Argentina export tax hike seen as strong incentive to biofuels

Leading agricultural exporter Argentina has added another major incentive to the booming biofuel industry by increasing the export tax on soybeans, soy-based products, and corn, but not on biofuels, according to analysts. The government raised the export tax on soy to 35% from 27.5% and the tax on soymeal and soyoil exports to 32% from 24%. The export tax on soy-based biodiesel was left at 5%, with a 2.5% tax credit - an effective export tax rate of 2.5%. The measures are part of Argentina's ongoing policy efforts aimed at preparing the country to secure a share of the international biofuels market (earlier post).

Biodiesel
Argentina is expecting to quadruple biodiesel production next year from 200 to 800 million liters (graph, click to enlarge), and by the end of the decade will be making 10 times the amount it produced in 2007, according to a recent report [*.pdf] on the sector by the USDA's Foreign Agricultural Service.

The export tax structure is the key to making the industry profitable and able to compete with fossil fuels, Renova SA Director Diego Mejuto said recently. Last month Renova, a joint venture between local grain exporter Vicentin SAIC and Glencore International AG, cut the ribbon on a $20 million biodiesel plant on the banks of Argentina's La Plata River, the first of a wave of major projects slated to come online in the next several months.

The company expects the European Union and U.S. to be the primary markets for the soy-based biodiesel it produces, Mejuto said.

Even before the new tax incentives, Argentina was on track to produce 1.5 million metric tons of soy-based biodiesel in 2008, according to Lorena D'Angelo, of the economic studies department of the Rosario Grain Exchange.

Most of the other major grain exporters are also racing to take advantage of the tax and other incentives designed to spur on the sector. Aceitera General Deheza and Bunge Ltd. (BG) are working on a $40 million plant, Louis Dreyfus Group is investing $45 million to get into the game and Repsol YPF SA (REP) has a $30 million project in the pipes, according to the Rosario Grain Exchange.

In addition to the federal tax incentives, the province of Santa Fe has provided a host of tax breaks and financing schemes to ensure that biofuel production is concentrated in the province, Gov. Jorge Obeid said recently. Santa Fe already boasts the majority of the nation's soy processing and shipping capacity.

Investment in the sector is expected to reach $1 billion over the next four years, according to a recent report by Abeceb Consultancy:
energy :: sustainability :: biomass :: bioenergy :: biofuels :: ethanol :: biodiesel :: export tax :: Argentina ::

President Nestor Kirchner approved the nation's biofuel incentives law in March. In addition to the export tax breaks, the law mandates a 5% content of biodiesel or ethanol in the nation's fuel by 2010 and provides tax breaks and incentives for projects aimed at supplying the domestic market that are at least 50% owned by Argentines.

Meeting the biofuel needs mandated by the law will use 8% of the soy grown each year and 3% of corn, based on current output, Miguel Almada, director of Argentina's biofuel program at the Agriculture Secretariat, said in a recent interview.

Ethanol
The government also raised the tax on corn exports, to 25% from 20%, while corn and sugar-based ethanol exports are taxed at an effective rate of 1%.

Although Argentine ethanol production pales in comparison to the rush toward soy-based biodiesel, companies are also starting to convert sugarcane grown in the north of the country and corn to fuel.

Last year, Argentina produced 200,000 tons of ethanol at more than a dozen plants in the northwest of the country, and producers are eying increasing production using corn.

In addition, the government introduced a bill this month to modify this year's biofuel law, extending incentives to the nation's sugar industry.

References:
Biopact: Argentina's government amends biofuels law to include incentives for sugarcane ethanol - October 12, 2007

USDA Foreign Agricultural Service: Argentine Bio-Fuels Report [*.pdf], GAIN Report, June 6, 2007