export von Zucker enorme Investitionen in Transportinfrastrukturen und in die Modernisierung des Sektors getätigt, der heute zu den effizientesten der Welt zählt. Es finden Konzentrationsprozesse der Unternehmen unter Einsatz von internationalem Kapital statt. Mit einer Neuauflage des PROALCOOL-Programms und einer steigenden inländischen Nachfrage der industriellen Zentren ist der Binnenmarkt weiterhin ein wichtiger Faktor im Hinblick auf zukünftige Entwicklungen. Zwar hat sich die soziale Situation innerhalb dieser Betriebe verbessert, jedoch ist aufgrund der Mechanisierung im Agrarbereich mit der Freisetzung von hundertausenden Landarbeitern zu rechnen. Bisher gibt es keine Maßnahmen, die auf die daraus resultierenden sozialen Probleme abzielen. Bezüglich des Umweltschutzes sind technologische Vebesserungen zu registrieren, doch das Konzept einer ökologisch äußerst bedenklichen Monokultur, die auf Großgrundbesitz beruht und die Landkonzentration erhöht, besteht fort. Wegen des Einflusses des Binnenmarktes in den südlichen Landesteilen ist anzunehmen, dass eine Expansion für die durch die Marktöffnung Europas induzierte, zusätzliche Exportproduktion vor allem im Mittelwesten und Minas Gerais stattfinden würde, in dem ebenfalls eine moderne Struktur aufgebaut wird. Die Ausweitung der Anbaufläche erfolgt hier im ohnehin stark bedrohten Ökosystem Cerrado (Baumsavanne), das als Kornkammer Brasiliens gilt. Zudem werden Oberflächengewässer und damit das Pantanal und andere Feuchtgebiete durch Agrarchemikalien und Sedimenteintrag belastet. Die Beschäftigungseffekte des Zuckerrohranbaus sind gering, so dass die lokale Bevölkerung abwandern muss. Dadurch steigt der Druck auf unbesiedelte Regionen, z. B. am Rande des Amazonasbeckens. Der Nordosten als traditioneller Standort der Zuckerwirtschaft ist wegen der Topografie, veralteter Produktionsstrukturen und einer wenig flexiblen Oligarchie der Zuckerproduzenten nur bedingt gegenüber den anderen Anbauzonen konkurrenzfähig. In den letzten Jahren wurden viele Betriebe und Anbauflächen stillgelegt. Die Region hat die niedrigsten Sozialstandards Brasiliens. NGOs sehen in der Krise die Chance, die Abhängigkeit von der Zuckerrohrwirtschaft und die Grundbesitzkonzentration abzubauen. Eine Wiederbelebung der Zuckerwirtschaft unter den derzeitigen Rahmenbedingungen würde kontraproduktiv zu den Bemühungen um die Umsetzung der Agrarreform, dem Aufbau einer differnzierteren Wirtschaftsstruktur und Wiederaufforstungen der Mata Atlântica wirken. Für alle Regionen gilt, dass sowohl bei einer schnellen als auch bei einer graduellen Öffnung des europäischen Zuckermarktes ein nicht nachhaltiges Modell der Agrarwirtschaft gefördert

würde, das zwar ökonomisches Wachstum, aber kaum Lösungen für die mit ihm verbundenen ökologischen und sozialen Probleme bietet. Auf internationaler Ebene könnte eine schrittweise Liberalisierung den AKP-Staaten Spielraum einräumen, den technologischen Rückstand aufzuholen und so konkurrenzfähiger gegenüber Brasilien zu werden. Aber auch in diesen Ländern ist zu fragen, ob die industriellen Agrarwirtschaft den ökologischen und sozialen Erfordernissen des Landes entspricht. Im Hinblick auf die Verhandlungen um eine neue Zuckermarktordnung ist darauf hinzuweisen, dass die WTO zunächst kein Mandat für ökologische und soziale Fragen hat, wiewohl ihr Regelwerk und ihre Politiken diesbezüglich enorme Auswirkungen haben. Hier ist die Verantwortung anderer internationaler Institutionen mit teilweise konkurrierenden rechtlichen Regimes zu betonen (u.a. ILO und Umweltabkommen). Brasilien hat viele internationale Abkommen und Konventionen unterzeichnet und sich damit zu deren Implementierung verpflichtet. Das brasilianische gesetzliche Regelwerk bietet bereits Instrumentarien, die Abkommen umzusetzen. Hervorzuheben sind u. a. folgende Punkte: Brasilien ist Unterzeichnerin des UN-Paktes über wirtschaftliche, soziale und kulturelle Menschenrechte. In den Zuckeranbauzonen werden Grundrechte wie das Recht auf Nahrung und das Recht auf Gesundheit verletzt. Bei der Ausweitung von Anbauflächen wird oft gegen Abkommen zum Schutz der traditionellen und indigenen Bevölkerung verstoßen. Einige Bestimmungen der internationalen Arbeiterorganisation (ILO) flossen in das Arbeitsrecht und in gewerkschaftliche Vereinbarungen ein, jedoch sind informelle Arbeitsverhältnisse und soziale Misstände nach wie vor weit verbreitet. Die Vorgaben verschiedener Umweltabkommen (Biodiversitätskonvention, Klimakonvention etc.) müssen auf nationaler Ebene konkretisiert werden, finden aber in der Regel bei der Ausweitung von Agrarflächen kaum Beachtung. Auf nationaler Ebene kann über folgende Maßnahmen eine effektivere Umsetzung der genannten Abkommen erreicht werden: Brasilien hat eine weit entwickelte Umwelt- und Sozialgesetzgebung, die gerade in der Zucker- und Alkoholwirtschaft vielfach nicht zum Tragen kommt. Die brasilianische Regierung muss Instanzen zur Kontrolle der Betriebe stärken. Neben Maßnahmen zum technischen Umweltschutz ist bei der Erweiterung der Anbaugebiete eine umfassende Umwelt- und Sozialverträglichkeitsprüfung notwendig, die wirksame partizipative Strategien zur Problemlösung der betroffenen Bevölkerungsgruppen und den Schutz ökologisch sensibler Gebiete beinhaltet. Staatliche Programme sollten auf eine dezentralen Agrarentwicklung zur Stützung der Kleinproduzenten ausgerichtet sein. Die Umsetzung der Agrarreform als Vorraussetzung zur Bekämpfung der ländlichen Armut und der Erfüllung des Rechts auf Nahrung ist zügig voranzutreiben. Die internationalen Handelspartner sollten Brasilien unterstützen, etwa über das Pilotprogramm zum Schutz der tropischen Wälder Brasiliens (PPG7). Es ist gleichwohl darauf hinzuweisen, dass auch der europäische Zuckerrübenanbau keineswegs ökologisch nachhaltig ist und nur geringe Beschäftigungswirkungen hat. Eine Ökologisierung und Dezentralisierung der Landwirtschaft ist daher auch in Europa - insbesondere im Hinblick auf die Osterweiterung - notwendig. So gesehen handelt es sich bei der Umstrukturierung der Zuckerwirtschaft um ein globales Gemeinschaftsprojekt, das allen Akteuren Änderungen abverlangt.

Summary With 5 million hectares of cropping land, Brazil is the biggest producer of sugarcane the world over. More than half of the sugarcane produced is currently being turned into ethanol to fuel vehicles on the domestic market. The dual structure of the sugarcane and alcohol processing industry means that Brazil is able to react flexibly to developments in prices and is therefore one of the leading players on the world market. Brazil has a strong domestic market for sugar; however, the share of exports continually increased in the nineties. In 2000 Brazil produced 9.45 million tonnes of sugar for the domestic market and 7.7 million tonnes for the export market, equivalent to 25 per cent of total world sugar exports. At an average of US$200 per tonne, Brazil has the lowest production costs worldwide. Modern, export-oriented firms even manage to produce at a rate of US$160 per tonne. Should all the market restrictions be lifted, Brazil would be able to meet Europe s entire demand for imported sugar. However, the impacts this would have are seen in a different light in the various key cultivation areas within Brazil: In southern parts of Brazil, the state-promoted production of alcohol fuel through the PROALCOOL (Pro-alcohol) programme in the seventies led to the creation of the world s largest sugarcane cultivation area. In a bid to promote sugar exports, enormous investment has been undertaken since the mid-1990s in transport infrastructure and in agrosector modernisation, making this sector one of the most efficient in the world today. Also, enterprises are now merging with the support of international capital. The relaunch of the PROALCOOL programme, along with rising domestic demand in Brazil s industrial centres, mean that the domestic market still has a pivotal role to play in Brazil's economic future. Although the social status quo in these enterprises has improved, mechanisation in the agricultural sector will ultimately lead to job losses for hundreds of thousands of rural workers. Until now there have been no measures designed to cope with the resulting social problems. Technological advances have been achieved in environmental protection, but the concept of ecologically harmful monocultures based on latifundios or large-scale land owners and land concentration remains the same. Owing to the influence of the domestic market in southern parts of Brazil, it is to be expected that expanding sugar production in response to additional export requirements following the liberalisation of the European market will essentially be found in the Midwest and Minas Gerais where modern structures are being built up as well. The extension of arable land here will be in the severely threatened Cerrado ecological system (tree savannah), known as the breadbasket of Brazil. Furthermore, bodies of surface water and thus the Panatal and other wetland areas will bear the brunt of agro-chemicals and sedimentation. The spin-off effects of sugarcane plantations in terms of employment are so slight that the local population will be forced to move to other regions, thereby exerting more pressure on regions that are as yet without human settlements, such as the fringe of the Amazon basin. Owing to its topography, antiquated production structures and the very inflexible oligarchy of sugar producers, Brazil s Northeast, homeland of the Brazilian sugar industry, will only be marginally competitive in comparison with other parts of Brazil. Many production plants and arable farms have closed down in recent years. Indeed, the region now has the lowest social standards in the whole of Brazil. NGOs perceive this crisis as an opportunity to decrease the region's dependency on the sugarcane industry and to reduce land concentration. A renaissance of the sugar industry under present framework conditions would, however, run counter to ongoing efforts to introduce agricultural reform, establish more differentiated economic structures and reafforest the Mata Atlântica.

It can be said of all regions that a rapid as well as a gradual opening up of the European sugar market will promote a non-sustainable model of agricultural economics that would lead to economic growth but would offer virtually no solutions to the ecological and social problems it would bring with it. At the international level, gradual liberalisation could give ACP states the scope they need to catch up technologically and thus become more competitive towards Brazil. However, in these countries too, the question remains as to whether the industrial agricultural economy will meet these countries ecological and social needs. As far as the negotiations for new sugar market regulations are concerned, it has to be emphasised that the WTO does not have a mandate for ecological and social issues, although its regulations and policies have enormous implications in this regard. Attention should be drawn here to the respective responsibilities of other international institutions whose legal mandates even contradict each other (inter alia ILO and Agenda 21). Brazil has signed many international treaties and conventions and is therefore bound to their implementation. The Brazilian legal code already offers instruments for implementing these treaties, whereby emphasis is to be placed on the following: Brazil is a signatory state to the UN Covenant on Economic, Social and Cultural Human Rights. In sugar cultivation areas, basic human rights such as the right to adequate food and the right to health are being violated. The extension of arable areas frequently contravenes conventions designed to protect indigenous peoples. Some ILO regulations have already been introduced into labour law and into trade union conventions. However, informal employer-employee relationships and social grievances are still widespread. The provisions of various environmental conventions (conventions on biodiversity and climate change etc.) have to be implemented on the national level; however, they hardly feature at all in the extension of arable land. At the national level, implementation of the conventions can be made more effective through the following measures: Brazil already has well-defined environmental and social legislation which, however, is largely ignored in the sugar and alcohol industries. The Brazilian government should therefore strengthen agencies and bodies responsible for controlling enterprises. Besides measures in the field of environmental technology, the extension of crop areas calls for an assessment of both environmental and social impacts which should contain viable participatory strategies for solving the problems of the population groups affected and for protecting ecologically sensitive areas. State programmes should be directed towards decentralised agricultural development in support of small farmers. Implementation of agrarian reform as a basic condition for combating rural poverty along with the implementation of the human right to adequate food should be promoted without delay. International trading partners should support Brazil, for example, via the pilot project for the protection of Brazilian tropical forests (PPG7). It should, however, be pointed out that European sugar-beet production is not ecologically sustainable either and only has marginal impacts on employment. Ecologically sound and decentralised agriculture is therefore needed in Europe too, especially in view of its eastward extension. Hence, the restructuring of the sugar industry is a project that concerns the entire global community and one which demands changes on the part of all actors involved.

Resumo O Brasil é o maior produtor de cana-de-açúcar do mundo. Os cultivos de cana ocupam hoje cerca de 5 milhões de hectares. Mais do que a metade da cana produzida é transformada em álcool usado como combustível para carros. A estrutura dupla do setor industrial, que possibilita produzir álcool e açúcar, permite aos produtores do Brasil agir com maior flexibilidade no comércio internacional, sendo assim um dos países dominantes no mercado mundial de açúcar. O açúcar produzido no Brasil é colocado, prioritariamente, no mercado interno. Porém, na última década, cresceu a parte da produção de açúcar destinada à exportação. No ano 2000 foram produzidos 9,45 milhões de toneladas para o mercado interno e 7,7 milhões de toneladas para exportação, representando 25% no comércio mundial. Os custos da produção são os mais baixos no mundo. A média nacional é US$ 200.00 por tonelada. Empresas modernas conseguem produzir uma tonelada de açúcar com o custo de US$ 160. No caso de uma abertura total do mercado da Europa, os baixos custos da produção brasileira possibilitariam suprir 100% das importações européias, o que teria diferentes impactos nas principais regiões produtoras: No Sudeste e no Sul, o programa PROALCOOL estimulou desde os anos 70 significamente a expansão da produção da cana-de-açúcar, formando a maior concentração da agroindústria canavieira do mundo. O setor investiu nos anos 1990 em infraestruturas de transporte e na modernização da agricultura e da indústria, criando o centro produtivo mais eficiente em nível global. Pode-se observar nos últimos anos a concentração de capital e indústrias, inclusive por investidores internacionais. Mas a demanda interna é ainda um fator muito relevante para o desenvolvimento futuro, particularmente se a renovação do PROALCOOL anunciada pelo governo for colocada em prática. Embora as empresas mais modernas apresentem alguns avanços com respeito às questões sociais, a preocupação maior é que a mecanização do corte da cana poderá gerar milhares de desempregados, para os quais não existem programas oficiais de apoio. Nas questões ambientais, pode-se registrar avanços tecnológicos, principalmente no setor industrial. Mas ainda permanece o modelo de monocultura ecologicamente não-sustentável e predatória, baseado em latifúndios, o que contribui para a concentração da posse da terra. Como a demanda interna de açúcar nos centros industriais do Sudeste aumentará no futuro, pressupõe-se que a expansão da produção adicional para exportação, induzida pela abertura do mercado europeu, acontecerá sobretudo no Centro-Oeste e em Minas Gerais, onde a estrutura da agroindústria canavieira é semelhante à do Sudeste. A ampliação da área cultivada, possivelmente acontecerá no ecosistema do Cerrado, um dos mais ameaçados no Brasil. Além disso, um dos problemas mais graves seria o aumento a contaminação das águas de superfície com sedimentos e agrotóxicos, causando impactos negativos no Pantanal e outras áreas. Como a agricultura moderna gera pouco emprego, a população local marginalizada é obrigada a migrar para outras regiões. Assim, poderia aumentar a pressão populacional em áreas naturais como, por exemplo, as margens da bacia Amazônica. O setor sucro-alcooleiro no Nordeste é caracterizada por uma estrutura industrial ultrapassada controlada por uma oligarquia tradicional pouco flexível. Além disso, a topografia não permite a mecanização em grandes partes da área canavieira tradicional. Por isso, o setor não é competitivo com os centros canavieiros nos demais regiões produtoras, apesar de algumas usinas trabalharem com lucro. Na última década muitas usinas e plantações foram desativadas. A região tem os piores índices sociais do Brasil. ONGs e movimentos sociais vêem na crise uma chance para romper com a dependência das usinas geradoras de miséria e para enfrentar a concentração da posse da terra. Um crescimento da economia canavieira no contexto atual seria contraproducente às initiativas para a

implementação da reforma agrária, para promover a diversificação da produção agroindustrial e para a recuperação da Mata Atlântica, entre outros. Para todas as regiões a abertura do mercado europeu - seja totalmente ou gradualmente - significa o fortalecimento de um modelo agroindustrial não-sustentável, que somente visa ao crescimento econômico sem ofercer soluções para os problemas ecológicos e sociais, que o mesmo produz. No nível internacional, a liberalização gradual poderia abrir espaço para os países da ACP melhorarem os padrões tecnológicos, aumentando a competitividade Com relação ao Brasil. Mas também para estes países é questionável, se o modelo agroindustrial nesta forma seria adequada para as próprias necessidades sociais e ecológicas. No contexto das negociações na OMC um aspecto relevante é que ela mesma não tem mandato em questões ecológicos e sociais, enquanto suas políticas causam graves impactos. Por isso, é necessário destacar outros tratados e convenções internacionais sobre questões ecológicas e sociais, assinados pelo Brasil, que não são cumpridas, como por exemplo: O Brasil assinou o Pacto Internacional sobre Direitos Econômicos, Sociais e Culturais da Organização das Nações Unidas (ONU), que, em muitos aspectos, nas áreas canavieiras, não são cumpridos, como por exemplo, os direitos à alimentação, saúde, água potável etc. Também, muitas vezes não são respeitados os direitos das populações tradicionais e indígenas nos casos da expansão das plantações. Algumas diretrizes da Organitação Internacional do Trabalho (OIT) foram incorporadas às leis e contratos com os sindicatos. Mas ainda são comum no setor sucro-alcooleiro condições insalubres de trabalho, bem como o descumprimento crônico da legislação trabalhista, entre outros abusos sociais. As condições previstas nos acordos ambientais (convenções para a biodiversidade e para o clima, entre outros) precisam ser concretizadas em nível nacional. Elas não são respeitados, por exemplo, na expansão da área da agricultura. A legislação brasileira já oferece instrumentos para realizar o cumprimento das obrigações; O Brasil tem uma legislação social e ambiental bem avançada que não é cumprida no setor sucro-alcooleiro. O Brasil precisa fortalecer entidades para fiscalizar as empresas. Além de avanços na tecnologia ambiental nas usinas, é necessário uma avaliação social e ambiental nas áreas da expansão das plantações, incluindo estratégias participativas para determinar soluções para problemas da população ameaçada pela expulsão da terra. Também, devem ser incluídas propostas concretas para mitigar impactos ambientais. Políticas públicas devem ser destinadas para as necessidades da agricultura familiar e para a diversificação da produção agroindustrial em vez de beneficiar exclusivamente o setor empresarial. A reforma agrária, como pré-condição de uma mudança socio-econômica para combater a pobreza, precisa ser acelerada. Os demais países que participam nas negociações internacionais devem apoiar o Brasil nesses esforços, como, por exemplo, através do Programa Piloto para proteção das Florestas Tropicais do Brasil - PPG-7. Cabe destacar, que a produção da beteraba na Europa segue os mesmos padrões não sustentáveis que a produção da cana nas empresas modernas no Brasil, gerando pouco emprego. Por isso, na Europa também é necessário "ecologizar" e decentralizar a agroindústria, particularmente com respeito à ampliação da UE para o leste. A reestruturação da econômia de açúcar é um projeto comum em nível Global; que deve cobrar mudanças de todos os participantes. Table of Contents

German Summary (Zusammenfassung) 2 English Summary 4 Portuguese Summary (Resumo) 6 Table of Contents 7 1. Introduction and Methodology 9 2. General Introduction to the Country 10 3. History of the Sugar Industry 12 4. The Role of the Sugar Industry in the Brazilian Economy 14 4.1 Sugarcane Cultivation 14 4.2 Sugar and Alcohol Production 15 4.3 Key Sugar and Alcohol-producing Locations 18 4.4 State Regulation of the Sugar and Alcohol Industry 20 4.5 Brazil s Position on the Global Sugar Market 22 5. The Precarious Social Status of the Sugar Industry 25 5.1 Social Indicators for Sugarcane Cultivation Areas 25 5.2 Work Conditions, Unemployment and Conflicts 27 5.3 Conflicts Over Land 30 6. Environmental Problems 32 6.1 Expansion of Monocultures 32 6.2 Soil erosion, Agricultural Chemicals, Surface Run-off 34 6.3 Burning off Sugarcane Fields 36 6.4 Mechanisation 36 6.5 Environmental Problems in Processing Companies 37 7. Estimated Impacts on Brazil of a Liberalised EU Sugar Market 38 7.1 Current Trends in the Brazilian Sugar Industry 38 7.2 Impacts on Brazil of a Liberalised EU Sugar Market 41 7.2.1 Basic Assumptions 41 7.2.2 Scenario 1: Elimination of all trade restrictions imposed by the EU sugar market 42 7.2.3 Scenario 2: Gradual liberalisation of the European sugar market 44 7.2.4 Alternative Scenario Standpoints Within Brazilian Civil Society 45 8. Final Assessment and Recommendations 48 Source Materials Index 51 Organisations, Institutes and Enterprises Visited 51 Literature 51 Internet (accessed between July and September 2002) 56 Journals 59

1. Introduction and Methodology As part of the future restructuring of the EU sugar market, there is talk of gradual liberalisation (i.e. market opening and elimination of trade preferences and subsidies). This study analyses the economic, social and ecological consequences of liberalised market access for Brazil, which is already one of the main exporting countries today. The objective is to offer a differentiated overview as a basis for decisions affecting the development of market-liberalisation strategies. FIAN, the international human rights organisation for the right to food, takes as its starting point a comprehensive impact analysis that enables it to assess not only the economic impacts but, above all, ramifications in terms of human rights as well as social and ecological implications. A key aspect of this approach is the involvement of the actors concerned, with a special emphasis on particularly vulnerable groups (landless, farm workers and other marginalised population groups). The structures in this sector of Brazil s economy are complex, sugar production having been one of the most important economic undertakings since as far back as the early days of colonisation. Up until the end of the 20 th century, the main focus of production was in the Northeast. Key political measures, such as, for example, the introduction of alcohol as a substitute for fuels made of petroleum derivatives in the 70s and 90s (PROALCOOL) and growing domestic consumer markets, have brought far-reaching changes with them. Today, the main production centre is in the country s Southeast, in the federal state of São Paulo. In recent times, traditional companies from the Northeast have been investing more heavily in other federal states. The upshot: clear economic and technological regional disparities which are reflected at an ecological and social level too. The study starts by looking at the way in which sugarcane cultivation, that is to say sugar and alcohol production, have evolved and how they are structured today, including a survey of the latest economic developments in all key areas of cultivation. Examples are given of important changes in "traditional" locations such as Pernambuco and Alagoas, as well as in up-andcoming, modern locations geared to internationalisation such as São Paulo and, finally, the location of Minas Gerais, which has been targeted by companies migrating from the Northeast. The second part deals with the trends to be expected once access to the global market has been expanded and focuses on the economic, social and ecological impacts this will have in accordance with regional differences. In addition to the sources cited, data is based on surveys and discussions with representatives of companies, trade unions, social movements, non-governmental organisations and research institutes, inter alia, in Pernambuco, São Paulo and Minas Gerais in the period from July through to August 2002. Account must be taken of the fact that the data obtained from different sources does not always tally. For example, in contrast to other institutes, the IBGE, the Brazilian state institute for statistics, not only includes sugarcane production for industrial purposes but also the plantations cultivated by small farmers for fodder and spirit distillation. However, owing to the comparability of the macro regions, IBGE data nonetheless serves as a basis for general information. For more detailed information, the study used the data provided by the organisations and institutions it contacted.

2. General Introduction to the Country Brazil covers a surface area of continental dimensions, namely 8.51 million km 2, with equatorial, tropical, subtropical and semi-arid climates. It is possible to distinguish between eight major ecosystems: the Amazon forest, Cerrado (dry forest, tree savannah), Pantanal (the largest wetland area on earth), Caatinga (thorn savannah), Pinheiras (araucaria forests), Campos (grass savannah), the Mata Atlântica (Atlantic coastal rain forest) and littoral zones (ALMANAQUE ABRIL, 2001). According to the most recent census in the year 2000, Brazil has approximately 170 million inhabitants and is thus the fifth most populous nation in the world (IBGE 2001). As a political system, it has a constitutional presidential democracy and is divided into 27 federal states and 5,507 municipalities. According to official economic data, gross national product is 1,185 billion reais, i.e. 773 billion US dollars (exchange rate of US$1 to R$1.5). Brazil is therefore the largest economy in Latin America and ranks eighth on a global scale after the USA, Japan, Germany, the United Kingdom, France, Italy and China. However, the UNDP (2002) revealed that, in terms of the social situation of its population, Brazil, with a HDI of 0.757 1, ranks seventy-third out of 173 states surveyed (CPT 2002a). In Brazil the Gini coefficient, which indicates the distribution of income, went up from 0.591 in 2001 to 0.607 in 2002. Thus, the gap between rich and poor has continued to grow. Brazil is therefore amongst the countries with the highest concentration of income, a feature in which it is only surpassed by the African countries Sierra Leone, the Central African Republic and Swaziland. Roughly 10% of the Brazilian population share about 45.7 of total income, while the 10% that make up the poorest members of society have only 1.0% between them. The wealthiest Brazilians (1% of the population) account for 12.5% of total income (TEIXEIRA 2002), whereas about 50% of the population has to get by on a below-the-poverty-line income of US$30/month (FGV 2002). In keeping with the theme of this study, the concentration of land ownership in rural areas is particularly relevant as a cause of social ills and poverty. About half of the land is in the hands of one percent of all land owners. Although, according to the agrarian reform law, non-productive land is to be distributed among the landless, implementation is slow. The Landless Workers Movement, MST (Movimento Sem Terra), is now trying to speed up the pace of agricultural reform by occupying land, often resulting in outbreaks of violence (Tables 1 3). Out of a total of 681 conflicts in 2001, 40% (274) took place in the Northeast, 20.8% (142) in the North (including Amazonia), 16.1% (109) in the Southeast and 15.4% (105) in the Midwest, as well as 7.6% (52) in the south of the country. 1 HDI= Human Development Index, summarising data on life expectancy, level of education and pro-capita income. The scale extends from 0 (low) to 1 (high).

Table 1: No. of land occupancies in the past 10 years 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 81 89 119 146 398 463 599 593 390 194 Source: CPT, 2002 b No. of conflicts Table 2: Eviction of families from their own and from occupied land in the year 2001 Families involved Families driven from the land they own Families evicted from occupied land Families at risk of eviction No. of houses destroyed No. of cultivation areas destroyed 681 83 629 1 205 13 455 17 649 16142 2 041 1 126 Source: CPT, 2002 b Table 3: Violent attacks on individuals Year Conflicts Murders Attempted murders Death threats Families at risk of displacement Imprisonment 2000 669 21 98 85 365 2001 880 29 37 132 254 Source: CPT, 2002 b In the spring of 2002, the IPEA (Instituto de Pesquisa Econômica Aplicada - Institute for Applied Economic Research) contested the data on agricultural reform published by the Ministry for Agricultural Development (Ministério do Desenvolvimento Agrário) as being too high. Indeed, for the years 1999 and 2000, IPEA calculated a difference of 44% between official statistics and the actual number of families that benefited from agricultural reform. Reporters working for the Folha de São Paulo also discovered that often those areas listed in the statistics had not been settled both for reasons of red tape and because they lacked appropriate infrastructure 2. Furthermore, the 20 million hectares of expropriated land according to government figures are overshadowed by a total of 56 million hectares of new cultivation area extended by the large land owners, all of which shows quite clearly that, at the end of the day, the official strategy for agricultural reform is failing to meet its targets (CPT 2002 c). 2 In 1999 only 53,197 instead of 85,226 families benefited from reforms and in 2000 the figure was 36,061 rather than 108,986, i.e. 52,925 including the 20,000 families that received financial support from the Banco da Terra. In Santa Catharina there is a discrepancy in 2001 between the figure of 658 family settlements stated by the Ministry and the 436 families according to INCRA (Instituto Nacional de Colonização Agrária). The striking differences are due to the fact that the Brazilian government counts the number of approved applications, but not the number of families that have actually settled there. The subsequent bureaucratic processes and the generation of an infrastructure in the settlement areas often take years to complete, if at all. Thus, in Alto Alegre, 105 families on the city periphery have been waiting since 1998 for authorisation to settle on the land that has been allocated to them (according to reports by the Folha de São Paulo from 21 and 22 April 2002, and CPT 2002 b).

3. History of the Sugar Industry The Portuguese introduced sugarcane into Brazil as far back as the start of colonisation in the 16 th century. For a long time, the sugar industry was a key element of the colony s development strategy and indeed was also vital to the development of Portugal itself. The first sugarcane plantation ("engenho") was established in 1532 in São Vicente, which is now the federal state of São Paulo. However, for centuries, the focus of sugar production was in the country s Northeast with its fertile soils and favourable climatic conditions. In fact, landownership structures there today are still basically determined by the engenhos. Furthermore, the region stood out because of its proximity to the European markets. The epoch referred to as the "sugar cycle" (ciclo de açucar) played a pivotal role in the region s and indeed the entire colony s economic development right through to the 18 th century. From this period through to the 1970s, the federal state of Pernambuco was Brazil s main sugar producer. Since then, production has spread to southern parts of the country (UNICA 2002). From the outset up to the present day, cultivation, processing and economic structures have been characterised by the following basic features. Cultivation takes the form of monocultures i.e. plantations. Land ownership is concentrated amongst a few families (latifundios). Signs of change have only begun to make themselves felt in the past twenty years. Slave labour either by the indigenous population or Africans brought over to the country for this purpose until the official abolition of slavery in 1888. This was followed by the introduction of an unfair labour-wage system that is now in force throughout the country and which does not satisfactorily counter social and ethnic disparities. Uncontrolled expansion of agricultural areas, the major cause of the region s decimated rain forests on the Atlantic coast (Mata Atlântica). In today s Brazil, only 6% of the original area of this biome still exists. High level of state intervention, including financial measures, protectionism, subsidies etc. whose gradual elimination was not started until the 1990s. Entrepreneurs in the sugar industry have a strong influence on and control over local, regional and national political bodies. The sector is heavily influenced by the international market. The last item mentioned is of particular relevance to this study in that it highlights the fact that international variables have played a key role in economic development, state policies and entrepreneurial strategies etc. ever since the sugar industry in Brazil first began. Below is a summary of a few historical events that outline the impacts of the world s markets on the Brazilian sugar sector: The Portuguese crown essentially decided to introduce and expand sugarcane cultivation because of the high price of sugar in Europe at that time and because of the need to consolidate the colony s territory. Owing to the introduction of sugar beet in Europe and new technological innovations during the industrial revolution in the 18 th century, the Brazilian sugar industry fell into a deep crisis, leading to the economic decline of the Northeast by the end of the 19 th century. National demand was not able to offset the losses on the international market (VALE 2000). The first few decades of the 20 th century witnessed the modernisation of sugar production with the introduction of centrifuges. Large factories were constructed

whose enormous demand for sugarcane resulted in further concentration of land ownership. During the global economic crisis of 1929, Brazil experienced national overproduction and a dramatic drop in prices (SZMRECSANY 1979). At the start of the 1930s, sugar producers asked for state support so as to alleviate the impacts of the crisis and to better organise the sugar industry. In those days, relatively high prices and trade restrictions by the importing countries prevented surplus sugar from being sold on the international market (NEVES/BATALHA, 1997). In 1929 the government founded a corporation for sugar and alcohol (IAA - Instituto do Açúcar e do Alcool) to monitor production, technological modernisation and the volume of exports. For sixty years, the IAA was responsible for all political measures, subsidies and internal as well as external marketing. The impacts of the Second World War on the international markets and shipping etc. contributed to the expansion of the sugar industry in the country s Southwest with its emerging industrial and economic centres. In the 1960s, Cuba s exclusion as a US trade partner had a positive effect on Brazilian production levels, resulting in higher export volumes (SZMRECSANY 1979). The global energy crisis and oil-price shock triggered the launch of the Brazilian PRÓALCOOL programme (Programa Nacional do Alcool) in 1975 which promoted the production of alcohol as a vehicle fuel to substitute petrol in the automotive sector. This initiated important technological changes throughout the entire sector which ultimately brought about serious ecological and social problems. Finally, the far-reaching changes in Eastern Europe and the intensification of globalisation should be mentioned, since they led to the abolition of state interventions and the dismantling of the IAA in 1990 (NEVES/BATALHA, 1997). Given the above events, and with due consideration to ecological and social impacts, the question to be asked now is whether the liberalisation of the European market has the potential to affect Brazil just as deeply.

4. The Role of the Sugar Industry in the Brazilian Economy 4.1 Sugarcane Cultivation Brazil is the largest producer of sugarcane worldwide, followed by India and Australia. With approximately 5 million ha, sugarcane cultivation accounts for some 10% of Brazil s total agricultural area (IBGE 2001). The cultivation areas are mainly in the Atlantic-tropical Northeast and in the sub-tropical zones in the Midwest and Southeast, with marked dry periods within the coastal rain forests (Mata Atlântica). In recent times, sugarcane growing areas have also been spreading to the Cerrado (ALMANAQUE ABRIL 2001). Owing to the different climatic zones, the harvesting season in the Northeast alternates with that in more southerly areas, lasting in the Northeast from October through to March and in the Southeast from April through to August. Consequently, Brazil is able to produce sugar all year round. Sugarcane production and processing are entirely privately owned. In total, there are some 308 sugar factories and alcohol distilleries that primarily grow crops on their own land. There are also about 60,000 independent suppliers with smaller properties averaging 150 ha; these sell sugarcane to industry and account for 27% of overall production. The 10,727 suppliers in the federal state of São Paulo generate about 66.5 % of the overall production volume. Pernambuco has the second largest share of independent suppliers, accounting for 8.4% of production in the federal state and 3.3% in Brazil overall (ORPLANA, 2002). The sugar and alcohol industry employs around 1 million people nationwide, some 511,000 of them in agricultural production. About 80% of sugarcane is cut by hand, the degree of mechanisation depending on the topography of the given area. In the hilly federal state of Pernambuco for example, 100 % is cut by hand, whereas in the federal state of São Paulo the degree of mechanisation is between 25-30% (TEIXEIRA, 2002). In 2001, approximately 251 million tonnes of sugarcane were processed into sugar and hydrous and anhydrous alcohol. In recent years, 55% of the sugarcane grown has been used for alcohol production and 45% for sugar production (UNICA 2002). Owing to these structures, Brazil is capable of responding more flexibly to fluctuations on the international markets than other countries that produce only sugar. Both sugar and alcohol production are expanding. Estimates for the year 2002/2003 assume that sugarcane harvests will increase by 10% (SEVERO, 2002). Up to five successive harvests are feasible with one sugarcane plant, with a decreasing yield each time. Harvests in the regions vary in line with natural framework conditions and the technical standards of sugarcane production. In São Paulo, the large companies average 80 t/ha; in contrast, independent suppliers only achieve 68 t/ha. In Minas Gerais, the average yield is 73t/ha, in Alagoas 63 t/ha and in Pernambuco 51 t/ha (cf. ORPLANA 2002, IBGE 2002). Liberalisation of the sugar industry in the 1990s boosted the importance of associations such as CONSECANA (Conselho de Produtores de Cana-de-Açucar e Álcool do Estado São Paulo) which coordinate dealings between independent suppliers and industry and lay down basic rules for pricing raw materials. Consequently, the value of a tonne of sugarcane is determined using the following parameters: 1. Volume of usable sugar in the sugarcane supplied (ATR - Açucar Total Recuperável), 2. Percentage share of raw material cost in the total cost of the product (alcohol or sugar) 3. Average market price per kg ATR. The price of a kg ATR in the harvest season 2000/01 in São Paulo was R$0.1961 (US$0.0895) and the average volume of ATR from a tonne of sugarcane 142.15 kg. Thus, the price for a tonne of sugarcane was R$27.87 (US$12.73). This form of pricing has also been adopted in the other federal states and brought into line with specific regional conditions (ORPLANA, 2002).

Sugarcane is grown in 17 federal states in Brazil, but only 8 states processed more than 6 million tonnes of sugarcane. These states account for some 90.4% of Brazil s total production (Table 4). Table 4: Trends in sugarcane production in the main cultivation areas in Brazil Sugarcane (in tonnes) States/Yield 1998/1999 (%) 1999/2000 (%) 2000/2001 (%) Alagoas 17,345,105 5.51 19,315,230 6.29 21,618,069 8.57 Pernambuco 15,588,250 4.95 13,320,164 4.34 13,138,516 5.21 Minas Gerais 13,483,617 4.28 13,599,488 4.43 10,634,653 4.21 São Paulo 199,521,253 63.35 194,234,474 63.28 148,226,228 58.73 Paraná 24,224,519 7.69 24,351,048 7.93 19,320,856 7.66 Mato Grosso 10,306,270 3.27 10,110,766 3.29 8,669,533 3.44 M. G. do Sul 6,589,965 2.09 7,410,240 2.41 6,520,923 2.58 Brazil 314,969,182 100.00 306,965,623 100.00 252,373,659 100.00 Sources: DAA Departamento do Açúcar e do Álcool do Ministério da Agricultura INFOSUCRO Informativo da Universidade Federal do Rio de Janeiro ÚNICA União da Agroindústria Canavieira de São Paulo 4.2 Sugar and Alcohol Production Sugar and alcohol are the main products obtained from sugarcane in Brazil. Initiatives designed to harness the potential of sugarcane so as to further diversify the range of products are still in their infancy. In contrast, the sugar-processing industry in Cuba produces over 100 products, such as yeast, proteins, resins, paper, fodder, medicines and fibre-board (ICIDCA, 1999). The processing companies are privately owned; some cultivate the sugarcane themselves, others are supplied by independent producers. 44% of the processing companies are in the federal state of São Paulo, 8.2% in Alagoas, 9.1% in Pernambuco and 5.8% in Minas Gerais. About 32.1% are spread throughout the remaining 13 federal states with sugarcane-processing facilities. Distribution of the companies in spatial terms does not correspond to the centres with the highest production levels; for example, in the Southeast alone some 15 large-scale factories manufacture about 40% of all sugar and alcohol in Brazil (GAZETA MERCANTIL, 09.10.2001). A distinction has to be made between sugar factories and fuel-ethanol plants. During the initial phase of the PROALCOOL programme, the expansion of existing sugar factories with fuelethanol plants was promoted so as to be able to use the molasses generated as part of the production process to make alcohol. As of 1979, numerous autonomous fuel-ethanol plants began to appear which, however, in the face of rising sugar prices, started to reverse the initial logic and undertake expansion measures themselves to produce sugar. Owing to this uniquely Brazilian dual structure, companies are able to respond flexibly to foreign and domestic demand for sugar and alcohol. When the companies switched their focus to sugar production at the end of the 1980s, national alcohol-fuel bottlenecks became frequent, while in the same period the prices of petrol levelled off. The effect of this was a drastic drop in the sales of vehicles fuelled by alcohol. In 1986, 96%

of all vehicles were alcohol powered (PAIXÃO 2000); today, they merely account for 19%, or 3 million as opposed to 14 million petrol-driven cars. In vehicles that are powered exclusively by alcohol, hydrous ethanol is used as fuel. This is sold at about 25,000 filling stations throughout Brazil. In recent years, anhydrous ethanol has increasingly been produced as a fuel additive, its advantages including its octane-enhancing properties and its effects on the emission of greenhouse gases (CO 2 ). In 2000, the Brazilian government raised the authorised level of admixtures of alcohol and petrol from 20 to 24% and is now planning to authorise 26%. In the European Union, in contrast, directive 98/70/EG concerning the quality of fuels restricts ethanol admixtures to five per cent, without stating any reasons for this decision (STOA, 2001). Whereas demand for hydrous alcohol slumped in the 1990s, production levels of anhydrous ethanol went up. With production amounting to 10.6 billion litres of ethanol (5.6 billion litres of anhydrous and 5 billion litres of hydrous ethanol) in the year 2000/2001, Brazil is the largest producer worldwide (BOLLING/SUAREZ 2001). Brazil s overall share of global production is 47%, followed by the USA (17%), India (12%), China (9%) and the EU (7%). Production is mostly for domestic consumption. Only about 3.6 billion litres are traded annually on the global market. In 1996, the volume traded rose briefly to 4 billion litres owing to Brazil s imports of ethanol from the USA to meet its fuel bottlenecks (CARVALHO, 2001). In the course of the debate on the greenhouse effect and the search for environmentally friendly fuels, Brazilian ethanol producers are expecting international demand to increase, either in the form of petrol additives or as a result of innovations in the automotive industry, e.g. engines that burn two fuels (in Brazil petrol and ethanol, in the USA diesel and alcohol). These hopes were strengthened further following the prohibition in the USA of the fuel additive MTBE (methyl tributyl ether) and the proposal made by Germany in the run-up to the 2002 Rio+10 conference in Johannesburg to financially subsidise the production of 100,000 alcohol-powered vehicles in Brazil in exchange for emission rights within the framework of the Clean Development Mechanism (CDM). Various refined sugars, crystal sugars and raw sugars are produced in Brazil. Rising demand and new quality requirements on the part of domestic and foreign customers have prompted the sugar industry to invest in quality improvements in traditional types of sugar and in the development of new products, such as liquid sugars and inverted liquid sugar (in which sacharose is split into glycose and fructose). The latter is used as a favourably priced alternative to traditional sugar in the food, drinks, pharmaceutical and confectionery industries. A calorie-free, colourless and odourless new sugar has also been developed that is obtained through biotechnological processes using enzymes and which exceeds the sweetness of traditional sacharose by some 60% (cf. NEVES/BATALHA 1997). Organically grown sugar constitutes yet another more recent market segment. One family in the federal state of São Paulo owns the farms of São Francisco and São Antonio, which together make up some 13,000 ha of certified cultivation area (out of a total of 20,000 ha) with a capacity to produce 80,000 tonnes of sugar (PLANETA ORGANICA 2002). Some 20,000 tonnes are being exported at present. Also in São Paulo is the certified sugar factory Univalem with a 50,000- tonne capacity for organic crops. Both companies mainly produce crops for export to the USA, Japan and Europe. However, they also undertake initiatives on Brazil s internal markets. In 1999, 1 kg of conventional sugar was sold for R$0.70, organic sugar on the other hand for R$2.70 (RODRIGEZ et al. 2000, p. 5). Univalem was bought by the COSAN group in 2001 which, with 11 companies, ranks as one of the largest sugar concerns in the world. Table 5 summarises the trends in the production of sugar and alcohol from 1998 through to 2001.

Table 5: Trends in sugar and alcohol production in key cultivation areas in Brazil Production/Region Harvest season 98/99 99/00 00/01 Sugar (t) 17,960,000 19,000,000 16,185,217 - Southeast 15,180,000 16,900,000 12,642,008 - North/Northeast 2,780,000 2,100,000 3,543,209 Alcohol (m3) 13,912,000 12,780,000 10,572,069 - Southeast 12,281,000 11,634,000 9,076,019 - North/Northeast 1,631,000 1,146,000 1,496,050 Sources: ÚNICA União da Agroindústria Canavieira de São Paulo (Centro-Sul) DATAGRO (Norte-Nordeste) Table 6 shows the regional distribution of sugarcane production and processed products Table 6: Regional distribution of sugarcane, sugar and ethanol production in Brazil Southeast Northeast Sugarcane 75-80% 20 25% Raw sugar 60-65% 35 40% Ethanol 80-85% 15 20% Sugar for export 25-30% 70 75% Source: BOLLING/SUAREZ 2001, S. 14 According to the above data, the Northeast, in spite of its declining importance, is still a major contributor to sugar exports. In the Southeast, however, capacity has been steadily increasing since the mid-1990s.

4.3 Key Sugar and Alcohol-producing Locations This study focuses primarily on the key sugar-producing centres of São Paulo and Minas Gerais in the Southeast and Alagoas and Pernambuco in the Northeast, two areas with fundamental structural differences. However, the sugar and alcohol industries in the federal states of Parabá, Gioás, Mato Grosso and Mato Grosso de Sul have recently started to gain importance and are therefore listed in the tables below. Tables 7-10 summarise the respective basic geographical data on sugar and alcohol production. The tables are followed by a brief overview of the characteristics of each of the federal states in terms of their sugar-producing activities. Table 7: Basic data on main cultivation areas in Brazil Federal state Southeast Area km 2 Climate (according to A. STRAHLER) São Paulo 248 177 Coast: Atlantic, tropical Inland: tropical mountain climate Districts Inhabitants Inhab./ km 2 GNP (%) Per-capita income US$ 637 36.8 mill. 149 36.9 4 859 Minas Gerais 586 552 Tropical 853 17.9 mill. 30.5 9.7 2 647 Northeast Pernambuco 98 526 Coast: Atlantic, tropical Inland: semi-arid 184 7.9 mill. 80.3 2.3 1 437 Alagoas 27 818 Tropical 102 2.8 mill. 101.3 0.9 1 482 Source: IBGE 2001, ESTADO DO PERNAMBUCO 2002. Table 8: Structural data on sugarcane production Federal state Production (t) Districts prod. >50 000t Southeast Cultivation areas (ha) No. of people employed in sector São Paulo 187 514 533 294 2 463 253 9 465 258 Minas Gerais 15 045 891 49 206 232 1 243 020 Northeast Pernambuco 14 869 826 48 350 331 2 221 643 Alagoas 27 625 973 47 458 291 1 779 204 Other locations* 46 097 598 134 649 625 2 446 588 * Paraná, Goiais, Mato Grosso, Mato Grosso do Sul Source: IBGE 2001

Table 9: Key locations of the sugar and alcohol industry in Brazil Production/ Federal state Sugar (t) Alcohol (m 3 ) 1 São Paulo 9,675,000 6,446,900 2 Minas Gerais 802,058 643,663 3 Pernambuco 1,113,453 294,991 4 Alagoas 1,215,469 550,514 Total 12,805,980 7,936,068 Sources: ÚNICA União da Agroindústria Canavieira de São Paulo UDOP Usinas e Destilarias do Oeste Paulista SINDAÇUCAR Sindicato da Indústria do Açúcar e do Álcool de Pernambuco Table 10: Other relevant cultivation areas Production/ Federal state Sugar (t) Alcohol (m 3 ) 1 Paraná 1 430 202 1 031 313 2 Goiás 309 747 392 058 3 Mato Grosso 359 211 600 449 4 Mato Gr. do Sul 150 205 311 056 Total 2 249 365 2 334 876 Sources ÚNICA União da Agroindústria Canavieira de São Paulo UDOP Usinas e Destilarias do Oeste Paulista INFOENER - Instituto de Eletrotécnica e Energia da Universidade de São Paulo São Paulo São Paulo has the highest level of development in all Brazil. It also has the greatest concentration of sugarcane-processing companies worldwide, namely 139. Sugarcane is grown in spacious, relatively flat areas, thus permitting mechanisation of the sugarcane harvest in many places (UDOP, 2002).