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The production of soya, which has dramatically changed the face and fortunes of Argentine agriculture, is now poised to launch a promising new energy industry.

Dozens of small producers, eyeing a lucrative export market and the prospect of burgeoning domestic demand, are building factories to turn some of Argentina’s abundant soya oil into a cheap, renewable fuel for which there is increasing overseas appetite.

Driven by the introduction of genetically-modified crops into Argentina a decade ago, soya production has rocketed to a record 40m tonnes in the last season, and the country is the world’s biggest producer of soya oil – a prime raw material to make biodiesel.

Sugar and cereals are used to make ethanol, which Brazil has turned into a major industry. Currently, almost half Argentina´s exports are derived from farming and 20 percent are direct exports of raw materials, so biofuels – which sell for around 70 per cent more than the plain oil – represent a way of adding value to abundant output from Argentina´s primary sector.

“We´re building three [biofuels] plants. We dismantled our previous one as it couldn´t expand any more,” said Jorge Kaloustian, whose company Oil Fox is one of Argentina´s biofuels pioneers. He expects to be back in production in October, with output of 400m litres a month, rising to 50m by the middle of next year. Part of that will come from a $20m plant that he says will be the biggest in the world and is due to start up next February.

And it doesn’t stop there. Spanish major Repsol-YPF, one of the biggest oil energy companies in Argentina, is planning to open a $30m plant next year with capacity of 100,000 tonnes in the first year.

Argentine edible oils producer, Aceitera General Deheza, is eyeing a $40m investment to build a 200,000 tonne plant, probably near the city of Rosario, north of Buenos Aires, which is the centre of Argentina´s soya processing industry and home to the world´s highest concentration of soya bean crushing plants.

Vicentin, another oils producer, is also studying a $25m plant where it hopes to be able to produce 300,000 tonnes a year. Among foreign companies eyeing Argentina´s potential is U.S.-based Imperium Renewables, though it is keeping its plans under wraps. Argentine farmers are major diesel consumers but there is little scope to expand domestic biodiesel use because it cannot compete with state subsidized fuel.

However, demand will grow because of a law passed in April requiring fuels sold at filling stations to contain 5 per cent of biofuels, which comes into effect in 2010. But just as Argentines sell abroad most of the soya their country produces, exports are the engine driving the potential of biofuels.

“In maybe five years, Argentina will be able to export 1.5m tones [a year],” said Miguel Almada of the Agriculture Department´s biofuels programme. Argentina currently produces an estimated annual 30,000 tonnes.

Officials are still working out the fine print of how to apply the April law – including, crucially, the tax regime. Unpopular export tariffs on agricultural exports designed to keep inflation at bay could prove a disincentive to investors.

But Argentina´s low production costs and vast amounts of agriculturally active land make it an attractive prospect, and producers say supply is not a worry. “With 5 percent of [oil] available, we can supply our plants easily,” said Kaloustian. Almada said 40 percent of the 600,000 tonne initial requirement for the biofuel blend required in 2010 could be covered simply by collecting soya lost in the harvesting process.

“One of our concerns is that biofuels look very attractive today but all these plants could come online just as oil prices start to come off,” said Jed Bailey, managing director for Latin America at Cambridge Energy Research Associates. But that would not mean the demise of green fuels, just slower progress, he said.

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