Required Report - public distribution

Date: 6/19/2009

GAIN Report Number:AR9018

Argentina

BIOFUELS ANNUAL

Approved By:

Dwight Wilder

Prepared By:

Ken Joseph

Report Highlights:

Argentina is one of the world's top producers and exporters of biodiesel. In 2009, it is projected to 

produce 880 million liters, representing roughly 40 percent of the production capacity the country 

will have by the end of the year. Practically all production will be exported, with the EU being the 

main market by far. Domestic consumption is negligible, but it will grow significantly as from 2010 

when the official B5 mandate is in place. Production of fuel ethanol will begin in late 2009, with 

the focus mainly on the domestic market. The local sugar industry is investing heavily in order to 

meet the E5 mandate in 2010, which some believe will not be fully complied.

Post:

Buenos Aires

Commodities: 

select
Author Defined:

Situation and Outlook

Argentina’s biofuel law 26,093 of 2006, provides the framework for investment, production and

marketing of biofuels. It mandates that gasoline and diesel be mixed with 5 percent biofuel as

from January 2010. The law clearly separates the domestic market, which will have quotas

and will enjoy tax cuts and advantages, from the export market, which does not benefit from

any of these. So far, the government has only specified parameters for ethanol production,

but not for biodiesel. The bio ethanol industry is focused mainly in the domestic market and is

just beginning to expand and recondition its infrastructure to meet demand. On the contrary,

the biodiesel sector has invested heavily since 2006, with the primary focus on the export

market. By the end of 2009, Argentine biodiesel production capacity is projected at 2.4 billion

liters. However, due to market conditions, biodiesel production would only total 880 million

liters, of which practically all will be exported. There are some talks about advancing the

biodiesel mandate mix date to mid-2009, in order to use part of the unused capacity, but most

contacts believe this will not happen. Ethanol production for fuel use is forecast at 45 million

liters in 2009, which will be effectively sold to end users in 2010 when the mandate is in

place. Some 10 million liters will likely be exported.

Argentina has abundant natural resources, a very efficient agricultural production sector, and

good processing and export infrastructure. Biodiesel is almost exclusively produced from

soybean oil, while ethanol will be produced from sugar cane and molasses. The current export

tax regime guarantees a low cost supply of feedstock for biodiesel production by charging a

substantially lower export tax for biodiesel (16.6 percent) than for soybean oil (currently at 32

percent).

To meet official mandates in 2010, Argentina will need approximately 270 million liters of

ethanol to mix with gasoline and 700 million liters of biodiesel to mix with diesel. Despite

large current and future investments in alcohol distilleries and dehydrators, some contacts

indicate that total supply in 2010 could be somewhat short of the mandated volume. The

biodiesel mandate could be met in 2010 with product made by large plants, but a change in

the biofuel law would be needed to allow companies registered as exporters to sell in the local

market under the promotional regime. Most contacts are confident this will be the case. 

Biofuel Policy

Since 2007, Argentina has in place a regulatory framework to promote the production and use

of biofuels. The main objectives of this framework are to diversify the supply of energy, to

become more environmentally friendly, and to promote the development of rural areas
(primarily nontraditional production areas), especially in benefit of small and medium sized

agricultural producers.

The law mandates the use of biofuels by 2010, with an obligatory mix of 5 percent of ethanol

in gasoline and 5 percent of biodiesel in diesel. The GOA will control investment, production

and marketing of biofuels for the domestic market. Companies which produce biofuels will

have three alternatives: 1) to produce for the domestic market, taking advantage of various

tax incentives; 2) produce for self-consumption, with similar advantages as in 1; and 3)

produce for the export market, and not be eligible to receive tax incentives.

Although most players indicate that the establishment of the regulatory framework in 2007

was very important, they point out that many aspects of these regulations need to be defined.

In the case of ethanol, the government established the parameters late last year. The GOA is

currently working in setting rules for biodiesel for the domestic market (price; criteria to select

projects; if price of fuel increases due to the mix who will pay the difference; etc.) which are

expected to be established in the second half of 2009. Most executives are optimistic and

indicate that if measures are attractive, it will stimulate future investment in the industry.

A summary of Argentina’s biofuel law and regulation follows:

In April 2006, the Argentine Congress passed Law 26,093, which regulates and promotes the

production and sustainable use of biofuels. In February 2007, the Executive Branch, through

Decree 109, published the regulations for implementing the above law. Salient points of the

Argentine biofuel law (and regulations) are:

Chapter I creates incentives for production and use of biofuels in the domestic market

with a duration of 15 years (beginning on the date of the enactment of the law). It

establishes that the Secretariat of Energy will be the controlling authority. The

oversight of tax breaks will be under the control of the Ministry of Economy (every year

this Ministry will set the maximum overall amount of the fiscal incentives directed to

biofuels, and the percentage of this total that will accrue to individual companies

participating in the domestic market). Some of the responsibilities of the controlling

authority, in general, are to establish quality levels, security conditions, registration of

participating companies, approval of projects that benefit from incentives, and the

percentage mix of biodiesel with diesel and ethanol with gasoline for the domestic

market. Every year the controlling authority will establish the volumes of biofuels

needed to comply with the law, determine and modify the percentage mixes, set prices

of biofuels for the domestic market, establish volumes, terms and conditions for those

producing for their own consumption, and approve exports. 
Chapter II provides details concerning the incentives of the biofuels promotional regime

for domestic use. To be eligible for incentives, companies have to operate in Argentina

and be dedicated exclusively to biofuel production, with the majority of the company’s

equity in the hands of the government (i.e. government at either the national,

provincial, or municipal levels) or agricultural producers (and producers’ cooperatives).

Companies have to operate under the above regulations and specifications, and will be

assigned a percentage of the total tax break granted by the GOA (the law gives priority

to small and medium enterprises, farmers, and entities that operate in nontraditional

production areas). Biofuels governed by this promotional regime will be exempt from

three specific taxes on fossil fuels. In addition, biofuel producers for the domestic

market will enjoy tax breaks and other advantages (e.g. exemption from the value

added tax and other taxes). Eventually, Chapter II leaves open the possibility for

producers to receive direct subsidies.

In January 2008, Congress passed Law 26,334, which promotes the production of bioethanol

from sugar cane. The new law now allows sugar mills to participate under the biofuel

promotional regime, maintaining the basic norms and regulations of the biofuel law.

The Energy Market

For the generation of energy, Argentina is very dependent on fossil fuels. Argentina continues

to be a net gas and oil exporter, but energy analysts report that if the country does not

increase investment in this sector, it could soon become a net importer. With six successive

years of strong economic recovery, Argentina has had to import diesel oil and fuel oil, with

significant increases of these purchases in 2007. Imports for 2008 remained stable.

Gas is used primarily by the industrial sector to generate electricity, and to a lesser extent it is

used in households and in cars fueled by natural compressed gas. Of the total local demand

for petroleum, diesel accounts for the largest percentage. Diesel is used in most of the

transport sector, and it replaces gas in some cases. Gasoline usage is significantly smaller and

is used primarily for cars. There are close to 1.5 million vehicles, which use natural

compressed gas. Argentina exports gasoline and imports diesel and fuel oil.

Argentine Energy Matrix and Petroleum Use
Ethanol

Almost twenty years after the “Programa Alconafta” (Gasohol Program) was discontinued,

Argentina will re-initiate production of bio ethanol for fuel use. Although the mandate mix is

expected to commence in January 2010, a few sugar mills will produce ethanol in late 2009 in

preparation to meet the new demand. Contacts report that probably four distilleries will

produce 45 million liters of bio ethanol, of which 10 million will likely be exported. The new

biofuels law and its regulations established late last year promise good returns to producers,

as the set price and its adjusting formula (by production cost or gasoline price) are very

attractive. Most contacts believe that this will help the local sugar industry as a whole, as it

usually operates in a volatile market and it is affected by large sugar surpluses, which have to

be exported. Tucuman province will account for approximately 60 percent of the official

ethanol quota, Jujuy with 23 percent, Salta with 12 percent, and Santa Fe with the rest. 

Until now, local ethanol production was used almost exclusively for non-fuel uses. A large

ethanol distillery was inaugurated in 2007 in the province of Tucuman, with the twin objectives

of producing fuel ethanol for export and for the domestic market. Private sources indicate that

more than US$200 million will be invested in the next few years in this industry. Most sugar

mills are in the process of modernizing their distilleries and expanding their capacity. Major

investments will also be made in the construction of large dehydrators in Jujuy, and probably,

Tucuman. The latter one is projected to be built by an oil company together with most sugar

mills in Tucuman. Its capacity is expected to be about 130 million liters and would be ready

during the last part of 2010. A few mills are also investing to make cogeneration of electricity

from bagasse more efficient and to be able to sell the excess production to near-by towns.

There are very few projects to produce bio ethanol from corn or sorghum, and currently none

are in the construction stage.

Argentine ethanol production in 2008 was slightly over 200 million liters. The main producers

were 15-16 sugar mills (using sugar molasses) in the northwestern part of the country. A

large local food manufacturer produces small volumes of ethanol primarily from sorghum.

Local beverage manufacturers and the agricultural chemical and pharmaceutical industries
consumed about 60 percent of the output. The balance was exported, but not for fuel use.

Some sugar mills indicate that they will fulfill the mandated volume for the domestic biofuel

program in 2010. However, various contacts indicate that total output could be short of the

270 million liters needed to mix at a 5 percent ratio with gasoline. There are talks that the

mandate could be smaller in the first semester of 2010 and larger in the remaining months. In

addition, some indicate that just a few types of gasoline could be mixed in early 2010. 

However, by 2011 all the new investments should be on-line to produce 350-400 million liters

of bio ethanol.

The local sugar industry is in good financial shape, having increased efficiency and production

significantly in the past 4-5 years. In crop year 2009-10, about 700-800 thousand tons of

sugar is projected to be exported in order to maintain a balanced domestic market. The

industry believes that biofuels present a good opportunity to divert part of the cane production

into ethanol, providing mills more flexibility in their production mix, and increasing overall

operational efficiency. Sugar cane area has been growing in the past few years. More sugar

cane supply will likely put pressure on the market, encouraging sugar mills to expand their

ethanol production. The 270 million liters of ethanol required for the mandate represent

approximately the equivalent of 400,000 tons of sugar.

Argentina is one of the world’s largest corn exporters after the U.S. Several farmer groups

have indicated interest in adding value to their corn production through ethanol, but the

interest seems to have declined.

Biodiesel

Argentine biodiesel production for 2009 is projected at a record 880 million liters. Production

capacity in 2008 was approximately 1.6-1.7 billion liters and it is expected to expand to almost

2.4 billion liters by the end of 2009. There will be 8 plants with a production capacity of 120-

480 million liters each, and some 30 small-to-medium-sized plants with a capacity ranging

between 4-60 million liters each. There are several more projects, especially large plants

duplicating capacity, but under current circumstances of low returns, almost all were put on

hold. 

Practically all these plants focus exclusively on the export market. The local market, which

will impose a 5 percent mandatory mix of biodiesel in diesel by 2010, is highly regulated and

still lacks key definitions (quotas per company, administered prices of product, etc.).

Therefore, little investment has been directed towards the local market. In addition, the fact

that diesel prices are artificially low makes the business less attractive. Biodiesel exports have

fewer regulations, and a large advantage due to the differential export tax vis-à-vis soybean

oil. The feedstock used in nearly all domestically produced biodiesel.

Last May, the government announced a new program, GENRE (Renewable Generation), under
which the state-owned electricity company will buy, through bids, energy produced from wind,

solar, biomass, waste, and biofuels. Details have yet to be announced. In the case of

biofuels, the amount would total the equivalent of approximately 200-250 million liters

(primarily biodiesel). Contacts believe this program will be operational by 2010.

The local biodiesel export industry is discussing with the government the possibility of

tightening the mandated mix date from early January 2010 to mid 2009, to take advantage of

the large unused capacity of the big export plants. To do this, the government would have to

make an exemption and allow export plants to be able to sell domestically. Negotiations

include oil companies, which are not very enthusiastic about speeding up, indicating that they

need to invest in logistics and distribution infrastructure. Most contacts are doubtful that the

mandatory date will be tightened.

Biodiesel production in Argentina began just a few years ago as a cottage industry. The new

large plants are owned by local and international companies. In most cases, they are

vegetable oil crushers with large processing capacity and excellent logistics. Rosario, the area

with the largest concentration of vegetable oil crushing plants in the world, hosts practically all

the big biodiesel plants. Santa Fe province (Rosario being the province’s capital) accounts for

over 75 percent of the country’s total capacity. It is located in the heart of Argentina’s

soybean production area and it lies on the Parana River, which has direct access to the Atlantic

Ocean.

Argentina is the world’s third largest soybean producer and the world’s top soybean meal and

oil exporter. Its current crushing capacity is roughly 155,000 tons a day with an annual oil

production of about 7 million tons. Most local crushers see the production of biodiesel as an

additional product that fits naturally in their global business. It provides them with new

opportunities for diversifying products and markets. However, this year’s short crop due to a

widespread drought (soybean production will be 33 percent smaller than expected) will

negatively affect supply and processing.

One component that made biodiesel exports very attractive in 2007, and the first part of 2008,

was the fact that biodiesel has a smaller export tax than soybean oil. Soybean oil exports are

taxed 32 percent. Biodiesel exports are only taxed effectively 16.6 percent (nominal tax is 20

percent), and benefit from a 2.5 percent rebate. Export taxes were modified in March 2008,

increasing from 5 percent, with a 2.5 percent rebate. The net difference between the soybean

oil export tax and the biodiesel export tax is 17.8 percent in favor of the latter.

In 2007, one of the large oil companies launched B1 biodiesel in a limited number of gas

stations in the local market. The price at the pump was 33 percent more expensive than

regular diesel. This company discontinued sales of the product (the biodiesel portion was

imported) several months ago as consumers did not find many advantages over regular diesel.
Future Feedstock

Argentina will produce, in the short and medium term, ethanol primarily from molasses and

sugar cane, and biodiesel mainly from soybean oil. Several small plants are currently using

recycled vegetable oil, sunflower, and rapeseed oil for biodiesel. There is also in Buenos Aires

province a small distillery for alcohol for industrial use using sorghum and a distillery in

Tucuman could eventually utilize corn and sorghum in the future. A few sugar mills are

improving efficiency to use their bagasse to produce energy.

There are several programs focused on developing alternative feedstocks to the ones used

currently. Some public universities, official entities and the private sector are working on

different projects. Some of these programs are based on the use of jatropha, sweet sorghum,

algae, sugar cane and castor oil plant. Research is primarily focused on feedstocks which can

be produced in areas not suited for agriculture and which do not compete with food

production. A few programs are working on cellulosic biofuels, based on sugar cane, sweet

sorghum, and switch grass. 

The biofuel law provides that the Secretariat of Energy will encourage cooperative agreements

between the public and private sectors to promote and encourage the development of

production technology, and the use of biofuels. In late 2006, the GOA created the Energy

Feedstock Forum to coordinate research and development projects together with the private

sector.

Local biodiesel uses almost exclusively soybean oil, which is one of the country’s most

important export products (only 5 percent of its production is consumed domestically as food).

Since Argentina is one of the world’s major agricultural exporters, the general view is that the

development of biofuels is good for the local economy.

Trade

Fuel ethanol exports for 2009 are projected at 10 million liters. One of the large sugar

companies in Tucuman has a contract with a European company. A similar volume is also

expected to be exported in 2010. Thereafter, when the domestic mandate is in place, ethanol

exports are projected to be practically negligible. Distilleries will prefer to sell domestically at

higher prices than export at world prices.

Argentina has rapidly become one of the world’s top biodiesel exporters. Private sources

project exports for 2009 at 900 million liters, higher than in 2008. Exports could be more than

double, based on installed capacity, but current market conditions are not attractive and

exporters are presently shipping with very thin margins, or in some cases at a loss. So far,

there are 12 plants authorized to export. Exports through April 2009 totaled 260 million liters

valued at US$170 million (average price of US$760 per ton). The European Union purchased

85 percent of the total exports, followed by the United States at 8 percent. The balance was
sold in neighboring countries.

Contacts in the sector believe that the European Union is the natural market for Argentina’s

biodiesel since it has to meet mandatory biofuel mixes which will probably not be totally

fulfilled by local production. During 2008, Argentine official statistics indicated that the U.S.

purchased over 80 percent of its biodiesel. However, due to the payment blenders enjoyed in

the US (Splash and Dash), most Argentine exports went first to that market, were mixed in a

low proportion with petroleum diesel, and then were re-exported to the EU. In October 2008,

the U.S. Congress finally closed this loophole and exports of third countries’ biodiesel no longer

qualify for the blenders support. At the same time, in early 2009 the EU imposed

countervailing duties to several US biodiesel traders.

Local exporters welcome the elimination of these subsidies, which have been distorting the

market. As indicated above, Argentina remains in an excellent position to supply biodiesel to

the EU. However, the EU’s Renewable Energy Directive, threatens to complicate trade from

different countries. The Directive requires that biofuels need to reduce greenhouse gas

emissions by at least 35 percent, and it established that biodiesel from soybean oil only

reduces by 31 percent. Therefore, it is in question what will happen to Argentina’s exports in

the future, but exporters are optimistic. The local industry claims that, because of no-till

soybean production and the new and very efficient high technology processing plants, its

product is well above the minimum requirement. Europeans propose that if Argentina wants to

export its product, it will have to be certified and traced by a European company to establish

the level of greenhouse gas emission savings the product has.

Argentina is also concerned about EPA’s proposed revisions to the National Renewable Fuel

Standard program -- particularly, regarding greenhouse gas emissions and indirect land use,

and the potential effects of those rules on future biodiesel exports. 

Export companies are beginning to diversify their markets. In the first four months of 2009,

Argentina has exported biodiesel to Peru and Brazil. Small quantities were also shipped to

Chile, Colombia, and Paraguay. In April 2009, for the first time in 18 months, there were no

exports to the U.S. Some local traders believe that Argentina will export in the future some

bio heating oil to the U.S. 

Ethanol imports are assessed a 20 percent duty while biodiesel imports are assessed 14

percent. In both cases, there are neither quotas nor limitations for imports.

Biodiesel exports are taxed at 16.6 percent and benefit from an export rebate of 2.5 percent.

Ethanol exports are taxed at 5 percent, but receive a 4.05 percent rebate. There are no

restrictions on exports.

Statistical Information
Quantity of Feedstock Use in biofuel Production in MT

2005 2006 2007 2008 2009

Biodiesel

Vegetable Oil

Soybean oil 17,500 17,400 180,000 740,000 775,000

Rapeseed Oil

Palm oil

Coconut oil

Animal Fats

Recycled Vegetable 

oil 150 250 250 300 350

Other

Ethanol

Corn

Wheat

Sugarcane 260,000

Sugar beat

Rye

Molasses 96,000

Wood

Cassava/tubers

Biofuel production/Consumption/trade (million liters)

2005 2006 2007 2008 2009

Biodiesel

Beginning stocks* 40

Production 20 20 205 840 880

Imports 0 0 0 0 0

Total supply 20 20 205 840 920

Exports 0 0 185 780 900

Consumption 20 20 20 20 20
Ending stocks* 40 0

Biofuel production/Consumption/trade (million liters)

2005 2006 2007 2008 2009

Ethanol

Beginning stocks*

Production 0 45

Imports 0 0

Total supply 0 45

Exports 0 10

Consumption 0 0

Ending stocks* 35