How can Argentina's biofuels sector recover from EU sanctions?

Argentina's biofuels industry has been in regrouping mode since EU anti-dumping tariffs on biodiesel imports all but closed off the primary export destination for Argentine biodiesel producers.

President Cristina Fernández in May slashed export taxes nearly in half for local biodiesel producers. In its latest move, the government increased the minimum ethanol mix required in the local gasoline supply to 10%, in efforts to boost production for both biofuel segments.

The latter measure also changed the government's formula for establishing corn-based ethanol prices to one based on corn prices instead of gasoline prices.

BNamericas spoke with Claudio Molina, who heads the country's biofuels and hydrogen association (ABH), a day before the ethanol measure was approved to get his thoughts on what the sector needs to thrive.

After the measure passed, Molina told BNamericas that based on preliminary calculations, the resulting corn ethanol price "would be suffering a very significant drop, which I consider excessive given the current cost structure of businesses."

BNamericas: How do things look for Argentina's biofuels sector in the short to medium term?

Molina: It's very dependent on the existence of stable public policies. For that reason, abrupt changes to those policies affect the sector considerably. There have been a lot of changes in Argentina's biofuels policy in recent times.

Since last May, the government has made positive changes that allowed biodiesel production and exports to increase. If these rules of the game are maintained, the short and medium term scenario is positive, despite the threat of economic contraction.

BNamericas: What have been the effects of anti-dumping tariffs imposed by the EU on biodiesel imports?

Molina: These restrictions affected the biodiesel industry in Indonesia as much as in Argentina, practically closing the European market in a very unfair way. This is because the object of the sanctions - supposed dumping - simply didn't exist.

Since Europe was the most important destination for Argentine biodiesel exports, the local industry was forced to diversify export destinations. The opportunity arose to export biodiesel to Africa by way of Europe, where the biodiesel is mixed with petroleum-based diesel before being sent to its final destination.

Business with the US on the other hand is slow to develop, due to the strictness of tracking measures established by the EPA for biofuels. This has prevented Argentine biodiesel from receiving the benefits of renewable identification numbers [RINs].

Although some producers have qualified for the RIN mechanism - which offers economic advantages that facilitate business - the logistics of separating US-bound biodiesel before export to comply with EPA requirements is very costly.

BNamericas: If the EU restrictions continue, what other markets can serve as destinations?

Molina: The principal destination, as far as individual markets, is the US. Peru has become an important market, but there could be restrictions to access there in the near future, as they are considering protectionist measures.

Australia, South Korea, Colombia and various African countries all represent alternatives, but it's very difficult to replace Europe in the short and medium term.

BNamericas: What measures should Argentina's government take to promote biofuels?

Molina: From an operational point of view, the first issue is that there needs to be an internal market with permanent demand for biofuels, which is achieved by fuel mix requirements.

The second issue is that the state needs to authorize a reasonable price for biofuels, in equilibrium with the price of petroleum-based fuels.

We need to end tax exemptions for imported fuels, which violate the national constitution. The state should promote local production, which creates jobs, positively impacts regional economies and substitutes fuel imports.