Sao Martinho SA
BOVESPA:SMTO3
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Sao Martinho SA
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Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to São Martinho S.A. conference call to discuss the results of the third quarter of the '22, '23 harvest. Today with us, we have Mr. Felipe Vicchiato, CFO and Investor Relations Officer; and Alessandro Soares, New Business and Investor Relations Manager. The audio and the slides of this call are being broadcast simultaneously on the Internet and saomartinho.com.br/ir.
[Operator Instructions]
We would like to inform that some information contained in this conference may be projections or forward-looking statements. As such, they are subject to known and unknown risks and uncertainties that may lead these expectations not to materialize or be substantially different from what was expected. Now we would like to turn the floor over to Mr. Felipe Vicchiato who will start the presentation. Thank you. Mr. Felipe?
Good afternoon. Thank you very much for participating in this call. About the third quarter of '22, '23 crop year. Let's go straight to Page #4 with the highlights of the quarter, stable net revenue quarter-on-quarter were BRL 1.5 billion resulting from a combination of a higher price of sugar and lower price of ethanol mainly because of the tax situation of ethanol that favored local market prices. Our EBITDA, you can see third quarter BRL 774 million, a drop of 13% because of the production cost increases and COGS. Basically it has to do with diesel and labor and adjusted EBIT, 35.8% drop mainly because of the depreciation of investments made last year that had a major impact on the results of this year.
The company's net cash income dropping 33% going to BRL 505 million also due to increase in financial expenses, and I will be getting into details about that and the MTM, mark-to-market derivatives for the main items and the position is CDI, such as in the last quarter, we have another part receivables of [indiscernible] be posted to our results. It was close to BRL 100 billion from the [indiscernible] equivalent. We are talking about a growth of 5%. On the lower part of the slide on the left, we have the net income and the cash come out the company normalized grew from BRL 430 million.
There was a negative impact of IFRS 16 of BRL 59 million. Basically, this is the difference from what you take from the COGS in order to round this. When you put the financial expenses of leasing besides BRL 44 million in mark-to-market of biological assets because of the drop in prices of ethanol and because of the information of the sugarcane field. And in this quarter, we had BRL 44 million of negative difference, BRL 127 million negative. When we talk about income tax through our results and the judicial deposits because of the IAA and the MTM of the derivatives, as I said before, with the financial results of the company, BRL 233 million with an impact on the net income of BRL 103 million were due to derivatives that are ethanol that are 10, 15 years derivatives that has to be MTM.
And as we've opened quite a lot in the semester, there was a negative impact, and the debt of the company is maybe in CDI, but we do have the situation that I have already referred to. And we are talking about net income in the quarter of BRL 519 million with the effect of the precatório or the court order debt security. So this is very healthy for a quarter in spite of all the impact that we had about the lower prices of [indiscernible] domestic market, such as was the case in the last quarter, we were able to increase our exports of ethanol 79,000 cubic meters of ethanol exported and this helped us minimize the issue of the average price of ethanol in the local market, in the domestic market.
And if you have any questions about that, I can answer it during the Q&A. So we have the cash cost here. The cash cost for the company includes the whole maintenance CapEx that is acknowledged by depreciation afterwards. And our cash cost for the 9 months of the year, year-to-date, for sugar, it was 1,732, a 22% increase and for ethanol, 2,570 per cubic meter with an increase of 21%, and if we compare it to the last quarter, the cash cost was more or less in line with what we reported last quarter.
And for the end of the year, year-to-date, we are talking about cash cost of 1,800 for the full year and the cash cost of ethanol around 2,600, 1% higher than the year-to-date 9 months. And the reason we have a weighted average here. The allocation of the fourth quarter, we had a higher CapEx than the effort of the 3 previous quarters. They are the main drivers of the cash cost for this year. These are going up 51%. And it has never been posted with the PIS and COFINS, which means that the practical effect on the cost year-on-year is higher than when we think about the diesel [indiscernible] fertilizers 42%, industrial input 66%. So these are the major offenders, so to say that drove our cash costs about 20%.
I would like to remind you that the cash cost is a unit cash cost. There is a higher -- a lower dilution of fixed costs because if you produce 3%, 4% less than last year per unit, you have this impact. And as of the next harvest when we go back to a higher position because of a higher yield, then we will have the opposite effect of the operating leverage, which is the reduction of the unit cost of ethanol and sugar.
On the next slide, we talk about the company indebtedness. We closed December 22, with a net debt of BRL 3.9 billion of which we have here this is an indicator of 1.24, very comfortable. And on the lower left, you have the figures that led this net debt to go up. We are talking basically about the working capital, BRL 1.8 billion, and we have to separate into 2 parts of working capital, BRL 300 million related to the corn harvest.
The working capital of the corn itself, which is in the warehouses. And I have already started to crush part of the corn at Boa Vista. So I will be using this over time. And the remainder is basically because the cost of inputs went up very steeply. And I still have a lack of sugar, so to say, this working capital goes up. And this will decrease over time. And because of the PIS and COFINS exemption for ethanol accumulated the receivables and part of the ICMS and with the return of the taxes, we will be decreasing this in the next few quarters. And the company had BRL 2.7 billion at the close a short-term debt of 1.2, a very comfortable situation and the average term of the debt 5.4 years.
On the next slide, we have our hedge position to open for the '22/'23 and '23/'24. For '22/'23 we hedged something close to 349 million tons of sugar at an average price of BRL 2,500 per ton. And the price -- and for the next harvest, the average price will be BRL 2,300 per ton. This amount is equivalent to 50%, 60% our own sugarcane, but it will depend on the mix of the next harvest. And the more I do, the lower it gets, closer to 50%. And understanding the current conditions of prices for sugar and ethanol, we expect to have a more sugar harvest for next year, and it will be more -- close to 50%.
And there is an important point here that was posted to the results of this quarter. The volume of sugar that we posted this quarter had an average price of sugar, which was much lower than the volume that we will have in the next quarter. And regarding the commercial strategy of carrying over more sugar for the March screen, the average price of our own sugar was quite low, comparatively, we did the math here.
So we had, for the year [indiscernible] BRL 1,900 per ton and sugar for the next quarter BRL 2,500. So during the next quarter, we expect to have the margin of sugar at a much better level than the year-to-date 9 months. And I would like to remind you that this price so far is a result of the hedge that we did over time, and this is the reason why we sold our sugar at a lower price than the one that I used to do regarding Consecana, given the price of sugar as it continued to go up gradually in the last 18 months for the reasons that are very well known to all of you.
So these are my initial remarks. So thank you very much.
[Operator Instructions]
Our first question comes from [indiscernible], UBS.
I would like to know your expectation about the net harvest. Will it be in line with the estimates of the market, 8% to 10% of total projects and the TRS cost. We expect a growth of around 10%, 15% or 20% given the higher dilution that we saw at the beginning of 2023.
And I have another question I would like to know about ethanol prices, and you have been positioning this differently to focus on your side. What about your talks between the industry and the government regarding PIS and COFINS taxes and the impact on future prices, the export premiums what can we expect because they were quite high in 2022, but we start to see a drop in these premiums. So thank you very much.
We have quite a lot of questions. So if I forget to answer 1 of them, let me know. Regarding the company's expectation regarding [indiscernible]. We will have a higher degree of certainty about the quarter. What I can tell you so far is that up to now, the rainfall was quite good and higher than the historical leverage. January was very good as well as well as December and our sugarcane fields are growing very well because of the variations that we have and the technology that we apply.
So our estimate I don't know what will be the average for the Center-South. I cannot tell you that, but we expect to have higher than the Center-South. And we have made many investments in our field and 8% to 10% for the Center-South sounds very aggressive to me.
One is if you talk about 8% to 10% of the harvested area, but for the total area, I think it's a little bit too much because maybe you will harvest less, maybe you will plant more, maybe the yield of the harvest will be higher. So you have to check the math and if it were 8% to 10% Center-South, we would imagine that the sugar market would have a surplus much higher than it has today around 3 million tons, and it would be more than that. And the raining is okay. The fields are okay, very good.
February, we still have rains. The full March seems to have a very good estimate for rainfall and also for planting. Our planting is lagging behind a little bit, and we might still have this in April, and we will start to harvest in the second or the third week of April. Because of that, there is a slight delay. But apparently, we will have a much better year regarding yield and having a better yield and it is only natural for us to have a decrease in our fixed cost in the same proportion.
And our thinking is that we will have a nominal cost when you talk about the diesel, labor fertilizers, everything included nominal in BRL 1 billion equal to this year. Given the fact that this year, we had a very high cost. So nominally, it would be at the same magnitude of this year, I am able to improve my yield 15% my unit cost will be dropping 5 and so on until forth. 2 years ago, or 3 years ago, we were saying that this would be the year when we would reach BRL 34 million. And we made all efforts to get there and with the best possible variety of sugarcane to be harvested.
So let's see this -- let's wait and see, and we are doing '20 and to reach '24, it will take a few years still, but we have -- we will expect a very good response.
The export premium -- let me check the data here. So far for the 9 months year-to-date, 243,000 cubic meters in exports at an average price -- export price of BRL 3,841 per cubic meter already net of all the costs. And this price was the order of magnitude of 15%, 20% higher than the domestic market looking at the average for the 9 months. And in the last quarter, I will still have about 60,000 to 80,000 for exports to [indiscernible] at a slightly lower price, 3.5, 3.3 already net of taxes.
And I have a very small exposure of ethanol to the domestic market. So we didn't suffer because of the drop in prices. And for the next year, I cannot really tell you yet what the premium will be vis-a-vis the domestic market, but I believe that it will be smaller because we believe that PIS and COFINS will come back at the beginning of March. As the government has already indicated in late December, early January postponing for a couple of months for the PIS and COFINS for gasoline and ethanol, so we expect to come back. And this would mean a lower premium in exports or maybe nonpremium for exports and the ethanol would be basically all channels to the domestic market.
But we did a great job this year. And we are talking about something close to 300,000 cubic meters. And we have conquered a very important market in Europe. We have big clients there. And if there is a premium, of course, we will continue to cater to this market in the next 2 years. And decreasing our exposure to the domestic market, but it's very difficult to talk about the level of premiums and they will probably be concentrated between May and June.
The nominal flat cost year-on-year, you talked about that. But maybe you could talk about the quarter April and which are the major vendors or the vectors of a lower cost for next year, we believe the fertilizers will have a lower price when there is a trend of using less of this product per hectare. So what do you see?
And the second question in relation to the remaining CapEx of the plant. How much do you still have to invest. If you look at the cost, you will see that the highest quarters sugarcane with 38% and the cost of the sugarcane is outside this number of stability, it could go up or down depending on the Consecana.
When I say that nominally, the cost will be similar. I'm talking about the cost on which we have a higher control because sugarcane, it will depend on Consecana. So labor represents around 20%. SG&A follows inflation, maybe slightly higher than inflation or freight expenses, and they play a major part because we have a relevant harvest of grains 20%. This could have an impact. Fertilizers and pesticides, 15%, and these are dropping 20%, 25%, and the industrial inputs are dropping as well.
When I look at the total plus the gain of efficiency that I have consuming less diesel for machines and using less fertilizers and having a more precision agriculture, so to say. The lower consumption of fertilizers and higher technology and efficiency gains together with the drop in pesticides and industrial inputs and fertilizers, all that together will bring the cost down, labor and freight might offset this trend. If I am able to get a higher yield, this will lead to a lower unit cost per hectare or per cubic meter or whatever indicators.
The corn CapEx, let me check here. The most recent information that I have here, we published the estimate is that in this harvest, I will be spending about BRL 300 million, BRL 320 million. And so far, I have spent BRL 270 million. So I still have BRL 50 million to spend in corn, and this should drop in the second quarter and in cogeneration, about BRL 80 million remaining.
So this is the bulk of our CapEx. The [indiscernible] is ready. The plant is ready and UTE will be ready in August and will be started up in August, but the contract itself, while the sale will happen in 2025 according to our contract to this year, we have 4, 5 months of harvest and the next year, we will be selling stock. Unfortunately, because the stock price is very low, but as of 2025, this is when I have my full contract in operation for corn.
Would it be fair to say that São Martinho should be -- have -- will be applying less fertilizer in the next harvest.
Not necessarily. It will depend on the sugarcane. If the rainfall is okay, I need less of these products. And the issue of fertilizers depends on the yield and the level of the position agriculture in the area that I'm harvesting showed not necessarily the decision about fertilizers is not based on prices, it is based on the response of the sugarcane.
So in this area, we have placed more tons of fertilizers if we thought it will makes sense, okay, I will do it. Otherwise, I will not do it. The point is, when I say nominal total cost will stay stable. It's not because the amount will be low. It will be a combination of lower prices.
Gabriel Barra, Citibank.
I have 2 questions. Felipe. The first one has to do with hedge. If you take the hedged volume for the net crop '23, '24, about 45% to 50%, depending on the mix and the production given the moment that we are in and given the prices, could we expect a higher level than this one? How do you see the company's strategy for sugar hedge?
And also regarding the price of the '23, '24 harvest, maybe you're holding back your hedge because of sugar prices. Could you get into details about that and second point has to do with Boa Vista and corn ethanol. We recently had to operate in the [indiscernible] calls and talks, you talked about 16% to 20% IRR. Do you think this level of return is still possible with the price situation that you see now and the situation of ethanol in Brazil?
The third question about capital allocation. What about your pipeline besides corn, ethanol, and with higher interest rates and the price policy in Brazil, what are your next projects? Where you see putting upside and maybe you will return this capital to investors and shareholders instead of applying or investing in new projects.
I'll start with sugar. Well, sugar has been going up consistently and surprisingly so. And this -- what helped the market was the Indian harvest with a drop in production besides the situation in India as well. Regarding the mix, which is all towards ethanol because of the adoption of the flex cars in the Indian streets. So these 2 factors are helping sugar here, so 21.5%. And we didn't -- it would be possible for the March screen. We have been hedging for disciplined reasons and also for risk control reasons. And with the corn ethanol plant, for sugar next year, I'm saying that we will still have 60% ethanol and 40% sugar for next year because I have a mill in Goias, I have a plant in Goias that crushes 7.5 million tons of sugarcane.
If I do the maximum of sugar here, I will be doing 40% sugar, and it's important to hedge so that I have a [indiscernible] hedged at a comfortable level. But trying to be more assertive in answering your question. We have not accelerated our hedge. The level of December continues at the same level. January and February, we didn't do because of what happened in India and also for logistic reasons in Brazil. But in June, July, we expect to have at least 70% already done at a reasonable price.
And your second question has to do with Boa Vista. [indiscernible] Boa Vista, we have not started production for production of corn. We still don't have the authorization of ANP. To do that, they visited our plant last week, and they are evaluating to give us the authorization. So we are on a best phase. And [indiscernible], we are [indiscernible] quite well, but we are still testing and we are waiting for the authorization of in order to do that, in order to have full production. So they went there on February 8 or 9, and we have to wait for their final report and the final authorization. And as I'm talking about harvest, the April-March harvest will be operated full, but we have not started this yet because we have to wait for the final authorization of ANP.
And as far as we turn to their concerns, Gabriel, well, the level is more or less the same, and it will depend on the dynamics -- price dynamics regarding gasoline. With PIS and COFINS come back, and this is what we believe will happen to return. [indiscernible] will be going back to the same level that we had before.
So if we have a return of the PIS and COFINS [indiscernible], we will be talking about 20%, 25%. If it does not stay forever. This will be close to the cost of capital. And regarding the allocation for projects over the next few years, concluding UTE and the corn ethanol plant, we do not have anything very important in our pipeline.
We only have marginal projects that are still being [ served ], but they are small projects. And this probably the return that we have will be remunerating our shareholders. There is a project for [indiscernible] that I have already talked about, and we are getting close to the technical evaluation to being submitted to the Board between March and April. But this is just BRL 200 million project. So it's not very relevant, such as what the case of the corn ethanol plant.
But let's say the situation regarding interest rates change and the PIS and COFINS situation. Of course, we will continue to evaluate. For instance, the corn plant can double in size very quickly. It will be using the cogeneration of the plant itself. So we will be evaluating this. But it will depend. And the CapEx in the second phase is much higher than the first phase. As you know, that the cost of capital today is very different from the first phase.
So we had inflation plus 3 and now it is inflation plus 7 or 8 recently. We made the bank inflation plus 7 but comparing to the first phase. Well, it is inflation plus 3 vis-a-vis inflation plus 7 to increase our CapEx and have a higher cost of capital. Of course, you cannot have the minimum internal rate of return. And then the company, the company cash will be going to our shareholders in terms of remuneration.
Thiago Duarte, BTG Pactual.
I would like to touch on 3 points. We're back to the better prices of ethanol for export, could you please help us with the math? The highest price so far in this harvest was very clear. And of course, it helped your gross margins or contribution margins, but it also increases your selling expenses. Could you break down this increase in selling expenses, how much has to do with your ethanol going to export. What I would like to know is unit margin of the export ethanol considering the higher selling expenses.
And the second question, you talked about that very quickly. you talked about the approval by ANP. But the base case is that we will be able to crush 500,000 tons in '23, '24 or do you have a ramp-up horizon that we should consider given that we're already in February and for the next half of the impact would be felt in [indiscernible].
And lastly, regarding the internal rate of return for the corn ethanol plant considering the corn price that you have already paid and that is already in your inventory. We have the impression that the margin of the corn ethanol would be higher than the one that you have been achieving in sugar ethanol considering the maintenance CapEx. So is this correct? The corn ethanol unit margin, is it higher than the sugarcane ethanol?
Thiago, thank you very much for the question. My freight cost for ethanol for export so far in '23, we are talking about BRL 50 million more. I would say BRL 10 per cubic meter approximately. And the price that I referred to about the export ethanol for the 9 months year-to-date was BRL 3,841 per cubic meter, enterprise is already net of selling expenses, export expenses, okay? It is posted to my gross revenue, but it is already net of selling expenses.
I can give you the quarter-on-quarter, figure is BRL 3,800 and import and the average between bulk was 3.4-- 3,400, 2/3 domestic market, 1/3 export for the year-to-date, 9 months.
Regarding the corn, the base case is that -- for the full harvest, we do 500,000 tons. If we have talked at the beginning of January, I might have given you a little bit more, but as we had a slight delay, the base case is 500,000 tons and the EBITDA margin came vis-a-vis corn. It will really depend on the emphasis on few of my sugarcane field to the next year. What I can tell you today is that the price of corn of today, BRL 60 for instance, approximately into [indiscernible] I can sell 1,500 per ton.
My unit cost [Technical Difficulty] cubic meter of corn is about BRL 1,900 per cubic meter. And I placing this as a reduction factor, I'm talking about [indiscernible] 2,600. When you look at all the mills, all the plants and you look at the sugar mills as well, you can see that corn is much cheaper in this case.
Lucas Ferreira, JPMorgan.
A more qualitative question. When you talk about price policy, we have already seen this in the past up to 2017, what about your strategic plan? How do you deal with the possibility of having the prices of gasoline go up as they drop in cheaply. What do you have on the table to do differently from the upturn you had in the past? You have already talked about the export, do you believe you will be able to have a bigger portfolio of clients abroad and other certifications? And do you see other players doing the same? Or do you believe that this could be for [Audio Gap] many people are producing more sugar because of India when you talk what do you discuss. And a follow-up about the corn ethanol plant.
I think I have already asked this, but the major part of the profitability has to do with the [Technical Difficulty] sometime the client asks for product to test and to try, [Technical Difficulty] you priced at this suboptimal price. What can you tell us about the first year of operation in a nutshell.
I will start by the last one. You're talking about suboptimal prices. The product has already proven that it has the amount of Cofins and the quality. You can sell the first lot at a lower price, but the volume is very negligible. And then the next one, you will have -- you will go to the market price. And of course, we cannot keep a much lower price. And we have the DDGS that is much better for the animal. And we believe and the commercial, I believe that we will be able to place a product with no problem whatsoever. And you can see that soybeans are going very well, and it is a similar situation.
Regarding the pricing policy, we understand that the Petrobras prices, whether they are going up or down. It doesn't have anything to do exactly with the administration and the government reduced PS and [cocaine] and it had a negative impact on the whole industry, let's talk clearly about the measures taken by the [Bolsonaro] administration that was much worse than others and a lot is said about price control. But so far, we have not seen a lot in this regard, quite the opposite.
The prices of gasoline went up. It went up 7.5% in January. And I agree in part with you. If the prices go down very steeply and it goes up very slowly, as you described yourself, going up the ladder and dropping an elevated speed. But the price cannot be very different from the international prices. The situation is not possible. But internally, we have manners of dealing with this drop. The first one is to act as the export market. And as you saw, we will have a record export this year, 30,000 cubic meters of ethanol and the domestic market having a lower price with the drop of PIS and Cofins, we are able to go to foreign markets that have a premium and it has the [CEO] of being a renewable source.
And another fact that we see with positive vibes, for instance, in the United States, if somebody has this kind of plan, it may be more advantageous to buy this ethanol because the CI of the American market, they use gas for the boiler. The carbon density is lower in Brazil than in the United States. So that would be something very good.
And we can evaluate also the integration of one of our plants in this regard to do this and export. And we didn't have this possibility before until some years ago, we didn't have this market. You could go to the export market because the molecule is sustainable and now this step will be an obligation and companies will have to adapt. And if we do an integrated plant because of CapEx and to decrease the cost of capital. In the United States, the cost of capital is lower and our carbon is lower, and then you can access the export market -- this additional export market.
So there are many, many ways in the remote possibility of having a control over prices here in the domestic market, we do have ways to circumvent that. And there is a lot of noise about that.
The economy has to run, the economy has to work. Ethanol has been increasing a lot in the energy and the Lula administration has been a major ambassador of ethanol so it will be nonsense to do anything against ethanol. And I believe that we will have the opposite situation, which would be incentives, but [indiscernible] CBIO, the last government wanted to change the CBIO and the price that was BRL 300 went down to BRL 80 and we might go back to CBIOs. And if you look at the results, you would think that the combination of CBIOs plus ethanol sold in the first half, which didn't have the impact of the PIS and Cofins. It was very good in terms of remuneration. Now if PIS and Cofins come back, then we will have this change in situation going back to normal.
I would like to go back to the working capital. You said at the beginning that we take the credit of the PIS and Cofins and this is slightly different from what I thought. There is an indication about a 2 million using these credit and the [indiscernible] also the level of taxes on the product. I don't know if on the side of the corn ethanol plant with the byproduct, there is some implication in this regard. And then the ICMS as well because there has been a change in the tax rate, and I don't know whether it has generated an impact. And this is a more general question, but could you go a little bit more in depth into the taxes, federal and state states.
The total working capital for the year-to-date, we are talking about BRL 1.3 billion of which BRL 330 million have to do with the corn and the remainder BRL 970 million or something like that is working capital. Of these BRL 970 million of working capital [indiscernible] and the corn inventory does not return. It's like a CapEx every year, we will have to maintain this because we need to have this inventory of corn that was bought in the second production.
The second harvest that has a better price. So it has to do with the project. It was already when we evaluated the project for the corn ethanol, we already had the CapEx plus 250,000 tons of corn as working capital in order to run the project. When we go to these accumulated -- we have to separate this into BRL 630 million basically with clients and suppliers to this returns when I sell my product, and the remainder, BRL 280 million or BRL 300 million are taxes recoverable. And most of these are federal because the ICMS is very small. What happens with the ICMS was that we had a tax rate in So Paulo 12% and it went down to 9%.
But the product that I continue to buy these or fertilizers. I take the credit that ICMS is being invoiced. And as I exported a lot of ethanol, 300,000 and exports don't have the taxes, accumulated these credits this year because of that -- because of the exports for the ICMS specifically, this would be 20% of the total volume. And the remainder, 80% is PIS and Cofins and they are the most relevant because we pay on ethanol, BRL 130 per cubic meter of PIS and Cofins and this was generated because of the change with a drop of the type rate in the [indiscernible] administration show these 120, we believe that we can return this in about 18 months to 0 the working capital.
And when you talk about the federal tax piece and PIS and Cofins, I can deduct from the IR to be paying as the company is a profitable company when we accumulate PIS and Cofins, it helped us, but because it can be deducted from the income tax payable. And in corn I almost have no input with this credit. And as we have 80% of the cost. When I buy corn, I don't have a ICMS or PIS and Cofins. And when I transform corn into ethanol then I have PIS and Cofins. There is no ICMS because I'm included in a system in which I don't pay this ICMS, but we do have PIS and Cofins as it will help us to -- when it starts more quickly.
Another question, please. In a broader agenda of the industry, is the change in the administration, what changes are desirable more specifically regarding the PIS and Cofins that maybe -- would that be a netting tax for ethanol and CBIO, do you have the same target consistently or the change every year, the CBIO should be the distribution company liable to pay these and what would be constructive changes for the sector?
Well, predictability is very important for the sector as a whole. Making investments in sugarcane, ethanol plant to start to operate at a certain scale after 3 years, you have to plan. We have to stabilize the field at least 3 years from the moment to make the decision to the moment when you have some profitability. So predictability is very important. For a long time, we have not seen investments in ethanol by means of sugarcane. CBIO is fundamental and maintain a CBIO the way it was before. And with all the targets and going back to the previous situation and not having to change every single year, keeping the plan of decarbonization of the energy metrics of the country.
This is fundamental because then you can foresee in the cash flow, what will the price of CBIO be, if every year, you have to postpone the target, they have no predictability. So it is fundamental to have a framework CBIOs without the change in the target. And with mono phase or 1 phase question, is not really the case for the sector.
This is not a problem. If you place this mono phase in the sector, the sector is autogenous. You have companies from A to Z, so we do not agree with that. The ideal situation is to be. This situation as it is because it is working properly. And lastly, and I think this will happen and with any government to be the same dynamic, any CEO of Petrobras who sits there will have a pricing policy, be it the premium or whatever. So this is very important for us so that we may model so that we may model this and we have to work with what we have apparently, it will be something close to the international situation, but we need clear -- rules -- clear rules so that we may make the accurate investment decisions.
Daniel Sasson, Itau.
You talked about the logistic challenge that the country is facing and is even worse because of very good harvest and rains. We believe there will be [Technical Difficulty] coverage you for this year? Is there a concern in terms of contract? Or do you see any opportunities to improve logistics? And you also talked about your vendors in your cost structure, how do you see competitiveness of So Martinho.
The other players in the market, the cost breakeven of So Martinho vis-a-vis the other players breakeven. And a major part of the incentive that you talked about are valid for all players, but may do you see a possibility of gaining share over other players that have less financial capacity to cope with lower prices of ethanol for a longer time. The real logistics are more related to sugar in general and not because of so much specifically, all our sugar today is via railway and distributing sugar shouldn't be a problem at the end of the harvest. Maybe the cost will go up because the price that we pay for railway usage if the freight goes up, but we do not foresee any problems regarding distributing of sugar in relation to cost. There are 2 factors for the company and that are foreseeable for the 2 years ahead of us. The first one has to do with yield. It affected the whole sector. But for us, the impact was bigger because I have 70% on sugarcane and companies that are more integrated and they have a deleverage -- operational deleverage and the total unit cost goes up.
And the other day, we were doing the math here, let me check here. But in 2 years, my unit cost for TRS went up about 50%. Overall, on the top of that was the operational deleveraging . When I return with the production of TRS equivalent at a better level, I had 70-hectare and if I return to 80, 85, which is what I usually had in the past, this reduced my cost of operations.
And the second factor accounting for 70% of the cost increase, we understand it is a [April] issue regarding fertilizers, and crop protection products and labor, where we have 22% and it is here to stay. So just to give you an idea, if you take the 2021 harvest, we had TRS production of 3,300. And this year, we are talking about 2,800 for this year, a very significant drop and the cost going up to BRL 1,600 per TRS, 60% in 2 years, 60% in 2 years.
Most of that is explained by the drop in the tariffs produced. And the good news is that we should be going back to higher yields. I'm not going to go back to the maximum, such as we had in 2021, but most of that will come back for the next year should rainfall continue and yield responding. And this will help us in with hard of cost. And structurally speaking, we have a lower cost, on average, it was -- I would say it's about 1% lower.
If you put all the players of the same base. But the fact is that it is very difficult to get a neighboring area to put more changing and the neighboring areas, they want to protect and sell, then they need that additional income. And this will always happen and what happens is that we have been seeing that the volume produced in the center cell at a stable level, and this has remained at this level for many years because the sector is growing in the center west, by means of corn or brownfield that grow modularly at the volume crushed is dropping when you look at a longer window 8 to 10 years.
And the reason for that is that some are facing problems and it isn't feasible for a mill to continue producing when it is more expensive to harvest the cane, there's the price that they will be getting when we sell the sugar. So you have the harvest, you have the rural traffic and plenty. If you go to the first 2, you have to do the third, which is the harvest. And if yield is very low, they just stop harvesting. And this is when another player may take advantage of that. This does happen sometimes, but it is very difficult to tell you how much we would be able to gain in share.
Christian Audi, Santander.
Two quick questions. When you talked about the options depending on the prices that you talked about as the ethanol market. How far can you do that. If you have a window opening in this regard in Europe, for instance, can you sign a contract immediately and be very quick or do you have companies or plants interested in your plan already in the United States. And how Hydrous [indiscernible] the one that is exported or the H2 industrial.
If the window opens, both in the United States for their own consumption or [indiscernible] or in Europe, we can quickly sign the contract. This is a fast process. But that is already different because first, you have to have the technology in place, you have to have somebody investing in the technology there that it has to prove it is feasible -- looking at 18 months, or 24 months, we already see many players moving in the direction in order to place the product and some material included for the next harvest from April to -- in March, April, we have to look at the export market for fuel for [indiscernible] And in the long run, then we can look at another market, which is more profitable to start. Update regarding gasoline that could impact it ICMS? Or is it still being discussed with no decision, continues to be discussed and the decision.
You're talking about the possibility of gasoline not staying within not being considered as a staple, an essential goods and then we would have a difference of 17% in ICMS. But so far, no news in this regard.
[Operator Instructions]
As there are no more questions, I would like to give the floor back to Mr. Felipe Vicchiato for his closing remarks.
Thank you very much for participating in our call. We will all be available to you should you need any further clarification. And if we do have news or material facts, we will inform you.
The conference call has come to an end. Thank you very much for participating, and we wish you a very good afternoon. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]