November 26, 2014 Denusa Destilaria – Making a Difference

Volume 17 | Issue 9

Times may be tough for Brazil's sugar-alcohol sector, but Denusa Destilaria, a pioneering producer of alternative ethanol fuel is fired

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Managing director Marcelo de Freitas Barbosa talks to Michael Sommers about the company’s future plans, which include the production of electrical energy from leftover sugar cane residues.

It’s become the stuff of local legend that when the serious oil crisis of the 1970s hit Brazil, the Brazilian government got serious about sugar – once again. In fact, since the country’s earliest days as a Portuguese colony, sugarcane had been a major source of economic livelihood. However, in 1975, Brazil’s federal government launched the Proálcool program, which sought to counter soaring gas costs by stimulating the production of cane-based ethanol as an alternative fuel.

It was as a result of the sudden demand for ethanol – not to mention generous government incentives – that Denusa Destilaria Nova Usina came into being in 1980. Denusa was one of the very first producers of ethanol in the vast Central-West state of Goiás, home to the nation’s capital of Brasília, Located 75 miles from the state capital of Goiânia, near the town of Jandaia, the Fazenda São Pedro had been in the Barbosa family since 1955, operating as a traditional cattle farm in addition to cultivating bananas, corn, and rice. In 1980, the Barbosas built a distillery and began planting sugarcane. By then end of 1982, they were harvesting their first crop.

Challenging Times
Today, many years later, Denusa is still planting, harvesting and distilling cane into both hydrated and anhydrous ethanol (in Brazil, all gas contains 25 percent of the latter). However, many things have changed. Instead of 40 workers, Denusa now employs close to 2,000 (both directly and indirectly), making it the primary employer of Jandaia (population 6,000) and the surrounding region. Indeed, around 80 percent of municipal tax revenue is generated by the company. At the same time, Denusa, once a pioneer in ethanol production, is now merely one of 40 producers operating in the region. If two decades ago the region’s producers were small, family-owned businesses, today an increasing number of its competitors are major national and multinational groups such as Petrobras, Bunge, Cargill, British Petroleum, and Cosan, currently the largest producer of ethanol in Brazil.

“On the positive side, these large firms are important because they have lots of clout and can create more international demand for cane-based ethanol, the market for which is currently domestic,” says Marcelo de Freitas Barbosa, Denusa’s managing director. “However, on the downside these big players have a lot of capital, not to mention land. They produce ethanol in larger volumes. As such, they can afford to reduce prices, which makes it difficult for independents such as Denusa to compete.”

Powerful rivals aren’t the only challenge Denusa has been facing in recent times. The last few years have been rife with crises and setbacks that began with the deregulation of Brazil’s sugar-alcohol segment in 2007 followed by the global economic crisis of 2008 during which all credit – and investment – in the segment effectively dried up. More recently, in 2011, the federal government intervened to control rising inflation by stepping into subsidize oil prices.

As a result, Brazilians confronted with rising costs across the board, have chosen to fill their flexfuel vehicles with cheap gas instead of costly hydrated ethanol, which even during the best of times, despite its sustainable attributes, is 30 percent less efficient than gas (with equal amounts of fuel, the same car can drive 10km on gas while only 7km on ethanol). The company’s fate – and finances – hit a critical moment in late 2011 when Denusa was forced to undergo judicial reorganization in order to continue operation, pay its creditors and restructure its capital.

Clear Vision of the Future
Since then, the company has emerged stronger if more cautious and determined. “This is a moment of great uncertainties, of low prices and of no credit,” admits Barbosa. “If you want to maintain your position in the market, and to grow profitably, the solution is to seek ways of improving productivity in the field and becoming more efficient in terms of the industrial process, all of which depend upon research, development, and investments with a solid grasp of up-and-coming market opportunities.”

In a bid to assure its continued livelihood, Denusa has adopted all of these strategies. On the R&D front, it participates in programs with prestigious research centers such as IAC CANA (operated by the Agronomical Institute of Campinas University) and CTC (Centro de Tecnologia Canavieira). Both operate cutting-edge programs dedicated to improving cane planting, cultivation, and harvesting techniques as well as increasing productivity through the creation of new varieties of cane, via genetic modification, that thrive in arid regions such as Goiás, a region known for its long dry seasons.

Denusa has also made a series of important investments aimed at increasing productivity. Currently, it possesses 28,500 hectares (70,500 acres) of cane fields surrounding its industrial plant, 100 percent of which are active, and 80 percent of which are cultivated by third-party farmers, whom the company views as integral partners. Already in 2008, the company began its process of transitioning from manual to mechanical harvesting; a goal it finally achieved in 2012-2013, when 100 percent of all field work was carried out via machinery. As a result of these and other measures, including investments in equipment and expansion of its plantation areas, Denusa has experienced a 40 percent growth rate over the last three harvests, with its production of cane increasing from 852,000 tons in 2012/2013 to a 1.4 million tons projected for 2014/2015.

Meanwhile, in 2010, the company began investing in a fully automated, continuous fermentation process. When implemented for the first time in 2013, it resulted in ethanol production capacity almost doubling: from 500 m3 to 800 m3. Currently, the plant itself has a crushing capacity of 1.6 million tons of sugar cane and currently produces 130 million liters of ethanol.

Alternative Answers
In keeping with the company’s commitment to environmental friendliness and efficiency – and reducing costs – Denusa has always supplied 100 percent of its own energy needs via the burning of cane residue known as bagasse. However, in July of 2014, the company teamed up with two other local ethanol producers and invested R$220 million (roughly US$ 93 million) to create Nova Geração Bionergia, a new business that aims to cogenerate electrical energy, which will then be sold to both the state and national energy grids.

Apart from being highly sustainable and creating added value to the company’s cane and ethanol production, the project serves a vital need during times in which Brazil’s hydro reservoirs – to date, the majority of the country’s electrical energy is generated by hydro plants – are low; the period of sugarcane harvest coincides with the “dry season” that in recent years (and especially in 2014) has left parts of the country struggling with water rationing and droughts.

The creation of Nova Geração Bionergia is an integral part of Denusa’s outlook on its future as well as that of the sugar-alcohol segment as a whole. “Investments in technology combined with careful management of production processes and risks can help minimize short- and medium-term problems,” says Barbosa. “However, in order to thrive in this increasingly competitive and demanding market, one has to have a clear and competent vision.”

While cautious about the present, Barbosa is hopeful about the future – and about Denusa’s place in it. “Sugarcane has so many possibilities,” he points out. “You can use it to make everything from biodegradable plastics to kerosene for airplane fuel. All of these things are possibilities that already exist. Once they are developed on a large scale, they’ll have the capacity to completely revolutionize this sector.”

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