BP is moving into the plantation business, taking a half share in a billion-dollar venture to produce ethanol from Brazilian sugar cane.

The British oil multinational is joining forces with two Brazilian agribusinesses, Santelisa Vale and Maeda Group, investing more than $560 million (£284 million) in Tropical Bioenergia, a joint venture company that will farm sugar cane and refine the sugar into ethanol, a biofuel in high demand in the US as an additive to petrol.

BP is paying its partners $60 million for a 50 per cent stake in Tropical Bioenergia, which is building an ethanol refinery in Goias state, northwest of São Paolo, due to come on stream in the summer. A second ethanol plant is also planned, which will raise capacity to almost 1 billion litres of ethanol by the middle of 2010. The two refineries will cost the joint venture about $1 billion.

Phil New, head of BP Biofuels, said the joint venture would produce its own sugar cane. “We will produce 80 per cent of our feedstock from land leased by the joint venture.”

He said the area farmed would be pasture land and would not affect the Amazon rainforest. “It is 600 miles from the edge of the rainforest,” he said. BP distributes biofuels, blending 763 million gallons of ethanol in its American road fuel business but has not previously invested in manufacturing or farming new energy products.

Mr New said the investment was analogous to the oil industry and BP’s strategy of securing control of the supply at the wellhead. “If you just act as a purchaser and refiner of commodity feedstocks, you will get utility returns. It makes better sense to be upstream with the lowest cost and sustainable production.”

Brazil is a leading producer of ethanol, harvesting 528 million tonnes of sugar cane and refining 21 billion litres of ethanol a year. Much of the output is destined for the domestic road fuel market but Brazil would like to export to the US, an ambition thwarted by US tariffs imposed on imported ethanol to protect corn farmers.

BP has invested in food products before, notably in the 1970s and 1980s when it moved into animal feed and poultry production. In 1986, it bought Purina Mills, a US animal feed supplier but the businesses were sold as BP trimmed its operations to hydrocarbon businesses.

Mr New said that the biofuel expansion was the first time the agriculture and energy industries were truly coming together but he insisted that BP was choosing experts as partners. “No one can play the whole space. That is why we are partnering with people who do have expertise.”

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