SEEING GREEN: fiber, forests, futures
Reaping returns,Brazil’s forests lure investment
Seeing green: Fiber, forests, futures
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Freight containers — stacked seven high and four deep — stood idly at South America’s busiest seaport, Brazil’s on-ramp to the global market.

Santos, the seaport through which most of Brazil’s $3.5 billion in pulp and paper exports travel, bustles with cargo ships, trucks and trains that feed the developing country’s commerce.

If Brazil is to increase its standard of living and shed its Third World label, the port needs to become even busier. Like many developing countries, Brazil carries a tremendous foreign debt — $211 billion. To pay it down, Brazil needs exports.

Currently, only 10 percent of Brazil’s gross domestic product is exported. One major contributor to that 10 percent is pulp.

Of the 10.4 million tons produced in Brazil, more than half are exported.

“It’s growing now and is going to continue to grow,” said Ludwig Moldan, an executive with Bracelpa, Brazil’s pulp and paper industry. In the early 1990s, exports totaled only $1 billion. The $3.5 billion it recorded in exports last year helped give Brazil a $2.5 billion trade surplus.

That, in turn, is drawing more investment.

Financial institutions such as the European Investment Bank and the World Bank have given thumbs-up to foreign investment in Brazil’s pulp and paper industry. Foreign money is key, since Brazil’s money lenders impose an 18 percent interest rate.

Just last year, the European Investment Bank made $110 million in loans for the new Veracel pulp mill, signaling a green light for other financiers. International Paper sunk $1 billion into developing a new pulp mill at Tres Lagoas. The $250 million IP made by selling its Maine forests two years ago was part of its restructuring plan to focus on making uncoated paper.

Overall, private industry in Brazil has invested $12 billion in pulp and paper since 1993. At a conference two years ago, it pledged to invest $14 billion over the next decade.

Much of that goes toward R&D in collaboration with several university and private research groups that produce new technology.

But there are significant impediments. Brazilian bureaucracy is infamous. In a World Bank ranking of best places for doing business, Brazil scored the worst in Latin America and 121st out of 175 countries compared overall. It got lousy grades in dealing with licenses, registering property, enforcing contracts and taxes.

A full 35 percent of the costs associated with pulp and paper production are taxes — many of which are described as unnecessary and unfair. For instance, Brazil mills typically are surrounded by hundreds of acres of plantation trees, making transportation from forest to mill quite short. But the government imposes a transfer tax based on market price, rather than actual cost.

At the IP mill in Mogi Guaçu, the actual cost of transferring wood is $15 to $16 per cubic meter; but it pays taxes on $23 to $25 per cubic meter. Taxes could be the industry’s Achilles’ heel.

“I think our next competitor may be Uruguay,” said Moldan, noting its neighbor to the south also has soil and climate receptive to eucalyptus. Two big pulp mills are under construction there and should begin producing next year. The major reason for the Uruguay sites?

“They’ve established a completely tax-free zone.”