Mato Grosso’s expanding corn ethanol industry could require billions of reais in new eucalyptus plantations if the state moves to end the use of native forest biomass in high-intensity agroindustrial operations by 2035. An Itaú BBA assessment estimates that the investment required could reach R$14.3 billion under a conservative cogeneration-efficiency scenario.
The calculation is based on projected corn ethanol production of 12 billion litres a year by 2030 and assumes that ethanol plants would rely on eucalyptus as their biomass fuel rather than wood obtained from native vegetation clearing.
Under the low-efficiency scenario, the industry would consume enough eucalyptus to require the annual harvesting of approximately 82,000 hectares. Because eucalyptus takes about seven years to reach its first maturity cycle, Itaú BBA estimates that around 572,000 hectares would need to be planted by 2028 to provide the required supply.
That represents a substantial expansion from the 165,000 hectares of eucalyptus planted across Mato Grosso at the end of last year, according to the Mato Grosso Institute of Agricultural Economics (Imea).
Three scenarios point to significant capital requirements
Itaú BBA’s assessment varies the required eucalyptus area according to the efficiency of biomass-fired cogeneration systems.
In the conservative low-efficiency case, the required forest area would reach approximately 572,000 hectares, with annual harvesting of 82,000 hectares. Establishing that forest base would require an estimated R$14.3 billion over a 13-year investment period.
The bank’s base case assumes average cogeneration efficiency. Under this scenario, the eucalyptus requirement falls to approximately 440,000 hectares, with 63,000 hectares harvested annually. The associated investment is estimated at R$9.6 billion.
A third scenario assumes that capacity expansion is supported entirely by highly efficient cogeneration plants capable of producing more energy with less biomass. In that case, the estimated investment requirement falls further to R$7.6 billion.
The calculations assume an average eucalyptus establishment and maintenance cost of R$35,000 per hectare over 13 years. The estimate incorporates initial planting, subsequent maintenance and two harvest cycles, with the first occurring after seven years and the second six years later.
Existing corn ethanol capacity already presents a biomass gap
The challenge extends beyond future production growth. Mato Grosso’s existing corn ethanol plants, with combined installed capacity of around 8 billion litres a year, would already require an estimated 383,000 hectares of eucalyptus plantations if they were entirely supplied by eucalyptus biomass.
Annual harvesting would amount to approximately 37,000 hectares.
That required plantation area is more than twice the eucalyptus area currently established across the state. According to the source, the shortfall has been associated by the Public Prosecutor’s Office and experts with the use of wood obtained through the clearing of native vegetation.
César Castro Alves, agribusiness consulting manager at Itaú BBA, said the future demand for eucalyptus is closely connected to restrictions on the use of wood from forest clearing.
“A lot of the eucalyptus the industry will need is because it will no longer be able to consume wood from forest clearing,” Alves said, adding that continued access to such biomass would reduce the potential need for eucalyptus expansion.
He also argued that using wood from deforestation could undermine the environmental credentials of Brazilian corn ethanol.
Policy implementation will influence investment demand
The scale of eucalyptus investment depends partly on whether Mato Grosso implements the provisions of an agreement signed with the state Public Prosecutor’s Office in June. The agreement provides for the end of native forest biomass use by high-intensity agroindustrial operations by 2035.
If the rules are implemented as anticipated, ethanol producers would face a greater need to secure dedicated biomass supplies through eucalyptus plantations or other permitted sources.
The timing of investment is also important because eucalyptus production requires several years before the first harvest. This creates a need for plantations to be established well ahead of the point at which restrictions on native biomass become binding.
Eucalyptus economics could support new plantations
The investment case is influenced by both wood prices and financing costs. Itaú BBA’s assessment notes that eucalyptus cultivation has become more attractive as wood prices have risen, although the high Selic benchmark interest rate remains an important consideration for investors.
With eucalyptus prices near R$150 per cubic metre, the bank estimates that current cultivation economics can generate a return equivalent to around 30 bags of soybeans per hectare, corresponding to an internal rate of return of approximately 17%.
That compares with a minimum return of around 14% associated with the Selic rate in the bank’s assessment.
However, plantation economics can vary significantly according to forestry productivity. Itaú BBA’s low-efficiency scenario assumes an average yield of 30 cubic metres of wood per hectare, while actual yields can range from approximately 15 to 40 cubic metres per hectare.
Alves said plantation location would also influence project economics, with plantations closer to ethanol facilities likely to achieve better commercial conditions because transportation distances are shorter.
Bioenergy Business Analysis
Mato Grosso’s corn ethanol expansion illustrates how changes in biomass sourcing rules can create a second investment requirement alongside new fuel-production capacity.
The potential R$14.3 billion figure should not be interpreted as a fixed industry-wide investment requirement. It represents Itaú BBA’s estimate under a specific low-efficiency scenario, while its base and high-efficiency cases produce substantially lower figures of R$9.6 billion and R$7.6 billion respectively.
The analysis also highlights a structural issue for the state’s existing ethanol industry. Even before accounting for future growth, supplying current corn ethanol capacity exclusively with eucalyptus would require substantially more planted forest than Mato Grosso currently has.
For producers, the economics will therefore depend on a combination of cogeneration efficiency, forestry yields, wood prices, plantation location, financing costs and the implementation of restrictions on native biomass.
If the state’s policy direction results in a sustained shift away from native forest biomass, eucalyptus plantations could become an increasingly important part of the feedstock infrastructure supporting Mato Grosso’s corn ethanol industry.
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