BUENOS AIRES, Argentina, July 4 (Reuters) - Argentina should increaseproduction of biodiesel, fuel derived in part from vegetable oils, inorder to boost oilseed output and cut costs for farmers, industry leaderssaid on Wednesday."There is something that needs to be put in place in Argentina and that'sthe production of biodiesel. If biodiesel production were begun, thecountry could produce 10 million more tonnes of oilseeds in the next twoyears," Enrique Crotto, president of the country's most influential farmgroup, the Argentine Rural Society, told reporters.Biodiesel proponents say the fuel, produced with soybeans, rapeseed,cotton and sunflower seeds, does not contaminate the environment and ismade with renewable resources.Several experimental biodiesel projects are underway in Argentina, a majorproducer of oilseeds.Biodiesel production would increase oilseed sales in the local market andallow for higher prices, said Hector Romero, president of the AgriculturalCommission of Argentina's lower house of Congress."All (the oilseeds) that could be produced would be consumed," addedRomero.The lower house is expected to enact laws to authorize and regulate theproduction and sale of biodiesel by the end of 2001 or the beginning of2002, said Romero.Once approved, the biodiesel initiative would not likely come into effectright away as the proper infrastructure to support biodiesel productionwould have to be created.Romero said lawmakers are also considering making biodiesel exempt from a15 cent tax charged on other fuels. Without the tax, biodiesel would costan estimated 33 to 35 cents."The lowest priced biodiesel is more expensive than regular fuel, so therewould have to be tax incentives," said Romero. "No one would buy somethingmore expensive just to take better care of the environment."Using biodiesel would also reduce costs for an industry that consumes 4.5billion liters of diesel a year, according to the Argentine Rural Society.The United Stated and Australia, two major grain producers, already makebiodiesel and are expanding production of the fuel.