January 27, 2011

Brazil's Biodiesel Program Struggles to Include Small Farmers

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

While the nationwide biodiesel program in Brazil is considered a success, one of the primary goals of the program remains unmet. When the biodiesel program was launched in 2004, one of the primary goals of the program was the inclusion of small family farms in the production of at least 20% of the vegetable oils used to make the biodiesel. That goal remains largely unmet.

After six years, the National Program for the Production and use of Biodiesel (PNPB) has included 106,000 families in the production of vegetable oils, which is a little more than half of the original goal. Additionally, the families that participate in the program have only seen modest improvements in their economic status as a result of their participation.

The original intent was for these small family farmers to produce specialty oil crops such as castor bean oil or palm oil that would be suited for their small farming operations. Additionally, it was hoped that many of the family farmers would be located in northeastern Brazil, which is the poorest region of Brazil and where many small family farmers scratch out a meager living.

In an odd twist, none of the castor bean oil produced in small lots by the family farmers ever goes into the making of biodiesel. All of the castor bean oil that they produce is resold by the biodiesel companies as a specialty oil used for lubricants. Some of the palm oil produced as well goes into food products instead of biodiesel production.

Currently, 80% of the vegetable oil used in biodiesel is soybean oil and 15% is beef tallow. Were it not for limits placed on the use of soybean oil, it would undoubtedly account for even more than 80% of the total.

Mato Grosso is the leading soybean producing state in Brazil and it is also the leading biodiesel producing state responsible for 20% of Brazil's total production. The state has 23 production facilities producing 1.3 million cubic meters of biodiesel. In 2005 there was only one production facility in the state producing 6,000 cubic meters. When new soybean crushing facilities are constructed in the state, they nearly always include biodiesel production capabilities as well. Most of the biodiesel facilities in Mato Grosso are concentrated in Rondonopolis, Sorriso, Cuiaba, and Lucas do Rio Verde.

In fact, Bunge recently announced that it will invest R$ 60 million in its crushing plant in Nova Mutum to add the capability of producing 120,000 liters of biodiesel per year.