In March 24, Brazil's President Luiz Inácio Lula da Silva inaugurated the first large-scale biodiesel plant in Brazil. The plant, located in Cássia, in the state of Minas Gerais, has a capacity to produce 12 million liters (3.17 million gallons) of biodiesel per year and will be the first of many, if the President's biodiesel program is a success. At the event, President Lula said he believes Brazil has the potential to become one of the world's largest biodiesel producers. "We have everything necessary to produce biodiesel, and we hope that someday we will be able to supply the world," said Lula, who had promised earlier that Brazil's state-controlled oil giant Petrobras will play a key role in the sale and distribution of the renewable fuel.

"Our biodiesel program needs to have a national dimension to become a permanent source of fuel for Brazil. It is our responsibility to guarantee that all Brazilians who want to use biodiesel to fuel their cars will have the right to do so," he added.

With world oil prices hovering around US$60 per barrel and growing concerns over global warming, countries are allocating more resources to develop technologies for renewable, cleaner burning fuels. Brazil, long the world leader in sugarcane-based ethanol production, launched its Pro-Alcohol Program under a military dictatorship in the late 1970s to reduce its dependence on oil imports. The program strengthened the cane industry by creating an alternative demand for its product aside from sugar.

Now the country's left-leaning administration is moving ahead with a program that will make a blend of biodiesel—made from vegetable oils and ethanol—mandatory in the national fuel supply by 2008, with the expressed purpose of creating sources of income for many small family farmers in the poor, drought-plagued northeastern region of the otherwise fertile agricultural powerhouse. Officials associated with the massive soy crushing industry in the center-south, however, say the project is doomed without the scale of production that only it can provide to meet future output goals, but so far the government has not come up with the necessary tax breaks to make biodiesel production from soybean oil an attractive investment.

An ambitious national plan
The new law (MP 227), passed by Brazil's Congress in April, will make B2 use—now voluntary—mandatory nationwide in 2008 and raise the mandatory mix to B5 in 2012, which will help reduce the country's diesel imports, currently at almost 4 billion liters (1.1 billion gallons) annually. Yearly diesel demand is about 40 billion liters (10.57 billion gallons), or 60 percent of the country's overall fuel consumption.

The B2 mandate, due to come into force in two and a half years, will require 840 million liters (222 million gallons) of biodiesel annually and create jobs for more than 150,000 small farmers, according to Brazil's Science and Technology Ministry. According to government estimates, B2 will reduce the nation's total fuel imports by 33 percent and will save the country $450 million reals (US$195 million). By 2013, the B5 mandate will require 2.4 billion liters (634 million gallons) of biodiesel per year, according to estimates from Brazil's main vegetable oils industry association. In an effort to meet this growing demand, several large-scale plants are finally beginning to appear, like the one inaugurated by President Lula in March.

SoyMinas was the first company to begin producing in Brazil with a capacity of 12 million liters (3.2 million gallons) per year. In April, Brazil's Agropalma opened a $2 million reals (US$ 851,000) factory in Belem, northern Brazil, with capacity to produce 24 million liters (6.4 million gallons) per year of biodiesel from palm oil.

New plants being developed
According to the recently formed Brazilian Biodiesel Industries Association, ABiodiesel, eight new projects are currently in development: Ecologica Mato Grosso Industria and Comercio Ltda. (Ecomat); Ceralit; Adequim; Biolix, AgroDiesel; Fusermann Biodiesel; Petroquimica Capital (Petrocap); and Brasil Ecodiesel. Petrocap, the largest of this group is scheduled to inaugurate a plant in the coming weeks with a capacity to produce 300 million liters (79.3 million gallons) per year. These eight projects, combined with Agropalma and SoyMinas plants now in production, are expected to put out more than 450 million liters (118.9 million gallons) of biodiesel annually by 2008.

ABiodiesel's forecast does not include projects under study by Brazil's state energy company Petrobras, which expects to start two biodiesel pilot projects at Guamare in Rio Grande do Norte state using castor bean oil. The company's renewable fuels manager José Carlos Miragaya said that Petrobras is also looking for sites to construct a 45 million-liter- (11.9 million-gallon) per-year biodiesel factory—using various vegetable oil feedstocks—and that it should begin development this year.

Considering the demand for 840 million liters (212 million gallons) of biodiesel that will be established with a B2 mandate alone, ABiodiesel is warning that, by its current calculations, there would be a serious shortfall in supply. Many specialists in the area say that legislation, which creates favorable tax breaks and fiscal incentives for smaller, family castor bean and some palm oil producers, predominantly in the northeast of the country, will have to be widened to create incentives for other larger vegetable oil operations, especially those using soybeans.

"There is potential with this law to do social good by helping small farmers, but if the project is to succeed, it will likely need the scale that only the soy industry can bring to the equation," said Carlo Lovatelli, head of Abiove and the Brazilian Agricultural Association.
Critics of the program say that small producers simply cannot produce enough castor and palm oil, and that castor bean producers will likely sell to pharmaceutical and cosmetic industries that offer higher prices. Technical problems with blending castor oil in biodiesel and in processing toxic castor cake residue also inflate costs.

Consultants like Norberto Freund at traders Vision Grains said the price of castor and palm oil is nearly twice that of soy oil, which when used as a base for biodiesel is still about 20 percent more expensive than petroleum-based diesel when it reaches the final consumer. While soy oil accounts for 97 percent of Brazil's total vegetable oil production and runs about US$500 per metric ton, castor oil runs around US$1,000 per metric ton. Dende palm oil is in the same range as soy oil, and specialists at the agriculture ministry say that palm oil, which accounts for more than half of the world's vegetable oil exports and has a very high oil yield, may offer the most long term potential as a biodiesel raw material. But its production levels in Brazil are much too small for the demand that will be created, even with the B2 mandate. Brazil produced nearly 150,000 metric tons of castor beans last season, the biggest crop in 15 years but puny compared to a record 50 million metric tons of soybeans harvested.

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