Biodiesel production in Argentina and its implications for India

Last week one of the world’s biggest biodiesel plants with an annual capacity of 230,000 tons was inaugurated in the city of Rosario. The media highlighted the fact that the day of the inauguration of this plant coincided with the historic high price of crude oil at US $ 88 per barrel. The Rosario plant uses soya as the raw material and it belongs to an Argentine company Renova. A Swiss company Glencore has stake in this plant, which uses Belgian technology.

2. There are at present seven plants producing 400,000 tons of biodiesel. Other biodiesel plants coming up in the near future are: i), A joint venture plant of Bunge and AGT with a capacity of 250,000 tons, ii) Plant of Dreyfus - 300,000 tons, and iii) Molinos plant - 100,000 tons. Besides these, there are a number of other projects under various stages of planning. If all these materialise, the production capacity of biodiesel will reach around 1.7 million tons. According to a report, Argentina is the third largest producer of biofuel in the world after Brazil and USA.

3. The Argentine biodiesel industry is preparing for the growth in domestic demand to a small extent but is more interested in exports . Local demand will go up consequent to the new Argentine law which stipulates that biodiesel will account for 5% of all the diesel in the market by 2010 and also biofuel to account for 5% of all fuels consumed. This will mean domestic consumption of 600,000 tons of biodiesel. The industry’s main focus is exports in the light of the general global trend of increasing use of biofuels in view of the high crude oil prices as well as for sustainable development. Moreover, since the Argentine energy prices have been artificially suppressed by the government at low levels, the bio diesel producers would prefer exports to the international market which offer lucrative prices. The global biofuel market of US $ 15 billion in 2006 is expected to triple by 2015.

5. Argentina has a globally competitive advantage for large production and exports of biodiesel because of the following factors :

- Argentina is the third largest soybean producer and exporter in the world and the largest soyoil and soymeal exporter.

Top soybean producers of the world :

USA - 86 million tons
Brazil - 59 million tons
Argentina - 47 million tons
China - 17 million tons
India - 8 million tons
Paraguay - 6 million tons

- Argentina uses 16.8 million hectares of land for growing soya which occupies the largest cultivated area among other crops. If the prices are favourable, the Argentines have the flexibility to increase the area, given the availability of large arable land area.
- Argentina has favourable soil and climate for growing soya besides other crops.
- The Argentine farming is modern, large-scale and technologically advanced supported by research and development. A number of multinational corporations are in the Argentine market introducing the latest technologies for growing and processing soya.
- Cost of production is low and yield per hectare is high (2.3 tons per hectare)
- The infrastructure for storage, transportation and shipping is modern and is being further expanded.

Implications for India

6. The Argentine production of biodiesel and edible oil from soya has implications for India. Our annual requirement of edible oil is 12 million tons and it is expected to increase to 15 million tons by 2010 and 21 million tons by 2015. Out of the current requirement of 12 million tons, 5 million tons is imported. This includes 2.8 to 3 million tons of palm oil from Indonesia and Malaysia and 1.5 to 2 million tons of soybean oil from Argentina (80%) and Brazil (20%). In 2006 soyoil imports accounted for US $ 700 million out of our total imports of US $ 950 million from Argentina.

7. Besides soy, Argentina grows a number of other oilseed crops which can be used for producing biofuels. Diversion of edible oil crops to biodiesel will cause shortage of edible oils increasing their international prices. At the same time, Argentina has also the potential to grow Jatropha and other non-edible oilseeds to make biofules. In any case, there is no domestic debate about the food versus fuel competition, since their focus is mainly exports. Local consumption by the 40 million Argentines is a small proportion of the production of both fuels and food crops.

8. A delegation of Solvent Extractors’ Association of India (SEA) visited Argentina, Paraguay and Brazil in May-June 2007. This was sponsored by our Commerce Ministry. The SEA delegates have been impressed by the farming techniques and crushing technology. They have praised the crushing technology used in Argentina as the best in the world including in USA, Brazil and China. Some of the members of the SEA have formed a Consortium to buy a soy farm of 12,000 hectares in Paraguay at a cost of US $ 40 million. Due diligence for this purchase is currently going on. Argentina offers even greater opportunities for investment in soy farming and processing. There is no restriction on foreign investment in land or plants.