When it comes to Argentina’s ag sector, cattle ranching is the most enduring image for most people. Beef has long been one of its biggest exports, so it will surprise many that it now plays second fiddle to biodiesel as the industry races ahead. But can the momentum last?
Over the last couple of years the Argentine biodiesel industry has boomed on the back of its huge soybean sector. According to CADER, the Argentine Renewable Energy Chamber, the country will leap from the fifth-largest global producer of biodiesel in 2009 to the third largest this year.
And its export performance is no less impressive. “In 2011 Argentina will export a record-breaking 52 million gallons, which will make it the top global biodiesel exporter. And in 2012 this should surge even higher and reach 69.8 million gallons,” says Pablo Adreani, director, AgriPAC Consultores.
In March 2010 Argentina introduced its own mandatory B5 mix, creating a large domestic market for biodiesel, as most vehicles there run on diesel. Up to then virtually all biodiesel was exported. A few months later the mandate was hiked up to B7.
So far the domestic market hasn’t affected exports. Over 51% of total production was exported in 2010. “Argentina’s used capacity (asking about this) was just above 60% during 2009, so the industry was able to ramp up production to service the domestic market without hurting exports,” says Jorge Hilbert, coordinator of the Argentine National Bioenergy program at the Federal Agricultural Technology Agency, INTA.
“But there is an increasing interest in raising the mandate to B10, if agreement can be achieved with car manufacturers. The broadening of the domestic market would be supplied initially by the large oil crushers and large independents, who have spare capacity,” says Hilbert. High oil prices are making such a move even more pressing.
“Feasibility studies are currently looking at the practicality of using a B20 mix for public transport and agriculture, “says Víctor Castro, executive director of the Argentine Biofuels Chamber, CARBIO. If this becomes a reality, Argentine soybean farmers will be able to cut fuel costs and further sharpen their competitive edge over their U.S. counterparts.
Investment continues to flow into the sector. According to CADER, three new plants are currently being planned with a combined capacity of 16 million gallons. A number of existing plants are also increasing their installed capacity. Should the domestic mandate increase to B10, Argentina should be comfortably able to meet the requirements while maintaining high export levels, dashing U.S. hopes that Argentine exports would drop and prices would increase internationally.
Over 38% of Argentina’s biodiesel exports go to Spain. With large idle capacity in its own biodiesel sector, Spain is pressing the European Union to restrict Argentine imports. The Spanish claim that the lower export tax paid by biodiesel producers in Argentina gives the country an unfair advantage. “We are skeptical that will happen, as the European market needs competitively priced, sustainable biodiesel. At the same time we are seeking to diversify exports into other global markets,” says Castro.
U.S. biodiesel exports have recently recovered after falling significantly during the last year. But if the EU does go ahead to limit Argentine imports, then this could come under threat as Argentina will need to seek new markets. This could lead to Argentina displacing U.S. exporters in those markets due to lower costs.
This is part of a series on agriculture in Argentina by John Kennedy, a writer and economic consultant. You can contact him at [email protected]