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Latin American Biofuels Markets
Deliverable Type: Market Engineering Research
Date Published: 21 Nov 2006
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Market Overview

With Increase in Production Capacity, Brazil is Likely to Lead the Biofuels Market

Compared to other regions, Latin America has greater advantages such as soil, weather, available land, and low labor costs for the production of both: bioethanol and biodiesel. In spite of these advantages, Latin America, excluding Brazil, has not taken initiatives to explore this potential. "The rest of the Latin American region may take advantage of Brazil’s experience, in order to explore the potential of the region," according to the analyst of the study. "In terms of biodiesel, the limitations for production growth in Europe provide Latin America with an unprecedented opportunity to build market share in the European continent."

Brazil has the largest potential to lead in the biodiesel production, but it still has to solve some restraints such as the strong tax pressure on manufactured seeds, the high interest rates, and the not favoring exchange rate. An additional factor powering Brazil’s biofuels market is bioethanol’s outstanding growth due to the increase in production capacity, in order to supply the international markets. Of the total ethanol output production, Brazil consumes around 80 to 85 percent internally, and the balance is exported. The growing demand from abroad is due to the concerns on environmental issues. Brazil produces 35 percent of the worldwide ethanol supply and is also the largest exporter, shipping out more than 2.5 billion liters in 2005.

Multiple Factors Lead to Growth in Latin American Biofuels Market

The main drivers of growth for the Latin America biofuels market are extensive land and variety of feedstock, growing exports demand, important environmental benefits as well as government’s intervention and promotion of social inclusion, and a global leading position in the agricultural market. These factors are forecast to continue to drive the market during the next five to six years. The low price of petroleum in the past, is one of the reasons that lead the Latin American region to have not adopted the strategy followed by Brazil. With a price below $30 per barrel, most farmers could earn more profit from selling the crop itself than the processed biofuel.

A program such as the one adopted in Brazil requires an official engagement with an integral system of obligations, subsidies and incentives, and big investments in infrastructure and development. If a similar program was to be launched in the rest of Latin America, many restraints would be faced. "In countries with a petroleum industry, most important fuel producers tend to consider biofuels as a competitor that would impact their market share," explains the analyst. "Moreover, end users are still reluctant to use an alternative or different type of fuel in their car engines, due to the lack of proper information."

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