PORTO ALEGRE, Brazil (Reuters) - Years after India broke into the hi-tech business with information technology and China by way of manufacturing, Brazil may find its entrance in an unusual place -- a cow’s ear.

An employee works in a clean room at a production plant of Brazil's Ceitec company in Porto Alegre May 19, 2010. REUTERS/Bruno Domingos

The South American giant is preparing to use its first locally-designed microchip in cattle earrings, a device that could eventually help authorities crack down on destruction of the Amazon rain forest caused by roaming herds.

Produced by state-funded firm Ceitec, the “Chip do Boi” or “Cow Chip” is part of home-grown innovation efforts that Brazil hopes will help it overcome challenges in its sprawling economy and over time make it an exporter of niche technology.

While commodity exports and increasingly affluent consumers have made Brazil’s economy an emerging-markets darling alongside China and India in recent years, it trails those nations in the high-value areas of technology and science.

“Brazil has competitive advantages in areas like agriculture and clean energy, and it makes sense for the country to maintain those advantages through technological innovation,” said Ceitec chief executive Cylon Silva, a theoretical physicist with a PhD from the University of California, Berkeley.

“There’s no way that a country of Brazil’s size and influence can go without an electronics industry.”

The company opened in 2008 with a $500 million reais ($290 million) investment from the government, which Silva says was crucial because private investors would have seen the first-time venture as too risky.

Engineers at Ceitec don space-age looking sanitary outfits known as “bunny suits” complete with face masks to keep dust and particles out of specialized labs filled with high-tech machinery that slice silicon wafers with molecular precision.

The cattle trackers can help ranchers demonstrate their cows have not been exposed to illnesses and may be crucial for creating a database of cattle showing which animals grazed on recently deforested land.

Brazil’s state development bank said last year it will begin requiring the ranchers it finances to show where their cattle have grazed, possibly using such devices.

BEYOND COWS

But cows are just the start. Ceitec is also eyeing innovations of new chips with “track and trace” functions such as finding stolen cars and or sorting biomedical products.

With major growth prospects for industries such as biofuels, oil and mining, Brazil hopes having a foothold in the semiconductor business can help ensure access to new technologies while creating new jobs at home.

Electronics could be crucial for a range of potential innovations such as devices to help state oil company Petrobras produce billions of barrels of crude in ultra-deep waters.

Brazil’s high-tech sector still faces challenges including weak and unequal education systems, notorious government bureaucracy, and chronic delays in project execution.

Ceitec has already fallen victim to the last of those -- its first full-scale production of cattle trackers is a year behind schedule because it had to resume construction on the factory following problems with key machinery.

The company’s first chief executive Eduard Weichselbaumer, a German electrical engineer and Silicone Valley microchip pioneer, left the company earlier this year amid local media reports that he had complained that heavy bureaucracy was stifling the company.

Ceitec said Weichselbaumer left to be closer to his son in California.

In 2009, Brazil filed for 480 international patents compared to some 8,000 requests from China and around 800 from India, according to the World Intellectual Property Organization, a specialized agency of United Nations.

“If recent trends continue, Brazil would continue to be mainly a supplier of primary commodities in world markets and an exporter of manufactured goods to other Latin American countries,” said a World Bank researchers in a 2008 report on Brazilian innovation.

The country is working to make sure that doesn’t happen.

The number of scientific research papers that include a Brazilian author roughly doubled between 1998 and 2007, according to a Thomson Reuters study on science in Brazil.

The science and technology ministry this year plans to invest a modest 100 million reais ($58 million) in a group of technology parks meant to spur innovation in electronics, software, oil and renewable energy.

Global companies, itching for a foothold in Brazil to take advantage of its growing consumer market, are likely to do the heavy lifting in research and development.

General Electric Co, oil services company Schlumberger, and technology giant IBM have in

the last year announced investments in Brazil-based facilities to develop technology for areas ranging from biofuels and oil to logistics for Rio de Janeiro’s 2016 Olympic Games.

Possible new Ceitec products include chips embedded in cars that could alert authorities that a driver has outstanding parking tickets or that the vehicle has been reported stolen.

Ceitec has signed an agreement with state run biotech firm Hemobras to develop radio frequency IDs for bags of blood plasma products that can help reduce sorting errors.

Silva says it will take decades for the country to be competitive in global chip markets but that the success of firms with high-technology products such as Brazilian aircraft maker Embraer shows Brazil can produce much more than just commodities.

“I think there is a real opportunity for a country with the resources that Brazil has to become a player in this market,” said Silva. “If we can manufacture planes, why not think that we can manufacture integrated circuits?”