Argentina Confronts Biofuels Craze

BUENOS AIRES, Argentina -- Argentina's government is hopping on the biofuels bandwagon by offering tax incentives for new initiatives and saying 5 percent of the nation's fuel supply must be biodiesel- or ethanol-based in three years.

But many Argentines are worried that diverting farmland for biofuels - made from corn, sugarcane, palm oil and other agricultural products - will drive up food prices even higher.

On Friday, that tension will come to a head when former Vice President Al Gore addresses experts and financiers wrangling over efficient and environmentally friendly ways of promoting biofuels development at the first biofuels congress of the Americas. Gore's global warming documentary "An Inconvenient Truth" won an Oscar earlier this year.

In the United States, President Bush has announced a goal of slashing gasoline consumption by 20 percent by 2017, a move requiring 35 billion gallons of alternative fuels to replace fossil fuels.

Yet in Argentina, where a quarter of the 38 million people remain in poverty five years after an economic crisis, some fear that a growing demand for grains to make biofuels will translate into higher food prices after two years of double-digit inflation.

"This idea of using grains to make energy instead of using them for food, now that's a problem," resident Pedro Marcote said. "Food prices keep going up and up."

High commodity prices have fueled Argentina's recovery but also propelled inflation in food prices. The government has slapped limits on grain and beef exports to ensure local supplies, while corn, soybean and wheat prices continue to soar.

U.N.-Energy, a consortium of 20 U.N. agencies and programs, said in a report issued Tuesday that bioenergy represents an "extraordinary opportunity" to reduce greenhouse gas emissions, boost energy security and promote rural development.

But it also warned that "rapid growth in liquid biofuel production will make substantial demands on the world's land and water resources" and could force food prices to rise, putting a strain on the poor. It added that increasing production could spur deforestation in fragile ecosystems.

Authorities should be careful about promoting biofuel use, said Loek Boonkamp, head of the agricultural trade and markets division of the Organization for Economic Cooperation and Development.

He estimated this year that replacing just 10 percent of the world's current petroleum use with biofuels would consume about 30 percent of all the grain, oilseed and sugar produced in the U.S., Canada, the European Union and Brazil.

Meanwhile, investment plans are surging and companies are lining up to take advantage of the incentives.

Hector Morales, executive director of the Inter-American Development Bank, said the bank has allotted $3 billion in credit to finance biofuels projects in Latin America in the coming years. Two-thirds of that financing will go to Brazil, which produces 40 percent of the world's biofuels, Morales said.

"The region is in a uniquely favorable position to take advantage of biofuels development," Morales said.

Dynamotive, a Canadian biofuels developer, announced plans this week to invest up to $120 million in six plants in Argentina that would use lumber- and paper-industry waste to make biofuel.

Agricultural companies announced 13 different biodiesel projects in Argentina last year, with investments of $285 million, according to the regional group Abeceb Consultancy.

Investment in the sector is expected to reach $1 billion in Argentina in four years, Abeceb said.

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