Study of optimal locations for new sugarcane mills in Brazil: Application of a MINLP network equilibrium model

Abstract

After the 2010 to 2015 crisis in Brazil's sugarcane sector, mainly caused by government mandated fuel price ceilings, the sector has entered a new growth cycle spurred by implementation of the “RenovaBio” program in 2017. The government created RenovaBio to achieve two overarching goals: increase 2028 ethanol output by roughly 53% and incrementally increase this biofuel's share in the national energy matrix to meet GHG reduction targets established at the Paris Climate Conference - COP21. The study presented in this paper addresses the expansion of mill output to meet expected future demand by 2028 through application of a mixed-integer linear optimization model to (1) determine the amount of additional sugarcane production and mill processing capacity required to meet expected 2028 Brazilian ethanol and sugar demand and (2) optimize the location of this additional capacity to minimize production and transportation costs through the multimodal transportation network. Modeling results estimate that 151,106 t of additional sugarcane processing capacity is needed to meet forecast 2028 Brazilian demand for 41,106 m³ of sugarcane ethanol and 49,106 t of sugar. Expanded mill output will require that sugarcane cultivation increase over an additional 6% of the area defined by Brazilian Sugarcane Agroecological Zoning regulations as suitable for sugarcane cultivation. Following the model's recommended optimal spatial distribution of 2028 mill processing capacity, their output can be produced and transported at a total cost of US$ 458.65/m³ of ethanol and US$ 304.27/t of sugar, slightly below 2016 minimum total costs.