Brazil's Ecodiesel restructures, Argentine Renewables protests EU protectionism

By Nicholas Zeman | March 23, 2010
Brazil's largest biodiesel producer, Ecodiesel SA, recently outlined components of its corporate strategy, including the sale of obsolete equipment and the consolidation of its corporate offices in the capital city of Sao Paulo.

Ecodiesel is a vertically integrated enterprise maintaining six operational plants with a combined annual production capacity of 640,000 metric tons (about 192 MMgy) in Floriano, Crateús, Iraquara, Porto Nacional, Itaquí and Rosário do Sul. Preparation of the transesterification plant projects, as well as the supervision of construction, assembly and operations, is handled by Tecnologias Bioenergéticas Ltda, a pioneer in registering patents for the biodiesel production process.

Also operating farms and crushing compounds, Ecodiesel recently decided to sell its farms in the states of Piaui, Ceara and Minas Gerais, with a total area of 23,232 hectares (57,408 acres), along with its crushing equipment at Crateus, which is obsolete and idled. "These operations do not fit with the company's new requirements," Ecodiesel said.

Both Ecodiesel and the Argentine Chamber for Renewable Energies spoke out against certain domestic fuel and agriculture policies in their respective countries. In Argentina, the government charges biodiesel exports at 20 percent. In addition, companies also pay a 35 percent income tax on its profits, and are further burdened by the fact that the government has begun to delay reimbursements due from certain incentives.

Fuel industries in Brazil are heavily controlled by the government, and biodiesel has been bought and sold at public auction where the volume needed to fulfill the nation's blend requirement is bid on by oil companies. "Biodiesel producers should start competing directly among themselves for sales and for clients, particularly fuel distributors and large consumers," stated Ecodiesel, which must navigate some unique national fuel programs when it comes to its operations, along with competing against state-owned enterprises.

Biodiesel has a become a serious and controversial business in South America, and one that emphasizes the quarrels between developing countries and industrial powers that reportedly want to maintain the status quo.

In December 2008, the European Union's Climate Energy Legislation Package established that biofuels used in Europe must have a reduction of greenhouse gas (GHG) emissions of no less than 35 percent when compared to fossil fuels. It subsequently announced that palm oil-based biodiesel had been found to reduce GHG emissions by 56 percent; sunflower seed oil by 51 percent and rapeseed oil by 38 percent, all in compliance with the new directive. "Soy oil biodiesel was found to reduce GHG emissions by only 31 percent, below the minimum threshold, thus blocking out Argentine biodiesel unless specific certification is obtained," ACRE said.

Argentina has developed a strong and extremely efficient biodiesel industry. It has natural competitive advantages due to the richness of its soils, no-till farming methods and the clustering of the soy processing industry along the Paraná River in Santa Fe province, ACRE said. Ecodiesel similarly asserted that Brazil, because of its geoclimatic characteristics and potential to diversify its feedstock portfolio, is positioned to take the lead in world biodiesel sales. This is a situation that EU producers do not want to see come to fruition.

"But perhaps most damaging to the industry and establishing a dangerous precedent for all emerging economies, European industry now claims that our economic development model is illegal, suggesting we should remain a basic commodity producer in a classic Third World model and periodically threatening international legal action to ensure that this occurs," ACRE said. "Even though the European industry has been operating at approximately half of installed capacity for the past two years, it continues to invest, increasing capacity by 56 percent in 2008 and 31 percent in 2009."

The European Biodiesel Board's position is that Argentine exports to EU increased dramatically from less than 5,000 tons in July 2008 to almost 100,000 tons per month in July 2009, featuring a twentyfold increase. Argentine exports in 2009 were expected to exceed 1 million metric tons compared to only 70, 000 tons in 2008.

Such a dramatic increase in exports cannot be achieved through normal industry practices only. This surge in Argentine biodiesel exports to EU is, in fact, driven by a regime of differentiated export taxes (DETs). "This system creates a clear distortion, as it creates an artificial incentive for the production and export of the finished product biodiesel rather than its raw material." EBB said. "In [our] view, it would be appropriate for Argentinean authorities to withdraw at the earliest opportunity the DETs regime currently applied on soybean products and biodiesel."

ACRE said that would be ridiculous. "Argentine soy-based biodiesel was going to become a problem to their market given its efficiency-the soy needed to produce the nearly 1 million tons of biodiesel exported to Europe in 2008 grows within a 120-mile radius from the city of Rosario in Santa Fe province, and the area surrounding Rosario concentrates the bulk of the soy crushing industry."

Argentina's industry cluster is large, modern and highly efficient. It can crush 150,000 tons of soy a day with which it produces biodiesel feedstock and livestock feed. "Clustering and efficiency like this doesn't exist in any other biodiesel market in the world, and this is unlikely to change as long as first generation biodiesel (i.e., made from edible oilseeds such as soy, rapeseed, sunflower, etc.) remains popular," ACRE said. "No amount of German industrial efficiency can beat it."
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