11/15/2004 The Corn and Soybean Digest - As South American farmers beginplanting, both Brazil and Argentina plan to have laws in place to provideincentives for the production of biodiesel.

The Brazilian government plans to permit an up-to-2% blend of biodieselwith petroleum-based diesel, without allowing vehicle manufacturers tovoid warranties for those using biodiesel blends. That mixture will riseto 5% in 2005. In addition, the Brazilian government has invested between$2-3 million in biodiesel research.

Antonio Carlos Mendes Thame, a Brazilian congressman, is a key backer ofthe biodiesel legislation. Mendes Thame says that although there is a lotof talk about using castor beans and palm as source materials forbiodiesel, soybeans, along with sunflowers, will likely become the primesource. Soybeans, he says, are the most abundant material for biodieselproduction.

Mendes Thame originally offered a biodiesel bill in 2002, proposing amandatory 4% biodiesel blend nationwide. This year he has submitted a newversion of the bill, seeking a voluntary 2% blend, and supplying taxcredits to make it happen.

Meanwhile, one official at the Ministry of Mines and Energy says, "thereis a lot of pressure" to turn the voluntary use of biodiesel mandatory.

Diesel fuel is a commodity with national security implications in Brazil,where 18-wheelers transport about 90% of inter-city goods.

Brazil has a pretty impressive track record when it comes to setting upalternative fuels. After the oil crises of the 1970s, Brazil institutedtwo programs -- Proalcool to convert automobiles to burn 100% ethanol, andProoleo to convert diesel engines to biodiesel. The biodiesel program ranout of steam because diesel fuel remained relatively cheap, but thealcohol program took off.

At one point, Brazil had some 4 million automobiles burning pure sugarcanealcohol on the roads. Today, gasoline bought at the pump typically isblended with 25% sugarcane alcohol.

Meanwhile, the Federal University of Parana has been conducting tests witha VW Rabbit turbo, using soy-based biodiesel. McDonald's has also supplied6,600 gallons of used frying oil to the engineering post-graduate programand the school of chemistry at the Federal University of Rio de Janeiro.Tests are done with cars donated by Volkswagen.

With the new left-of-center government in place, biodiesel appears to beback. It can be made from any number of oil-producing crops, from soy tocastor to palm, some of which can grow in the drought and poverty-strickenNortheast region of the country where annual incomes approach those ofcentral African countries.

The government estimates biodiesel production will generate about 150,000new jobs in 2005. And according to government plans, producers' oilseedsdestined for biodiesel will be eligible for "social certificates" if theyadopt policies favorable to small farmers. Holders of these certificateswill be eligible for tax breaks.

Meanwhile, the federal government here has invested about $2.5 million totest biodiesel in several cities using sugarcane-based ethanol as acatalyst rather than the toxic methanol predominantly used in the U.S. Upto $4 million (in U.S. currency) will be invested in biodiesel researchfrom several regional development funds.

Brazil uses between 9 and 10.5 million gallons of diesel fuel annually,and would need about 1/2 million gallons of transesterified oil to make upthe 5% blend projected for 2005.

But despite the government's focus on helping hard scrabble farmers inBrazil's Northeast, the greatest value of biodiesel may accrue to soybeanfarmers in the expansion areas, where transportation costs are high to getinputs in and soybeans out. If growers in states like Mato Grosso,Tocantins and Bahia -- a long way from ports -- could export soymealinstead of soybeans, and use at least some of the oil for fuel, theycould, in theory, save money.

And saving money is what it's all about. An inter-ministerial workinggroup assigned to develop Brazilian biodiesel policy said that, with a 5%biodiesel blend used nationally, the country could save up to $350 million(U.S. dollars) annually on diesel fuel imports.