1 Investment Opportunity in Pineapple in the Valley of the São Francisco and Parnaíba Rivers INTEGRATED AND SUSTAINABLE AGRIBUSINESS

1 www.codevasf.gov.br

Investment Opportunity in Pineapple in the Valley of the São Francisco and Parnaíba

Rivers

INTEGRATED AND SUSTAINABLE AGRIBUSINESS PROJECTS


Project Team

PRESIDENT OF THE REPUBLIC MINISTER OF NATIONAL INTEGRATIONLuiz Inácio Lula da Silva Geddel Vieira Lima

CODEVASF DIRECTORY

President: Orlando Cezar da Costa Castro

Cabinet Chief: Manoel Geraldo Dayrell

Director of the area of Integrated Development and Infra-Structure: Clementino Souza Coelho

Executive Secretary: José Eduardo Borella

Director of the area of Irrigation Companies Management: Raimundo Deusdará Filho

Executive Secretary: Frederico Calazans Machado

Director of the Area of Hydrografic Basins Revitalization: Jonas Paulo de Oliveira Neres

Executive Secretary: Silas Macedo

Executive Manager of Strategic Administration: Alexandre Isaac Freire

Executive Secretary of Administrative Management and Logistic Support: João Honório Carvalho Ramos


Agenda

• Introduction

• Business Model

• Profitability Analysis

• Irrigation Projects (CODEVASF)


INTRODUCTION

• Project DescriptionThe project is a governmental initiative, aiming to attract investments to the Valley of the São Francisco and Parnaíba Rivers (web page: http://www.fundace.org.br/pins).

• PENSAAgribusiness Intelligence Center. PENSA researchers are responsible for the business models proposition, economic and marketing analysis and for the interaction with potential investors tailoring the analysis to their particular needs (web page: http://www.pensa.org.br).

• CODEVASFSão Francisco and Parnaíba Development Company, which the mission is to develop economically and socially the Valley of the São Francisco and Parnaíba Rivers (web page : http://www.codevasf.gov.br).


Global Pineapple Demand

Global Consumption

16.583

17.399

18.768

17.54717.867

15.000

15.500

16.000

16.500

17.000

17.500

18.000

18.500

19.000

2001 2002 2003 2004 2005

1.0

00 t

ons

+4,92% +2,69% -1,79% +6,96%

Source: FAO.

Why Investing in Pineapple Production and Exports?


• Low occurrence of fusariose;

• Shorter production cycles;

• Reduced problems with plant diseases;

• High yields with irrigation techniques;

• São Francisco river has a high quality water for irrigation;

• Climate conditions favor product standardization;

• Land availability;

• Growth of international demand;

• Possibility of exports during market availability;

Why Investing in Pineapple at the Valley of the São Francisco and Parnaíba Rivers Valley?


Business Model

Strategies for the Agricultural Anchor:

1. Vertically Integrated Agricultural Production

2. Vertically Coordinated Agricultural Production

Own Production

Vertically Coordinated

Growers

Anchor Company

Retail

Food service

Industries

CONSUMERS

Public Irrigation Project with Private Management


Coordinated Growers Cooperative Agricultural Anchor Infra Structure Firm

-Producing pineapple contracted with the anchor company, following agreed quality standards;

- Implementing on farm irrigation systems;

- Coordination of small holders;

- Technical assistance;

- Joint use of equipments;

- Joint purchase of selected inputs;

- Representation of small holders;

- The right to use the land will be conceded to selected growers;

- Sustainable contracts with selected coordinated growers;

- Determination of quality standards;

- Packing or industrialization of raw material;

- Marketing;

- Payment of the water to the water management firm;

- Farming on its own area;

-Supplying water for irrigation at the right quality and quantity;

- Maintenance of the common infra structure for irrigation;

Players’ Role Specification


Standard Sheets for Economic Analysis

PineapplePineappleEconomic Viability Analysis

InvestmentsInvestments Graphs

Cash Flow

Consolidated

Chain

Agricultural Production Packing

Detailed PH CostsDetailed PH Costs

Results and Cash Flow Results and Cash Flow PHPH

Detailed Agricultural Cost

Results and Cash Flow Analysis

Chain

Summary Inputs Summary Inputs Packing HouseSummary Inputs Packing House

Agricultural Cost PackingPacking House Costs

Comparative Analysis

Sensitivity AnalysisPrice Level


Assumptions – Agricultural Production

• Land area considered: 600 ha (50% with contracted growers);

• 2 years for total land occupation;

• 20 years of time horizon;

• Dripping Irrigation System;

• Investments (Financing with 100% own capital, conservative scenario);

− Investment (R$): 6,480,000 (US$ 3,502,000.00).

− Operating Costs (R$/year): 4,428,000 (US$ 2,393,000.00).

• Agricultural production average cost: R$3,75/box of 15Kg (US$ 2.02/box);

• Yields per cycle : 60 tons / ha;

• Average selling price: R$6.01/cx (15kg) (US$ 3.24/box);

• Exchange Rate: 1 US$ = R$ 1.85;


Assumptions– Packing House

• Production Capacity : 1,200,000 boxes/ year;

• PH will be built during pineapple orchards implementation;

• 20-year-long project;

• Investments (Financing with 100% own capital, conservative scenario);

− Packing House (R$): 969,211.19 (US$ 523,897.00).

− Certifications (R$):12,500.00 (US$ 6,756.00).

− Operation (R$/ano): 10,574,000.00 (US$ 5,715,000.00).

• Average cost per box of 15 Kg: R$ 8.64 (US$4.67);

• Product destination: 90% for exports and 10% for the Brazilian internal market;

• Average selling price : R$12.68/box (US$ 6.85 - external market) and R$11.00/box

(US$ 5.95 - internal market);

• Exchange Rate: 1 US$ = R$ 1.85;


Agricultural Production Cost

Source: PENSA* Petrolina Juazeiro region is chosen for the financial analysis.

R$/Ha

3,352

8,014

720

637

780

640

345

345

R$ -

R$ 2.000,00

R$ 4.000,00

R$ 6.000,00

R$ 8.000,00

R$ 10.000,00

year 0

4 - DESPESAS ADM./GERAIS3 - MÃO-DE-OBRA

1- INSUMOS

year 1

LABOR-

MECHANICAL OPERATIONS

GENERAL EXPENSES

AG INPUTS

Exchange Rate: 1 US$ = R$ 1.85


Revenues x Costs

Source: PENSA

Agricultural Activity Revenues X Costs

0

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R$ mil

Costs Revenues

Exchange Rate: 1 US$ = R$ 1,85


Cash Flow for the Agricultural Activity

Source:PENSA

(6.000)(5.000)(4.000)(3.000)(2.000)(1.000)

01.0002.0003.000

Milhões de R$

Fluxo de Caixa

Fluxo de Caixa (4.718 375 2.175 2.175 2.175 2.175 2.175 2.175 2.175 1.455 1.455 2.175 2.175 2.175 2.175 2.175 2.175 2.175 2.175 1.455 1.455

Ano 0

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PH: Revenues x Costs

Source: PENSA

Packing House

0

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350,000

Ano

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R$ thous

Costs Revenues


Years 1 to 20


Cash Flow Agricultural Activity

Source: PENSA

Cash Flow Agricultural Activity

(1.500)

(1.000)

(500)

0

500

Million R$

Cash Flow

Cash Flow (1.009 422 422 422 422 422 422 422 422 422 422 422 422 422 422 422 422 422 422 422 422

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Consolidated Analysis of Revenues and Costs

Source: PENSA

Agricultural Activity plus Packing HouseRevenues X Costs

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Ano

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R$ thous

Total Cost (R$) Total Revenues (R$)


Years 1 to 20


Consolidated Cash Flow

(8,0)

(6,0)

(4,0)

(2,0)

0,0

2,0

4,0

Million R$

Cash Flow (5,7) 0,8 2,6 2,6 2,6 2,6 2,6 2,6 2,6 1,9 1,9 2,6 2,6 2,6 2,6 2,6 2,6 2,6 2,6 1,9 1,9

Ano

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20Years 1 to 20

Consolidated Cash Flow

Source: PENSA



Financial Analysis

Source: PENSA

Agricultural Activity Packing House ConsolidatedIRR: 16.70% IRR: 28.36% IRR: 21.18%

NPV: R$ 10,329,220NPV: US$ 5,583,416.00

NPV: R$ 21,145,790NPV: US$ 11,429,000

NPV: R$ 31,474,009NPV: US$ 17,012,970

Capital NeedFixed Assets Operation (R$/year)

Agricultura R$ 6,480,000 (US$ 3,502,000) R$ 4,428,000 (2,393,000)

Packing House 969,000 (US$ 523,000)R$ 10,574,000 (US$

5,715,680.00)



Comparative Analysis

Source: PENSA and FNP.* Petrolina – Juazeiro Region

45

60

Canápolis Valley of the São Francisco River*

Yields (ton/ha)



Valley of the São Francisco and Parnaíba Rivers* X Canápolis

Although it has a higher total cost, the cost per box is lower (2,6%<), due to the higher yields in the Valley of the São Francisco and Parnaíba Rivers.

Source: PENSA and FNP.* Petrolina – Juazeiro Region Exchange Rate: 1 US$ = R$ 1.85

Average Cost per box - R$Valley of the São Francisco and Parnaíba Rivers X Canápolis

R$ 0.33

R$ 0.61

R$ 0.17

R$ 0.59

R$ 0.36

R$ 0.60

R$ 0.34

R$ 1.99

R$ 2.84

R$ 0,00R$ 0,00

R$ 0,50

R$ 1,00

R$ 1,50

R$ 2,00

R$ 2,50

R$ 3,00

R$ 3,50

R$ 4,00

R$ 4,50

Canápolis - Irrigated (R$ 4.11 – US$ 2.22) Valley of the São Francisco and Parnaíba Rivers – Irrigated (R$ 3.71 – US$ 2.01)

5 – LAND COST 4 – GENERAL EXPENSES 3 - LABOR 2 – MECHANIZED OPERATIONS 1 – AG INPUTS


Valley of the São Francisco River* X Canápolis

Source: PENSA*Petrolina - Juazeiro

Agricultural Activity Comparative Analysis

Region IRR NPV

Canápolis 16.10%R$8,740,860

(US$ 4,724,789.00)

Valley of the São Francisco and Parnaíba Rivers*

16.70%R$10,329,220

(US$ 5,583,362.00)



Logistics : Valley of the São Francisco River * X Canápolis (MG)

Source: SIFRECA/ESALQ/USP* Petrolina-Juazeiro


Comparative Freights R$/tonsValley of the São Francisco and Parnaíba Rivers X

Canápolis

0,00

10,00

20,00

30,00

40,00

50,00

60,00

70,00

80,00

90,00

Canápólis - Santos (755km) Valley of the São Francisco River*-Salvador (513km)

R$/ton


São Francisco River Natural Conditions x Ideal for Pineapples

Aspect Ideal Valley of the São Francisco River*

Temperature 22º C and 32º C 21 º- 31 º C

Precipitation 1,000 to 1,500 mm/year

500 - 600 mm/year

Luminosity 2,500 and 3,000 h/year

2,300 to 2,800 h/year

Altitude Lower than 400 m 300 m

Production Cycle Around 19 months 1o harvest and 14 months the new

planting time

Around 24 months

Soil Depth >75 cm >= 90 cm

Soil Texture Medium texture (from 15% to 35% of argila

and more than 15% of sand)

Sandy texture

PH 4.5 to 5.5 4.5 to 6.8

Humidity >75% 54 - 67%

Source: EMBRAPA and PENSA.* Petrolina - Juazeiro


• Annual Tax Generation:

Total: R$ 1,086,000.

– Agricultural Production: 54%;– PH : 46%;

• Coordinated agricultural production (300 ha, 50% of the total area):

– 16 coordinated independent growers;– Net payoffs generated per family R$1,508.00;– Farm size of around 19 ha each;

• Job Generation : 1 worker/ha;

• Agriculture: 1,500 jobs for a area of 600 ha;Direct jobs: 600.Indirect : 900.

• Packing House: 43 employees;

Benefits for the Social and Economic Development


• For a project of 600 hectares:

• Ag input firms revenues: R$ 3.362.000;

• Expenditures with logistics : R$ 985.000;

• Value Adding activities by its processing;

• Economic activity diversification;

• Introduction of new production technologies;

Benefits for the Social and Economic Development


Sensitivity Analysis – Agricultural Activity

80% 90% 100% 110% 120%

80% 15.90% 13.22% 9.10% #NÚM! #DIV/0!

90% 18.21% 16.34% 14.03% 10.82% 4.59%

100% 19.89% 18.39% 16.69% 14.67% 12.01%

110% 21.22% 19.93% 18.55% 16.99% 15.18%

120% 22.31% 21.17% 19.97% 18.68% 17.25%

Price to the PH(R$/box)

Cost (R$/box)


Sensitivity Analysis– Packing House

80% 90% 100% 110% 120%

80% #NÚM! #DIV/0! #NÚM! #NÚM! #NÚM!

90% 15.71% #DIV/0! #NÚM! #NÚM! #NÚM!

100% 26.37% 22.95% 15.11% #NÚM! #NÚM!

110% 30.55% 28.93% 26.80% 23.66% 17.29%

120% 33.32% 32.28% 31.06% 29.58% 27.67%

Exporting Price(R$/box)

Packing House Cost (R$/box)


New Irrigation Projects

• Jaíba (66,000 ha);

• Salitre (31,330 ha);

• Pontal (8,000 ha);

• Baixio do Irecê (60,000 ha);

Fonte: PENSA


1

2 3

4

JAÍBA – MG

(110 thousand ha)

BAIXIO DE IRECÊ – BA

(54 thousand ha)

3 SALITRE – BA

(32 thousand ha)

4 PONTAL – PE

(8 thousand ha)

1

2


Jaíba


Salitre


Pontal


Baixio do Irecê


Responsible Team

CODEVASFDirector of the area of Integrated Development and Infra-StructureClementino de Souza Coelho

Board Assistant of the area of Integrated Development and Infra-StructureAlvane Ribeiro Soares First Secretary of the area of Integrated Development and Infra-StructureGuilherme Almeida Gonçalves de Oliveira

PENSACoordinator: Prof. Dr. Marcos Fava NevesExecutive Manager of the Project: Luciano Thomé e CastroExecutive Manager of the Project : Ricardo Messias RossiExecutive Assistant of the Project: Vinicius Mazza da SilvaExecutive Assistant of the Project : Marina Darahem Mafud

Technical TeamResponsible Researcher: Ricardo Messias RossiAssistant Researcher: Helio Afonso Braga de PaivaContributor: Ricardo Kouiti Santos Iguchi

Translation: Central de Traduções


For further Information:

E-mail: [email protected]

Mail Address:Av. Pres. Vargas, 2001- Conj. 143/144, Jardim AméricaRibeirão Preto - SP - CEP: 14.020-260Tel.: +55 (16) 3911 6088

INTEGRATED SUSTAINABLE BUSINESS PROJECT

Documents

1 Investment Opportunity in Pineapple in the Valley of the São Francisco and Parnaíba Rivers INTEGRATED AND SUSTAINABLE AGRIBUSINESS