August 21st- Argentina has an important competitive advantage in many countries in the production of biofuel. It is sustainable because of the way crops are produced in Argentina and also has a lower cost than many countries because of its cheap currency that cuts costs. However, Argentina has many difficulties to sustain and expand its own production of biofuel. The reason is the lack of public policy in the long term. The investments require long periods of time or lower taxes to export easily or a minimum price to keep producing even when costs of raw material are above the prices.
Many policies have been a starting point, such as to try to transform the Argentine public transport to consume biofuel. This would add a predictable and sure source of income to the industry. On the other hand, the resistance of the petroleum energy sector to mix and add biofuel to commercial fuel have hurt many times the possibilities for a safe market related to this industry. We have published many articles related to the evolution of this industry in Argentina, please check the next links.
The difficulties in the sector increased:
KPMG diagnoses the problematic future in Argentine biofuel industry:
In August of 2019, we published data related to a diagnostic made by KPMG that showed the stagnation of the industry in Argentina. The document highlighted that the policy related to the government was not enough to keep the prices that allow the industry to expand or even keep these volumes, please click on the link under to know more:
The impact of peso devaluation impacted in the production of biofuel:
At the end of August of 2019, we published that the devaluation of the peso from 45 USD to 61 USD had a drastic impact on the profitability of the industry. These made to stop the activity in the plants to the sector hurting the sustainability of the business. The government did not update the price of mandatory blends when the raw material increased quickly due to the devaluation.
Aggressive stances of Energy Secretariat, Gustavo Lopetegui showed the disrespectful approach to ethanol and biofuel production:
Argentina had an important crisis in 2018 that accelerate problems as recession and inflationary ones as a reduction of fiscal deficit and other policies that happened as soon as economy contracts. In that situation Gustavo Lopetegui, energy secretariat make a stance of energy priorities claiming that the cost of producing biofuel was higher than conventional fuel production, the reaction for sugarcane and corn producers was it was a justification of a reduction in subsidies in the sector but a global answer as Vaca Muerta concentrated the mass of subsidies in the energy sector. This policy affected the regional economies of Cordoba, Tuumán, and Jujuy which are important producers of Corn and Sugarcane. Check the link for more information:
For more details about the policies carried out by Lopetegui as energy official, you can check here: http://efarmnewsar.com/2019-06-19/government-policy-pushes-the-ethanol-industry-to-collapse.html
The possibilities of a bigger ethanol industry depends in mandatory blend and prices:
At the end of the Cambiemos administration, the thin margins in the industry and low share of demand marked stagnation in the sector. Victor Acastello president of ACABIO showed that the reason for stagnation was the decision to not bet for flex engines that allow a better consumption of ethanol and add a bigger mandatory blend as Brazil does. New plants in different regions of the country could be settled if policies change and expand the domestic market, click here for more information: http://efarmnewsar.com/2019-08-20/corn-based-ethanol-plants-operate-with-no-profitability-margin.html
Chinese COFCO was the resilient company in the hard scenario of the first half- 2019:
The main markets of Argentine biofuel are North America and the European Union, but both had protectionist policies. The US closed its market, hitting the volume of production and the EU has imposed an extra price for biofuel exported from Argentina. Both affected volumes and in this context, COFCO kept a major production level than its competitors. For further information please check the link beneath:
The optimistic scenario:
The first years of the Cambiemos administration had many business plans to keep biofuel production. Many industry companies invested in that period. We publish different articles at that moment. The regulation of mandatory blend and the price of corn were the fundamental elements that sign the path of Argentine biofuel production.
Lower margins but increased production:
In this article, you can check the relationship between the price of corn and the impact of mandatory blend in the demand of the local market. The best year for the industry in the past years was 2014 and from that point, the profitability margins have been hurt. We published an article in 2018 explaining this, and showing the evolution of production at that moment. The stagnation in investments confirmed that industry needed the best price from mandatory blend to keep expanding, for more information click the link:
The production increased in 2018:
In August of 2018, we published a detailed article about the origins, players, and evolution of biofuel production in Argentina. The information will help you understand how the policies voted in 2006 determined the evolution of the industry. At that time the possibility to add value in the crop chain was the main reason for the evolution in the investments. Cambiemos administration was considered at that moment a negative administration to the industry because of the attempts to liberalize fuel markets that benefited the petroleum sector. For more information, please click in the link below:
ACABIO, the company that bet to ethanol expansion:
In the last month of 2018, we published the investment plans from ACABIO, the company is based in Cordoba province and run by a cooperative of farmers. At that moment the main reason to expand 40% of the production was the idea of a competitive cost production in ethanol production and the expectation of mandatory blends that allow a market for the product in combination with conventional fuel. Even in this optimistic scenario, the original plan to duplicate production was cut only to produce 40% more. All the details about this business plan can be check in the next link:
The best example of a sustainable business model:
Bio4 is a cooperative in Cordoba province. Its business adds an excellent example of adding value to its production chain. First developed for grain production, an ethanol plant, and feedlot to increase the margins producing ethanol and meat. The next step was treatment to produce electricity from gas coming up from waste in both productions. The result was saving for the company and adding sales to the national electricity grid.
One of the results of these experiments was the expertise and know-how that allow sending the model of processing waste to other Argentine companies. Click in the link under the text:
The data published in our articles show that there are plenty of possibilities for the ethanol industry in Argentina and it could have a great positive impact in many provinces and have a long term saving cost to Argentina’s energy production. The last years showed that erratic policies hurt the backbone and economical advantage for Argentina as a green economy.