Biofuels trade in Latin America:

Regional and Global Perspectives

The Role of Trade and Markets in

Addressing Climate Change and

Sustainable Development

Cancun, December 8th 2010

David Laborde – d.laborde@cgiar.org

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Overview of the presentation

• Introduction

• Where do we stand? Trade pattern in Biofuels

• Opportunities and Remaining barriers

• How to make it works?

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Introduction

• Trade in Biofuels: New Hope or Phantom

Menace for mitigations

• All Biofuels are not equal

From Valin, 2010

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TRADE PATTERN IN BIOFUELS

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Biodiesel

Production

(thds barrels a day)

Consumption

(thds barrels a day)

0

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 2007 2008 2009

Asia & Oceania

Africa

Middle East

Eurasia

Europe

North America

Uruguay

Peru

Paraguay

Honduras

Guatemala

Colombia

Brazil

Argentina

EIA, 2010

0

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 2007 2008 2009

Asia & Oceania

Africa

Middle East

Eurasia

Europe

North America

Uruguay

Peru

Paraguay

Honduras

Guatemala

Colombia

Brazil

Argentina

EIA, 2010

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Biodiesel Net trade (thds barrels a day) 2009

-50

-40

-30

-20

-10

0

10

20

30

EIA, 2010

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Ethanol

Production

(thds barrels a day)

Consumption

(thds barrels a day)

0

200

400

600

800

1000

1200

1400

2001 2002 2003 2004 2005 2006 2007 2008 2009

Asia & OceaniaAfricaMiddle EastEurasiaEuropeNorth AmericaVirgin Islands, U.S.UruguayTrinidad and TobagoPeruParaguayJamaicaGuatemalaEl SalvadorEcuadorCubaCosta RicaColombiaBrazilBoliviaArgentina

0

200

400

600

800

1000

1200

1400

2001 2002 2003 2004 2005 2006 2007 2008 2009

Asia & Oceania

Africa

Middle East

Eurasia

Europe

North America

Virgin Islands, U.S.

Uruguay

Trinidad and Tobago

Peru

Paraguay

Jamaica

Guatemala

El Salvador

Ecuador

Cuba

Costa Rica

Colombia

Brazil

Bolivia

Argentina

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

Ethanol Net trade (thds barrels a day) 2009

-20

-10

0

10

20

30

40

50

60

70

EIA, 2010

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Regional Production Pattern (2009)

Argentina39.9%

Brazil47.8%

Colombia9.8%

Guatemala0.0%

Honduras0.0% Paraguay

0.2%

Peru2.1%

Uruguay0.2%

Biodiesel Production - LAC

Argentina0.1%

Bolivia0.3%

Brazil94.6%

Colombia1.1%

Costa Rica0.3%

Cuba0.1%

Ecuador0.0%

El Salvador0.5%

Guatemala0.3%

Jamaica1.5%

Paraguay0.4%

Peru0.2%

Trinidad and Tobago0.6%

Uruguay0.0%

Virgin Islands,

U.S.0.1%

Other2.8%

Ethanol Production - LAC

EIA, 2010

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Regional markets vs World Markets:

Export structure of the large exporters

94.3%

4.0%

0.6%

0.9%0.2%

0.1%

5.7%

Argentina Biodiesel Exports (2009)

EU USA Brazil Peru China Rest of the World

F.O. Licht (2010)

28%

3%

3%

15%

0%

5%

3%

10%

33%

Brazil Ethanol exports (2009)

EU Costa Rica

El Salvador Jamaica

Colombia Trinidad and Tobaggo

Mexico USA

Asia

F.O. Licht (2010)

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Regional markets vs World Markets:

Stronger regional involvement of smaller countries

0%

90%

6%4%

Ecuador Ethanol Exports (2009)

EU Colombia Peru Rest of the world

F.O. Licht (2010)

90%

10% 0%

Bolivia Ethanol exports (2009)

EU Peru Rest of the world

F.O. Licht (2010)

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OPPORTUNITIES AND

REMAINING BARRIERS

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Regional demand will grow

Country Biofuel Addition of biofuel

Argentina

Ethanol 5%

Biodiesel

7% on August 2010

10% since July 2011

Bolivia

Ethanol No goals

Biodiesel2,5% since 2007

20% on 2015

BrazilEthanol 25%

Biodiesel 5% since 2010

ChileEthanol Between 2-5% since 2008

Biodiesel Between 2-5% since 2008

Colombia

Ethanol10%

20% on 2012

Biodiesel

Till 8% by 2010

10% in Santander, Cesar

South, Antioch and West

of the country.

7% in Bogota in central

and eastern plains region.

Costa RicaEthanol till 2% by 2010

Biodiesel

EcuadorEthanol 10%

Biodiesel 2,5%

El Salvador Biofuel

Goal of replacing 15% of

the consumption of fossil

fuels.

Guatemala Biofuel

Goal of replacing 15% of

the consumption of fossil

fuels..

Country Biofuel Addition of biofuel

Honduras BiofuelGoal of replacing 15% of the

consumption of fossil fuels

JamaicaEthanol 10%

Biodiesel No goals.

México Biofuel No goals.

Nicaragua BiofuelGoal of replacing 15% of the

consumption of fossil fuels

Panamá Biofuel

Goal of replacing 15% of the

consumption of fossil fuels

10% of ethanol since 2009.

ParaguayEthanol 18 - 24%

Biodiesel 5%

Peru

Ethanol 7,8%

Biodiesel2% since 2009

5% by 2011

República

Dominicana

Ethanol 15% by 2015

Biodiesel 2% by 2015

Uruguay

Ethanol No goals.

BiodieselB2 by 2008 – 2011

B5 by 2012

FIESP-IICA, 2010

= x5 regional demand –

without Brazil - for biofuels

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Remaining barriers

• Remaining Barriers. Protection faced by LA

exporters

• But also:

• Domestic subsidies

• Export taxes structure (e.g. Argentina)

Biodiesel Ethanol

Africa 4.20% 24.22%

Asia 3.42% 85.89%

Europe 0.49% 37.60%

North America 3.09% 40.86%

Latin America 1.15% 57.72%

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US and EU policies will matter too

Real Income effects of US and

EU mandates, %

-1.0% -0.5% 0.0% 0.5%

Brazil

CAMCarib

China

CIS

EU27

IndoMalay

LAC

SSA

US

Mandate

Mandate and trade liberalization

Mandate without sugarcane ethanol

Net Emissions Balance of US

and EU mandates (grCO2/MJ)

Al Riffai, Dimaranan and Laborde, 2010

-30 -20 -10 0 10

-20.8

-28

7.92

EU and US Mandates

EU and US Mandates and trade liberalization

EU and US Mandates without sugarcane ethanol

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HOW TO MAKE IT WORKS?

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Define clear priorities

• Biofuels vs common sense:

• Kill two birds with one stone vs A bird in the hand is worth two in

the bush

• Environmental policy? Energy policy? Farm policy? Policy

Reduction Strategy?

• One rule in economy: One goal=one tool

• International and domestic inefficiencies (e.g. combination of

mandates and subsidies)

• Decisions to make about

• The type of biofuels, the type of feedstocks

• The scale of production & the degree of concentration

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Different economic costs:

A Peruvian Illustration

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Palm Oil -Commercial

Palm Oil - Small Holder

Jatropha Commercial

Jatropha Smallholder

Sugar Cane Ethanol (Coastal

Region)

Sugar Cane Ethanol

(Amazonian Region, including

small holders)

Ethanol made from molasses

(average)

US

D/lit

er

Laborde and Al Riffai, 2010 & FAO

Deforestation

Deforestation

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• Domestic policy vs Regional policy

• Domestic policies will lead to “protectionist” behaviour

• Regional approach requires coordination

• Managing

• Small countries, Large countries

• Agricultural exporters vs Agricultural importers

• Biofuel exporters vs Oil exporters

• If Latin America, find a regional agreement (e.g. phasing

out of trade barriers and subsidies, sustainability criteria),

it can export the model to a global basis. Otherwise, it

will strongly undermine the possibility to reach a global

agreement