The export price of Argentinean biodiesel fell 3.5% between August and September, from $1,381 to $1,332 dollars a ton. Nonetheless, biodiesel has not been as severely affected by the financial crisis as grain exports, which have seen their value almost halved over the last three months, with soy prices plummeting to August 2007 levels.

So far this year, Argentina has exported 855,000 tons of biodiesel, 90% of which was sold to the US market and the remainder to Europe.

The major producers on this market are the Santa Fe plants of Renova in San Lorenzo, owned by the Argentinean cereal manufacturer Vicentín, and the Swiss multinational Glencore and Ecofuel, in Puerto San Martín, a company formed by Aceitera General Deheza and Bunge.

These two plants account for half of Argentina's total biodiesel production and together have an annual installed capacity of 800 million tons, a figure that is expected to increase to 1.2 million tons by year end as a result of expansion plans. In the last 24 months, some $400 million dollars have been channeled into the sector and a similar amount has been earmarked for investment between now and 2010.

The province of Santa Fe is a major petrochemical center whose biodiesel output is estimated at an annual 2.2 million tons over the next two years. Exports have grown at a steady rate over the last three years, with demand from the European Union posting the largest increase this year.

In March, export duties on biodiesel were increased from 5% (2.5% net) to 20% (17.5% net). This year, exports are estimated at 1.1 tons, with a projected value of $1.5 million dollars. However, producers have seen their profits drop between 30% and 35%, due to increased export duties and higher internal costs, according to industry sources.

Despite these tax hikes, manufacturing biofuels is still a profitable business in Argentina, said Héctor Huergo, chairman of the Argentinean Biofuels and Hydrogen Association. "We work with the cheapest inputs in the world, an advantage no competitor enjoys, and although internal and shipping costs have risen, the gap remains."

In the case of biodiesel, which is subject to a 20% export duty, this gap ranges from 12 to 15 percentage points compared to the duties paid by soy oil (32%) and grains (35%). "This allows producers to remain well-positioned on the international market," said Huergo.

Nonetheless, Jorge Ingaramo, an economist who specializes in the commodities market, believes that until the conflict between the government and the countryside is resolved -farmers are demanding a global plan and have gone on strike fives times this year alone -all related activities will be affected by volatility.

"It is extremely difficult to operate in a context of uncertainty as regards exchange and tax rates," said Ingaramo, who, while acknowledging that the profitability of biodiesel has declined, pointed out that agricultural exports have taken a harder hit, with CIF Rotterdam prices now on a level with soy oil prices.

On Hold

Carlos St James, chairman of the Argentinean Chamber of Renewable Energies, is convinced that export duties need to be lowered to guarantee the competitiveness of the sector on the international market and has asked the government to define the "missing game rules," such as how quotas will be distributed on the domestic market (a new law requires that gasoline have a 5% alcohol content as of 2010).

All three experts agree that oil prices will most likely continue to drop, at least until the elections are over in the United States, although they admit that this will not affect Argentinean producers as much as the 6% ceiling on biofuels derived from food crops introduced by the European Union.

Ingaramo believes large producers are not likely to modify their plans because they are tied to these commitments, while St James notes that only a marginal number of smaller producers have entered the Argentinean market. "Many got left behind on the way."