Despite mountains of research and the array of million-mile tests I had participated in with mass transit companies in the U.S., the Brazilian government was wary of biodiesel when it was first mandated there in 2006. But not Brazilian entrepreneurs. They took advantage of local tax breaks and federal advantages to build biodiesel plants all over the country. In fact, their eagerness was such that production capacity far outstripped demand.
Back in the day, the mandatory biodiesel blend was a mere 2%. By the tail end of the following year, it climbed to an anemic 3%, not reaching 4% until the end of 2009. And so the mandatory blend rate pressed forward at about the pace my grandmother used to accelerate in order to pass even slower cars on the highway. It was only in March of this year that the blend hit double digits: 10%.
In 2018, soybeans made up 70% of all feedstocks used for biodiesel, followed by tallow (about 16%) and other products such as cottonseed oil.
But the new Brazilian administration drives more like Speed Racer than like dear Grandma. The minister of Mines and Energy there recently announced plans to go to a nationwide mandatory biodiesel blend at the outset of 2020 and going to 15% by 2023. It’s estimated that would mean a biodiesel production increase of about 20% over 2019, or nearly 1.8 billion gallons in all.
But there’s also something else that may pressure the Brazilians to offer relatively more meal than whole beans in coming years. It’s a law established back in 2006 with the aim of cutting taxes on raw or unrefined products -- like whole beans.
Brazil typically taxes exports of manufactured goods more favorably that it taxes raw products. Makes sense. Keep manufacturing jobs in Sao Paulo by increasing taxes, relatively, on iron ore, and lowering them, relatively, on sheet steel.
But over recent years, agriculture has been exempted from the law so that Brazilian farmers could offer unrefined corn, whole beans, raw coffee and so forth to the world at competitive prices.
The effect of ending agriculture’s exemption to higher raw-product export taxes is that it could change the country’s mix of whole beans versus soybean oil offered for export. The more oil needed for biodiesel, the more soybean meal offered to the market, versus whole beans.
What impact would that have on Brazil’s new bestie China? China really likes to buy whole beans for its own crushing industry.
More domestic crushing for biodiesel plus the end of the Kandir Law makes for a double incentive for Brazil to try to compete for your China business with meal rather than with beans-- a tougher sell to places like China that want those crushing jobs. It’s one reason Argentina lags far behind the U.S. and Brazil in exports to China: The Argentine tax differential on whole bean versus meal exports is large.
Have all you want-- we’ll grow more!
It is true that Brazil has plenty of room to just grow more beans to make up for the difference. Abiove, the country’s oilseed crushers association, is already forecasting a more-than 4% increase in Brazilian bean production next cycle. But any let-up in the Sino-U.S. trade war, added to a greater supply of whole beans from Uncle Sam, could make your product all the more attractive in years to come.