Ethanol's Deadly Brew
Thousands of Brazilian sugar cane workers are injured and scores die each year in the rush to produce a fuel that Presidents Bush and Lula celebrate as a path to energy independence.
By Michael Smith and Carlos Caminada Bloomberg Markets November 2007
Manuel Rodrigues da Silva stoops over, wielding a machete to slice through bamboolike sugar cane stalks in a field that stretches to the horizon in southeastern Brazil. Dressed in a frayed T-shirt and dirt-coated blue work pants, he perspires in the 90-degree-Fahrenheit heat. Suddenly, he feels dizzy and has to stop. It's not the first time this has happened. He's had headaches and pains all over his body for a week and has already been hospitalized once.
Silva, who's 45 and started cutting cane this year, says he's reluctant to stop working. His pay and his job hinge on how much cane he can cut in a day. The cane Silva slashes feeds an ethanol plant owned by Cosan SA Indústria & Comércio, Brazil's biggest exporter of a fuel that politicians around the world trumpet as a clean, renewable alternative to gasoline.
Halfway through Silva's 10-hour shift, the slender, 5-foot-2-inch-tall (1.6-meter-tall) worker collapses. He takes shelter under a bus, where he trembles with fever. That's where São Paulo state labor prosecutor Mario Antônio Gomes finds him as he inspects the plantation. Gomes orders Elton Rodrigo Franco, a driver for the plantation, to take Silva to a hospital in Capivari, about 50 miles (80 kilometers) away. The sick laborer endures the one-hour trip in the only vehicle available, a two-seat Ford Pampa pickup with no room in which to lie down. A doctor at the hospital diagnoses Silva with lung fibrosis, a scarring of the lungs that often afflicts cane cutters, according to the labor inspector's report. He may die if he keeps cutting cane, the report says. "I don't know if I can keep going much longer, but I want to try," says Silva sprawled across a gurney in the small hospital. "I can't return home without any money."
Silva is a foot soldier in an army of 500,000 workers who toil from March to November stooped over in the tropical sun harvesting sugar cane to make ethanol in Brazil. The Latin American country is the world's largest ethanol exporter. Brazilian ethanol production will jump 22 percent in 2007 from a year earlier, to a record 5.6 billion gallons (21.3 billion liters), the Agriculture Ministry predicts. Brazil will sell at least 818 million gallons of ethanol this year to Japan, the Netherlands and the U.S., according to União da Indústria de Cana-de-Açúcar, or Unica, Brazil's biggest ethanol trade association.
Brazilian president Luiz Inácio Lula da Silva, a former labor union leader elected to a second four-year term in October 2006, champions ethanol as a means to create jobs, curb pollution and lessen dependence on fossil fuels. Sugar cane provides at least 300,000 jobs in São Paulo state alone, paying twice as much as other low-skilled rural work, former Agriculture Minister Roberto Rodrigues says. Ethanol is not only good for Brazil, Lula says in speeches; it's also good for the world.
"When we think about ethanol, we think about helping the poor, helping countries like ours out of poverty," Lula, whose father was an impoverished dock worker, said at an April seminar on poverty at the United Nations Food and Agriculture Organization's regional headquarters in Santiago. "We think about how the world needs to be less polluted, how the world needs jobs, how oil is getting more expensive. We made ethanol a key part of Brazil's energy system."
Behind the rhetoric lies a harsher reality for the cane cutters of Brazil. Most are migrants, who leave their families in search of jobs that pay about $1.35 an hour. How much they make depends on how much they cut. Companiessometimes cheat their employees by undercounting, a government study released earlier this year shows. The work is backbreaking and dangerous. From 2002 to '05, the most recent years for which complete statistics are available, 312 sugar and ethanol workers died on the job, and 82,995 suffered accidents while working in cane fields and ethanol plants, according to Brazil's Social Security Administration. Labor prosecutors are investigating the cases of 21 people who have dropped dead since 2004 while cutting cane. Most were from 25 to 35 years old. "There's strong evidence that workers die of exhaustion," Gomes says.
The inspectors are pursuing an industry moving at a torrid pace, stoked by demand from abroad and from Brazil's production of fuel-efficient cars. Output in Brazil's main ethanol-producing region, around São Paulo, will rise to 4.9 billion gallons this year from 3 billion gallons in 2002, before Lula took office. Employers expect workers to cut 12 tons of cane a day, up from six tons 30 years ago, according to João Amâncio, a doctor who works for the Brazilian Labor Ministry. "The increased workload over the last 30 years has fueled a higher rate of accidents, injuries and deaths," he says. The number of accidents on the job increased to 23,787 in 2005 from 16,877 in '02, government records show. The most common injuries are cuts; back trauma, including herniated discs; dehydration; and exhaustion. Sugar workers suffer about eight times as many injuries as farm laborers in Brazil's citrus and grain industries, government statistics show.
Cosan's Chief Operating Officer Luis Carlos Veguin says the company investigates accidents and drops cane suppliers that don't remedy unsafe labor conditions. After worker Silva collapsed, Cosan ordered the supplier to have a doctor examine all of its workers and improve emergency transportation, he says.
In a field near Piracicaba, Rosal Souza dos Santos has been working three hours nonstop on a May morning, moving fast to hack cane taller than a man. Santos, 39, brings his machete down with a ping and throws a clutch of cane into a pile stretching 120 feet behind him. "We only stop for lunch, and even then, you have to eat quickly," says dos Santos, who's covered in dust and soot. "You have to produce to keep your job."
The largest overseas market for Brazilian ethanol is the U.S. Last year, the U.S. imported 433.7 million gallons of ethanol from Brazil, up fourfold from 2004, according to the Washington-based Renewable Fuels Association. U.S. fuel importers buy about a dozen shipments of ethanol from Brazil per month. They include the U.S. unit of BP Plc; Chevron Corp.; the U.S. unit of Citgo Petroleum Corp.; ConocoPhillips, the second-biggest U.S. fuel refiner; Northville Industries Corp.; the U.S. unit of Royal Dutch Shell Plc; and Valero Energy Corp., according to U.S. Energy Department monthly fuel import data. "Brazil is going to be a key player in the ethanol market for years to come," says Philip New, who heads the biofuels business at London-based BP. Shell spokesman Fabio Caldas says, "The company is working to ensure that any signs of human rights violations are immediately eradicated from our operations and has closely monitored ethanol suppliers to obtain their commitment to improved labor conditions." Valero spokesman Bill Day referred questions to its Brazilian ethanol suppliers. "Valero is far removed from the sugar-cane-growing process," Day says. Spokesmen for the other oil companies declined to comment.
In a March meeting in Brazil, U.S. President George W. Bush and Lula signed an agreement to promote the use of ethanol by sharing research and technology. "I, like the president, am very upbeat about the potential of ethanol," Bush said, standing next to Lula in São Paulo, along with executives from automakers including General Motors Corp. and ethanol producers. "That's why we're here." Bush wants to boost annual ethanol consumption in the U.S. to 35 billion gallons by 2017 from 5 billion gallons this year. The biggest obstacle to Brazil's becoming a major supplier is a 54 cent-a-gallon tariff the U.S. imposes on Brazilian ethanol. The tariff was imposed in 1980 to protect U.S. corn-based ethanol makers from competitors in Brazil, who can make the fuel for half the price.
The president isn't the only Bush promoting ethanol. So is his brother Jeb. Last year, Jeb Bush, who was governor of the sugar-cane-growing state of Florida from 1999 to January 2007, joined with Rodrigues, Lula's former agriculture minister, to form the InterÔamerican Ethanol Commission in Miami. The three-member commission, including Interamerican Development Bank President Luis Alberto Moreno, is considering offers of financing by the Brazilian ethanol industry. The group promotes the use of cane-based ethanol in the Americas. On April 12, 2006, Jeb Bush sent his brother a nine-page report urging him to more than double ethanol consumption in the U.S. by 2015 to reduce dependence on oil from the Middle East and Venezuela. Brazil's sugar cane-based ethanol, which mills sell for as little as $1.14 a gallon, would be cheaper for Florida drivers than corn-based fuel from the Midwest if the U.S. scraps the tariff, Bush told ethanol producers in São Paulo in April.
Foreign investors are also getting in on the Brazilian ethanol boom. Last year, billionaire George Soros became the single biggest shareholder by purchasing an undisclosed stake in Adeco Agropecuária SA, a Buenos Aires-based agriculture company that produces ethanol in South America. Adecoagro, which had revenue of $125 million in 2006, is spending $900 million to build three new ethanol distilleries in Brazil's Mato Grosso state, near the Amazon Rain Forest, Soros told a gathering of ethanol industry executives in São Paulo on June 5. "I'm looking to invest a significant amount of money in ethanol in Brazil," Soros said. "The real opportunity is supplying ethanol to the rest of the world." Brazil could increase ethanol output 10-fold because it has an area the size of the U.K. free to plant sugar cane without competing with other crops, he said. Soros declined requests for an interview.
Paris-based Louis Dreyfus & Cie., a closely held commodities trader, agreed in February to buy four sugar and ethanol mills in Brazil, boosting sugar-cane-processing capacity by 57 percent to 18.5 million metric tons in 2009. In June 2006, Wayzata, Minnesota-based Cargill Inc., the largest U.S. agricultural processing company, bought control of Central Energética Vale do Sapucaí Ltda. from Maurílio Biagi Filho, Brazil's second-biggest individual sugar cane grower. Cargill spokesman Bill Brady says, "Cargill does not accept the use of illegal, abusive or enforced labor in any of its operations, and we abide by the laws."
Sugar cane has been a fixture of the Brazilian economy for centuries. In 1532, Martim Afonso de Souza, the first Portuguese governor of the Brazilian colony, built the country's first sugar mill 30 miles southeast of what's now São Paulo. By 1610, Brazil had 400 sugar mills that also produced cachaça, a strong, popular spirit used to make caipirinha cocktails.
Ethanol is made by grinding cane, fermenting it, boiling it and distilling the steam into a clear liquid fuel. Brazil has been requiring the use of alcohol as a fuel for motor vehicles since the 1930s to support sugar growers. The big push came in 1975, when the military government started the Programa Nacional do Álcool, a program that gave consumers tax breaks to buy ethanol-powered cars and guaranteed profits for producers by fixing prices and buying all of their production. Lula gave ethanol a new boost in 2003, as scientists worldwide released studies about global warming. The Brazilian president cut taxes on ethanol and gave tax breaks to makers of so-called flex-fuel cars, which can run on only ethanol, only gasoline or any blend of the two. Today, about 3 million of the 24 million cars on the road in Brazil can be powered by the biofuel.
Ethanol as a fuel pollutes at least 13 percent less than gasoline, says Alex Farrell, a University of California, Berkeley, economist who published a study about ethanol's environmental effects. Although ethanol is cleaner than gasoline, its production pollutes the air and makes people sick in Brazil, São Paulo Governor José Serra says. Brazilian farmers set fire to their fields the night before harvest to burn off leaves that get in the way of cutters. Last year, cane fires consumed an area the size of Haiti. They spewed 750,000 tons of particles into the skies over São Paulo state, Serra says. The burning causes a 20-50 percent increase in hospital and doctor visits for bronchitis, asthma and other respiratory illnesses in people who live in São Paulo's sugar cane belt, according to Amâncio, the government doctor who specializes in sugar cane health issues.
One fire turned deadly on the night of May 13, when the wind suddenly shifted in a field outside Motuca, 170 miles northwest of São Paulo. Natal Rodrigues Faria says he was tending the fire from atop a water truck and jumped off as flames raced toward him. He yelled at two co-workers in the truck to run to safety in a part of the field that had already burned. Instead, the men didn't move, he says. By the time driver Adriano do Amaral jumped out, it was too late. Faria, 57, watched as the flames turned Amaral into a human torch until he fell to the ground, screaming in agony, and died. The other worker, Ivanildo Gomes, stayed in the truck, suffering burns that later killed him. The men hadn't been given protective suits or safety training, Faria says. The fire was managed by the Santa Luiza ethanol mill, which is jointly owned by Cosan and São Martinho. "I still wake up at night with that scene in my head," Faria says. "This was not supposed to happen."
Cosan's Chief Financial Officer Paulo Diniz says that as a noncontrolling investor, Cosan doesn't oversee Santa Luiza's work. Cosan ordered Santa Luiza to give crews protective equipment and training, he says. If Cosan finds repeated safety violations, it may sell its stake in the mill, Diniz says. Cosan provides all necessary equipment in mills it controls, he says. São Martinho declined to comment on the fire.
About 75 percent of the sugar cane cutting in São Paulo requires fires. The other 25 percent of cane cutting is done by machines, and burning isn't needed.
One morning in July, flames shoot 30 feet into the air in a cane field that supplies Usina Monte Alegre, the ethanol mill owned by Soros's Adecoagro. A crew scorches the last, soccer field-size area to be harvested, and the cane crackles like popcorn. Wisps of black soot and sweet-smelling smoke hang in the air, gagging anyone nearby.
In a field near Cosmópolis, 70 miles northwest of São Paulo, João Bernardinho Neto wheezes with each swing of his machete, stirring up clouds of ash left over from the fire the night before. Bernardinho, 28, says he's had pneumonia twice, in 2002 and '03, and his chest still aches. "When you breathe this in all day, it gets to you," he says.
Under pressure from São Paulo Governor Serra and other state officials, trade association Unica agreed in June to phase out burning fields by 2014, seven years earlier than previously scheduled. Both Cosan and São Martinho will replace cane cutters with combines. Cosan says it's investing $96 million over four years to mechanize; São Martinho has spent 15 years replacing cutters with combines, says João Carvalho do Val, chief financial officer at São Martinho. "The work of the cutters is indeed brutal," do Val says.
Unica President Marcos Jank says the industry has taken steps to help workers. Cosan and other producers have signed agreements with the government to ensure that plantations that supply their mills comply with Brazil's labor codes. "Conditions are getting better," Jank says.
Labor inspector Gomes says ethanol producers have done little to improve work conditions. "There's been some progress, but it's far from ideal," Gomes says. "A lot of cane fields out there still don't meet the labor standards."
Even with the labor and burning controversies, ethanol production is a boon to Brazil's economy, the Interamerican Ethanol Commission's Rodrigues says. In a decade, he predicts, Brazil's ethanol production will jump to 79 billion gallons. Ethanol producers are spending $14 billion on 80 new mills, ethanol producer Biagi says. Ethanol will generate $7 billion in annual revenue for Brazil, says former agriculture minister Luís Carlos Guedes Pinto, who now heads farm lending at state-controlled lender Banco do Brasil SA. "Agroenergy is a new civilization, a new geography for the agriculture of the world," Rodrigues says.
Among the main beneficiaries of Brazil's ethanol infatuation are a small group of wealthy agricultural families, whose ancestors immigrated to Brazil from Italy in the late 19th and early 20th centuries to escape rural poverty. The largest ethanol producer is Cosan, controlled by Rubens Ometto, who has a $1.1 billion stake. Ometto runs the company from offices next to Usina Costa Pinto SA's rumbling mill, which was built in 1936. He lives in a mansion in nearby Piracicaba, 90 miles northwest of São Paulo.
Three of Rubens's cousins, João, Luiz and Nelson Ometto, own São Martinho, and they're doubling its cane-processing capacity to 20 million metric tons. Heirs of Pedro Biagi, led by his grandson André, agreed with the family of Cícero Junqueira Franco in February to combine their mills, helping the Junqueiras fend off a buyout bid by Cosan. They merged their plants to form Santelisa Vale SA, and in July announced that Goldman Sachs Group Inc., the world's biggest securities firm, invested $207 million in the new company.
Maurílio Biagi, André's brother, runs Grupo Moema's mills and is building another three. The Ometto and Biagi families each produce about 10 percent of Brazil's sugar and ethanol. Vanessa Nardo, a spokesman for São Martinho, said controlling shareholders João, Luiz and Nelson Ometto declined to comment.
Maurílio Biagi is a member of Lula's Council for Economic and Social Development; Rubens Ometto accompanied Lula on a 2004 state visit to China. They're also political campaign financiers. Companies controlled by the Ometto family, including Cosan, contributed $269,000 to Lula's 2006 re-election campaign via his party's campaign committee, according to Brazil's Superior Electoral Court. The Biagi family's companies contributed $135,183. Overall, ethanol producers contributed at least $1.1 million to Lula's campaign, records show.
The ethanol barons are bankrolling the expansion with Lula's help. Brazil's National Bank for Economic and Social Development in Rio de Janeiro is reviewing requests for $3.5 billion of loans for new ethanol plants--at an interest rate as low as 8.55 percent compared with the central bank's benchmark lending rate of 11.25 percent in mid-September. From 2003 to '06, the bank lent $2.34 billion to the industry.
The ethanol industry isn't big enough to warrant the size of Lula's financial support, says Thomas Skidmore, a Harvard University- and Oxford University-trained historian. Brazilian revenue of $7 billion annually from ethanol sales is equal to less than 1 percent of Brazil's $1.07 trillion gross domestic product. "The sugar barons have got a windfall, and that is regressive," says Skidmore, who's written six books on Brazilian history. "A lot of this is symbolic politics rather than economic reality." In the U.S., the economics of ethanol don't make sense either, says Michael McElroy, a Harvard mathematics professor who published a 2006 study on the economics of ethanol. U.S. farmers can't make enough ethanol to meet Bush's goals because there isn't enough land to produce corn, and the tariff would make it hard for Brazil to supply the ethanol that U.S. farmers can't produce, McElroy says.
U.S. ethanol policy is also bad for consumers, McElroy says. Motorists in the U.S. pay more for ethanol than gasoline, and a gallon of ethanol has two-thirds of the energy of gasoline. It takes $3.72 of so-called E85 fuel with 85 percent ethanol--the purest ethanol now available for cars in the U.S.--to move a vehicle as far as it will go on a gallon of gasoline, according to the Department of Energy. The average price for regular gasoline in the U.S. was $2.80 on Sept. 12, according to the American Automobile Association.
"Is ethanol a good deal economically for the consumer? The answer is unequivocally no," McElroy says. "The consumer and the taxpayer are obliged to foot the bill."
As the ethanol billionaires have expanded their empires, labor conditions have deteriorated, according to an October 2005 report sponsored by the UN and Brazilian federal prosecutors. In 2006, a government labor task force issued 900 citations for labor violations such as improper protective gear and the lack of bathroom and eating facilities in São Paulo state, says Roberto Figueiredo, who co-heads the task force.
"The mills don't care about the suffering their workers go through," says Carlita da Costa, who leads a union that represents 1,500 cane cutters in Cosmópolis. "All they want to know is how much cane the man cuts."
Maurílio Biagi says sugar cane farming has a lower rate of injuries, accidents and deaths than other industries. There are higher accident rates in transportation, foundry jobs and oil refinery work, he says. "No worker manages to routinely exceed his physical limits," Biagi says. "Every worker knows his limits." He says his ethanol companies meet all labor laws and face no on-going complaints about abuses. "We are complying with the law and the agreements we signed with labor unions under the supervision of authorities."
Amâncio, the Labor Ministry doctor overseeing sugar cane worker health issues, says it doesn't make sense to compare work conditions for people in transportation or foundry jobs with cane cutters. "You can't compare the life of a truck driver with the life of a sugar cane worker," Amâncio says. "What's important is that we have identified very bad conditions that have gotten worse over the years." He says the latest data from the Social Security Ministry show 40 percent of all farm accidents in Brazil that kept workers out of the fields for up to two weeks were in sugar cane fields.
The government task force shows up at a sugar field near Piracicaba in May to inspect a plantation that supplies Cosan's Costa Pinto ethanol mill. Vanilson Alves Lacerda, sweating and tired, resists taking a break from cutting cane. "We're paid for production," Lacerda, 24, says. "You have to keep working."
Inspectors find 26 labor code violations on the farm, including failure to provide chilled drinking water, no shelter from the sun for meals, no safe transportation and no first aid facilities for workers, their report shows.
If the violations aren't corrected, Cosan will stop working with the supplier, COO Veguin says. Since 2002, Cosan has improved labor conditions, he says. It pays for housing for its migrant workers, serving three meals a day and supplying medical care, he says. Cosan wants to treat workers humanely, which should attract investors, CFO Diniz says. "To get where we want to go, we will need the capital markets a lot," he says.
In Brazil, some workers are being underpaid by as much as 30 percent because there's little oversight of how much a mill says a worker has cut in a day, according to labor inspectors and prosecutors. Workers near Cosmópolis are the only group of cutters that get to check the weight of their production. They found they were being paid for about half the amount sugar mill Usina Açucareira Ester SA had been giving them credit for before 1998, the year da Costa, the daughter of a cane cutter, started monitoring production. Now, a union official stays by a scale that weighs cane every day it's cut. In the rest of Brazil, mills tell workers how many meters of sugar cane rows they cut each day, and the owners later convert that measure into tons.
"The way a cutter's output is traditionally measured is a complete fraud," says Costa, a burly, tanned 47-year-old who's wearing a black tank top at her desk in union headquarters. "Ourexperience proves what everyone has always suspected."
In a field outside Monte Alegre, the ethanol mill Soros invested in last year, José Silva says he's got it pretty good. He's about to break for lunch after swinging his machete for two hours, and he walks over to a van and grabs a plastic container with a hot serving of rice, beans, chicken fillets and manioc flour. Managers at Monte Alegre recruited Silva, 36, and 350 others near Brasília de Minas, a day's bus ride north. The mill transported them to Monte Alegre and put them up in company barracks with bunk beds; clean, whitewashed walls; and hot showers. In the mess hall, each man is served hot breakfast and dinner on long tables, in contrast to many plantations that require workers to provide their own meals and crowd into dilapidated rooming houses.
"These benefits don't raise our costs at all," says Marcelo Vieira, who runs Adecoagro's ethanol business. "If our workers are happier, they produce more and they work harder."
Ethanol will become even more profitable as the world tries to reduce greenhouse gases, Vieira says. Former agriculture minister Pinto says ethanol gives Brazil multiple economicadvantages. "Ethanol creates farm jobs and increases income," says Guedes, who's now the head of farm lending at government-controlled Banco do Brasil SA, Latin America's largest bank. For every professional in biofuels in Brazil, there will be 1,000 rural jobs, Lula says. "It creates an extraordinary outlook for Brazil," Guedes says.
Brazilian taxpayers are bankrolling billions of loans to big ethanol producers, while U.S. taxpayers may pay out more than $100 billion in subsidies for ethanol in the next decade. Big ethanol producers, agriculture firms and oil companies prosper most.
Workers and their families can pay a heavy price. Memories of the fatal May fire haunt Marguerite Marques Corina, whose husband, Adriano do Amaral, died in the blaze. The couple had been cuddling with their 7-year-old daughter after lunch, she says. Their 3-week-old son was sleeping. Amaral jumped off the sofa, eager to go to work because it was his first day on the job as a tanker truck driver at Usina Santa Luiza SA, Corina says.
"Do you really have to go?" she says she asked her husband. "It's Sunday. It's Mother's Day." He told her he would return home that night. That was the last time they saw each other. "It tears me apart to think that if they had given him proper protective clothes, trained him and had placed an emergency team near the site, he may not have died," says Corina, holding her son in the back yard of her modest home in Motuca. "He was a healthy, happy man full of life when he set out to work. He came back inside a shut coffin we couldn't even open."
MICHAEL SMITH is chief of the Santiago bureau of Bloomberg News. CARLOS CAMINADA covers commodities in São Paulo. With reporting by RANDY MARTIN in New York, JOE CARROLL in Chicago and Heloiza canassa in São Paulo. email@example.com@bloomberg.net