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Argentina doesn’t find alternative biodiesel markets after EU restriction

Workers shovel soy beans into a silo storage in Salto, some 180 kilometres northwest of Buenos Aires, on April 8, 2010. Argentina is the world’s third largest soybean exporter.
By Guillermo Háskel
Herald Staff

The United States and Brazil are self-sufficient in biofuel while India and China don’t include soyoil in their energy matrix, the CARBIO lobby laments

Argentina’s leading biodiesel exporters are finding it very hard to place their production in alternative markets after the European Union last year slapped high tariffs on biofuel imports, the CARBIO lobby said.

“The damage resulting from this unfair anti-dumping measure has been huge,” Víctor Castro, the Executive Director of Argentina’s Biofuels Chamber (CARBIO), told the Herald.

“Several of the country’s 30 biofuel plants are operating at a very low capacity. We will not be able to export any biofuel to the European Union that, at some times, accounted for up to 90 percent of all our biofuel exports.”

On top of the EU’s imposition of a 24.6 percent tariff on Argentina’s biofuel announced in November is a 6.5 percent duty resulting from Argentina’s having been left out of the General Preferential Tariff (GPT) system whereby its biofuel was duty-free, something that resulted in a total levy of 31 percent which leaves it “out of the market.”

CARBIO estimates that Argentine biodiesel exports could shrink nearly 40 percent as a consequence of the EU’s decision that Argentina is challenging before the World Trade Organization (WTO), a process which Castro said may mean being in conflict this year and next.

Poor Options

Argentina has been seeking alternative markets where to place its products but it has been meeting great difficulties.

“Both the US and Brazil are large consumers but also major producers, they are self sufficient,” Castro said. “As for China and India, they have not yet included biofuel in their energy matrix. Besides, they are very near to Indonesia, which produces palm-oil-based biofuel which, although not of the same quality as Argentina’s soyoil, is far cheaper.”

Peru has been a purchaser. And there have also been some minor deals but with neutral or even negative margins, Castro said.

As for the local market in a nation of 40 million inhabitants plunged into an economic crisis, it can hardly absorb the biofuel which is not exported.

“Argentina has been increasing its domestic consumption and there is still room to increase it more, but it is evident that the domestic market cannot make up for the lost exports,” Castro said.

Separately, the domestic market is supplied by PyMES, small and medium-sized companies which, due to the economies of scale, cannot compete with the large exporters.

Protectionism At Stake

The first European country to start with the restrictions was Spain, soon after the Argentine administration of Peronist President Cristina Fernández de Kirchner in early 2012 expropriated Repsol-YPF, a former Argentine state oil company which her fellow-Peronist (although neo-conservative) Carlos Menem had sold to the Madrid-based Repsol private energy company.

The compensation for the expropriation of Repsol-YPF is presently at the centre of a heated controversy and under discussion in the Argentine Congress.

Asked whether he thought that the anti-dumping action from the EU on Argentina’s biofuel could be retaliation for the Repsol-YPF case, Castro said:

“We think that it has been a measure requested by the EU’s biofuel producers as Argentina is very competitive on that field. One of the advantages of our companies is that the country is a world leader in the production of soy oil — the commodity necessary to produce biofuel — and that the 10 leading exporting companies are located in the area of the Rosario port complex, which in turn is near to the leading producing areas.

“We are major exporters of soy oil and with the biofuel we were adding value to it and have been supplying Europe at the best price. But The EU is seeking to add that value there. Of course, the EU’s residents are paying the consequences as they have now to pay a higher price for biofuel produced in Europe,” Castro said.

“Another competitive advantage of Argentine plants is integration. Soybeans are very close to the plants which produce meal, oil and biofuel.

“The beans go to the crushing process and then through pipes directly to the port. That means lots of savings in freight and logistics costs. In the area of San Lorenzo we have the one of the world’s leading crushing clusters,” he added.

‘A Political And Economical Decision’

Raúl Cuello, a former director-general of the DGI tax revenue agency, told the Herald that Spain’s decision started as retaliation for the expropriation of Repsol-YPF, “which entailed a violation of constitutional norms and of the climate which must prevail in international business.”

“The initial reaction was to cut off the imports of biodiesel which were running at 700,000 tonnes a year. Now, as a consequence of Spain’s decision, small biodiesel plants scattered in countries such as France, Belgium and Germany and which were unable to compete with Argentina, became competitive,” he told the Herald.

“It started as a political reaction but then the issue took economic dimensions that it did not have initially and now Argentina is facing a huge problem,” Cuello said

Other factors

Matías Trombolini, an economics professor at the University of Buenos Aires, said that another factor which could be behind the EU’s decision were import barriers that Argentina has adopted over the past years to maintain a trade surplus.

“Argentina has been creating a series of non-tariff barriers such as the Advance Import Affidavits (DJAI) and others which made imports a cumbersome process and led the EU and Japan to request trade panels, and also sparked conflicts with trade partners such as Brazil.”

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