August 21, 2012

 

 

Several new resolutions related to biodiesel and soy have been recently announced by the Government of Argentina.

 

The export tax on biodiesel was raised to 32% from 20% and a required internal reference price for biodiesel was adjusted to ARS4,405.30 (US$955) per tonne, a 15% drop from the previous mandate. Furthermore, temporary imports of soy will be allowed into Argentina for the purpose of crushing in-country to fill the gap in crushing capacity.

 

On August 10, 2012, the Government of Argentina (GOA) published official bulletin number 32.457 announcing several new resolutions related to biodiesel and soy.

 

Argentina has enough investment in the soy crushing industry's infrastructure to process more than 50 million tonnes of soy annually. Last year, supplies were short because of a hard hit drought and only 37 million tonnes of soy were crushed, leaving excess capacity around 30%. This caused some crushing plants to close their doors part of the year and many employees to lose their jobs.

 

In March 2012, members of the crushing industry asked the GOA to consider raising soy export taxes in order to promote more incentive to crush in-country, filling the capacity gap (currently the soy export tax is 35% and the export tax for soy meal and oil is 32%). In the last few weeks, there have been strong rumours that soy export taxes would be raised to 40%.

 

The rumours were quashed when the resolution stated that this would not be an appropriate measure to promote production and competitiveness and instead proposed a solution through two actions: first, raise biodiesel export taxes to 32%, equal to that of other soy by-products and second, to temporarily allow imports of soy for processing.

 

The GOA recognises that the biodiesel industry has contributed quite a bit to Argentina's industrialisation of the soy industry. In fact, production has more than tripled over the last five years and more than half of production is exported. Before the tax hike, returns on biodiesel reached more than 25%, which an astonishing difference compared to exporting soyoil alone whose returns are very low and in the past have even dipped into the negative.

 

The net difference between soyoil export tax and biodiesel export tax (including a small rebate) was 17.8% in favour of biodiesel exports. According to the GOA, raising the tax to 32% will allow all sub-products of soy to have the same tax, while still promoting value added products within Argentina. A second resolution was released that required internal reference price for biodiesel to be adjusted to ARS4,405.30 (US$955) per ton, a 15% drop from the previous mandate.

 

According to the government, the increase in export taxes and drop in reference price will reduce the domestic price of biodiesel. While it is estimated that nearly 80% of total biodiesel production is owned by large corporations which have integrated the biodiesel plants into pre-existing crushing facilities, the tax hike is more likely to negatively affect the other 20% of smaller companies. About a third of soyoil produced in Argentina is destined for biodiesel production.

 

As taxes will be a disincentive for exports, it is possible there will be a drop in exports of biodiesel. Unless the domestic market can make up for the drop in exports, more soyoil may be destined for export rather than further processing in the biodiesel industry.

 

The second prong of the solution to boost crushing to meet capacity is to temporarily allow imports of soy. In 2004, Argentina allowed crushers to import soy from Paraguay and re-export the soy meal and oil by only paying the value added tax, not the full export tax. This worked for several years until 2009, when the benefit was taken away and Paraguayan soys were no longer allowed to be imported for crushing at the value-added tax rate. Last week's resolution announced the temporary revival of this regime, but the crusher must be registered in the "Authorised Soy Operators Registry" and must prove that they have purchased five million tonnes of domestic beans for every one million tonnes of imported beans.

 

During the five years that Paraguayan soys were not processed in Argentina, companies in Paraguay started investment projects in crushing and crush capacity in-country has nearly doubled. However, production still exceeds domestic use and with next season's expected crop of more than eight million tonnes, some of the exports could be diverted down river to be processed in Argentina again. Buenos Aires will continue to monitor the situation and report on market developments as necessary.