Clean Energy Brazil plc, the newly-listed investment vehicle for Brazilian biofuels has just acquired an indirect minority stake of 49% in Usaciga Acucar Alcool e Energia Electrica SA for a consideration of BRL267.86 million (US$130 million).

Clean Energy Brazil's philosphy is to invest in integrated sugar and bioethanol production units in Brazil thereby creating exposure to Brazil’s domestic bioethanol market, the global sugar market and future growth in global bioethanol demand.

My view is that in principle, it's a great idea to set up a fund that goes into Brazil to buy up ethanol production for exposure to its investors back home. It's just that looked at in a distanced and sceptical way, could one be entirely convinced that they are going to;

a) do a better job than the Brazilians at their own industry ?
b) not pay over the odds for acquiring their ethanol assets when the oil price is high ?

Of the 6 strong CEB team only two appear to be Brazilian - so some awkward analysts might wonder if any of the other 4 speak any Portuguese?

I don't doubt that ethanol seems set to boom for at least the next 10 years in Brazil. The real test for biofuel producers may only come when the price of oil comes down - not a complete impossibility if the Middle East stabilizes and alternative energy technologies mature to mass market. And don't think it won't happen fast, especially if the price is right. Compared to two years ago, the Toyota Prius is already looking old-fashioned to what's coming through now. Just look at this crazy vehicle here - the Minicat which runs on compressed air. With 3 times the range of electric lithium ion battery vehicles and rechargeable in a mere 3 minutes, this is a very, very radical departure - if it takes off. Admittedly, most Americans wouldn't be seen dead in a dinky looking vehicle but many Europeans and Asians view these looks as a plus.

A great piece here in Forbes magazine which sizes up the state of the biofuels industry over the last couple of years.

I was particularly interested to learn that 50% of this year's US corn crop will go to making ethanol. Government mandated targets for the rising participation of ethanol and biodiesel is clearly driving a demand for biofuel feedstocks not seen before. And this article says one way to play that demand is to buy into a fertilizer company called Mosaic and SunOpta, who hopes to be a player in the emerging cellulosic biofuel industry.

The first idea is definitely original - a bit like selling shovels to gold prospecters in 19th Century America. But I'm not aware - other than in Brazil - of how much virgin land is being used for biofuel crops or whether it is merely replacing existing food crops. So I wonder how much more fertilizer really will be used?

Meanwhile if SunOpta really does produce cellulosic biofuel in scale, then this will presumably reduce demand for fertilizer. So in a sense, these two stocks could hedge each other. Mosaic for the short-term and SunOpta for the long-term?