July 18, 2011

Producers Want Higher Percentage of Veg Oil in Brazil's Biodiesel

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

The producers of biodiesel in Brazil are urging the federal government to increase the percentage of vegetable oils used to make biodiesel. Currently Brazil uses a B5 blend (5% vegetable oil), but industry representatives state that the production capacity of the industry is three times greater than the current demand. Therefore, they are asking the government to go immediately adopt a B10 blend or even higher. The B5 blend had been scheduled to take effect in 2010, but it was instituted two years early due to the large volume of available biodiesel.

The Minister of Mines and Energy stated that there is no firm date to increase the blend percentage and that doing so might actually increase the cost of diesel fuel and add to inflationary pressures in Brazil. Likewise, the superintendant of the National Petroleum Agency stated that changing the blend percentage is not an easy thing to do due to subsidies paid to producers and the requirement that a certain percentage of the vegetable oil come from small family farms.

As a way to encourage a wider range of vegetable oils to be used in biodiesel production, the government created a program called the Social Combustion Seal (Selo Combustivel Social) or a type of seal of approval to be given to companies who purchase at least 30% of their raw vegetable oil from small family farmers. In exchange for purchasing from family farmers, the government agreed to purchase 80% of its biodiesel needs from companies who have qualified for the seal of approval. The goal was to stimulate the production of alternative oils, but the impact of this seal of approval has been limited.

Currently, 83% of the vegetable oil used to make biodiesel is soybean oil, 14% is beef tallow, and the remaining 3% is various vegetable oils including: sunflower oil, castor bean oil, peanut oil, palm oil, and canola oil. It's these alternative oils that the government thought would be supplied by small family farmers. The problem is that mechanization is required in order to grow these crops profitably and small family farmers do not have the capability to mechanize their production. These small farmers would be better suited to grow tree crops such as palm oil or nut oil, but it takes a long time to establish these types of crops.

As a result, soybean oil is expected to be the dominate vegetable oil used in biodiesel production in Brazil for the foreseeable future. In fact, most new soybean crushing facilities also include the capability to make biodiesel as well. The alterative oil crops, either row crops or tree crops, will not be able to compete with soybeans any time soon.