Small-Scale Biodiesel Production As an Alternative for Agro-Industrial

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Small-scale biodiesel production as an alternative for agro-industrial diversification The Brazilian experience Small-scale biodiesel production as an alternative for agro-industrial diversification

The Brazilian experience

Edited by Ronaldo Perez Aziz Galvão da Silva Jr Marina Barbosa Passos Carlos A. da Silva

Food and Agriculture Organization of the United Nations Rome, 2016 This document is unedited and made available as presented by its authors.

Cover photo: Soybean field (United Soybean Board – under a Creative Commons Attribution 2.0 licence)

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Contents

PREFACE viii

Editorial synthesis: Bioenergy Agro-Industries to Support Rural Development ix Roberto Cuevas-García and Carlos A. da Silva

CONTRIBUTORS xviii

ACRONYMS xix

Chapter 1 Concepts 1 Mariana Barros Teixeira; Marina Barbosa Passos; Ronaldo Perez; Aziz Galvão da Silva Jr

Chapter 2 Bioenergy overview 5 Marina Barbosa Passos, Thomás Valente de Oliveira, Ronaldo Perez and Aziz Galvão da Silva Jr

Chapter 3 Historical overview of Brazilian biofuel policies 9 Marina Barbosa Passos; Jonas Roberto Barrél; Ronaldo Perez; Aziz Galvão da Silva Jr

Chapter 4 Brazilian market of major oilseeds, oils and meals for the production of biodiesel 27 Karina Rogério de Oliveira Viana; Ramon Barrozo de Jesus; Ana Carolina Alves Gomes; Ronaldo Perez; Aziz Galvão da Silva Jr

Chapter 5 Biodiesel: The creation of public policies for social and economic development 41 Edna de Cássia Carmélio

Chapter 6 The Social Fuel Seal Program: Assuring the participation of small-scale producers (family farming) 55 Edna de Cássia Carmélio; Luis Felipe Sad Grossi

Chapter 7 Agricultural technology: The importance of integrated fuel and food chains 69 Luiz Antônio dos Santos Dias; Marcelo Dias Müller; Elizabeth Nogueira Fernandes; Denise Cunha Fernandes dos Santos Dias

Chapter 8 Oilseed intercropping: making biodiesel production feasible 79 Ramon Barrozo de Jesus; Aziz Galvão da Silva Jr; Ronaldo Perez

Chapter 9 Vegetable oil extraction for the production of biodiesel 85 Marco Túlio Coelho Silva; Marina Barbosa Passos iv

Chapter 10 Use of oil extraction by-products as feed 103 André Soares de Oliveira

Chapter 11 Promoting investment in biodiesel agro-industrial chains: Methods of analysis and BiodieselFAO 111 Moacir Chagas Borges; Ronaldo Perez; Aziz Galvão da Silva Jr; Marcos Marinho Teixeira

Chapter 12 Family farming product trading and production cooperative, Bahia State 121 Luiz Bacelar Barata; Joélcio Cosme Carvalho Ervilha; Ronaldo Perez; Aziz Galvão da Silva Jr

Chapter 13 Biodiesel in the mesoregion of Norte de Minas 129 Joélcio Cosme Carvalho Ervilha; Ronaldo Perez; Aziz Galvão da Silva Jr

Chapter 14 Guariba Biodiesel Project 135 Evandro Luiz Dall’Oglio; Paulo Teixeira de Souza Jr

Bibliography 143

FIGURES, TABLES, GRAPHS AND BOXES

Editorial Synthesis: Bioenergy Agro-Industries to Support Rural Development T able 1. Biodiesel projections xii Table 2. Evolution of biofuels in Brazil xvi

1. Concepts Figure 1. Technological paths for the production of bioenergy from biomass 1 Figure 2. Technological routes for the production of biodiesel 3 Figure 3. Technological routes for the production of ethanol 3 Table 1. Most important biofuels, definitions and sources 2

2. Bioenergy overview Graph 1. World energy supply by source, 1971 to 2010 5 Graph 2. World energy supply by source, percentages, 2002 to 2011 6 Graph 3. Worldwide production of biodiesel, 1991 to 2012 7 Graph 4. Worldwide production of ethanol, 1991 to 2012 7 Table 1. Production of biodiesel by country, 2004 to 2012 8 Table 2. Production of ethanol by country, 2004 to 2011 8

3. Historical overview of Brazilian biofuel policies Box 1. The Development of the National Alcohol Program 11 Figure 1. Outline of the actions of the main actors involved in the PNPB 14 Figure 2. Location of biodiesel plants with Marketing Authorization and Special Registration 19 Graph 1. Brazilian production of sugar cane, sugar, and ethanol, 1975 to 2012 11 Graph 2. Brazilian production of ethanol, 1980 to 2012 13 Graph 3. Brazilian production of biodiesel, 2005 to 2012 15 Graph 4. Monthly biodiesel production in Brazil, 2005 to 2012 15 Graph 5. Biodiesel production in Brazilian regions 16 v

Graph 6. Authorized capacity of biodiesel production plants per region, 2008 to 2012 17 Graph 7. Installed capacity of biodiesel production plants 19 Graph 8. Use of raw materials for biodiesel production, percentage, 2012 20 Table 1. Contribution of the states and regions to the supply to biodiesel auctions, 2012 17 Table 2. Business groups with greater contributions to the production of biodiesel 18 Table 3. Biodiesel plants and production capacity by geographic region, 2010 18 Table 4. Overview of auctions to sell biodiesel, 2005 to 2013 21

4. Brazilian market of oilseeds, oils and meals for the production of biodiesel Figure 1. Soybean production and average productivity by municipality, 2008 28 Figure 2. Installed capacity of the vegetable oil industry by region 34 Graph 1. Prices of soybeans in Chicago and in Rondonópolis, 2009 to 2012 29 Graph 2. Prices of castor seed in Irecê, 2005 to 2011 30 Graph 3. Planted area and production of cottonseed in Brazil, 1998 to 2012 31 Graph 4. Domestic prices of cottonseed and cotton lint, 2002 to 2012 31 Graph 5. Prices of sunflower seed, 2008 to 2012 32 Graph 6. Prospects for the consumption of vegetable oils 32 Graph 7. Vegetable oil prices, 2001 to 2013 34 Graph 8. Processing capacity 35 Graph 9. Soybean oil prices, 2008 to 2012 36 Graph 10. Cottonseed oil prices, 2008-2012 36 Graph 11. Palm oil prices, 2008 to 2012 37 Graph 12. Sunflower oil prices, 2009 to 2012 37 Graph 13. Average price of major meals in the USA, 2001 to 2013 38 Graph 14. National price of meals and cakes, 2012 39 Graph 15. Average wholesale price of soybean meal 40 Table 1. Major oilseed producers worldwide 27 Table 2. Production of major oilseeds in Brazil 28 Table 3. Production, productivity and cultivated area of soybeans in Brazil 29 Table 4. Production and cultivated area of castor seed in Brazil 30 Table 5. Production and cultivated area of sunflower in Brazil 32 Table 6. World production of major vegetable oils, 2011 to 2012 33 Table 7. Oils produced in Brazil 33 Table 8. Brazilian market of soybean oil, 2005 to 2013 35 Table 9. Balance of demand and supply of soybean meal 38 Table 10. Brazilian production of cotton and byproducts 38 Table 11. Brazilian production of oilseed meal and cake 39

5. Biodiesel: The creation of public policies for social and economic development Chart 1. Visions on the model to be adopted in Brazil 42 Chart 2. Development of the National Alcohol Program 43 Chart 3. Work plan of the Management Group 45 Figure 1. Technological paths for the production of bioenergy from biomass 46 Figure 2. Map of biodiesel production poles, 2009 47 Graph 1. Marketing of biodiesel by companies with or without the Social Fuel Seal Program 49 Graph 2. Family farming in the biodiesel production chain, 2008 to 2012 50 Graph 3. Revenue generated by family farming of biodiesel, 2008 to 2012 51 Graph 4. Average revenue per farming family, 2008 to 2012 51 Graph 5. Raw materials purchased to family farms by biodiesel companies, 2006 to 2009 52 vi

6. The Social Fuel Seal Program: assuring the participation of small-scale producers (family farming) 55 Table 1. Production from farms up to 100 ha or more than 100 ha 56 Table 2. Income distribution for family farming and commercial farming 56 Table 3. The biodiesel tax model 58 Table 4. Brazilian trade balance, 2010 60 Box 1. Example of calculation of purchase percentage 60 Chart 1. Productive arrangement in biodiesel: the integrated system for oil-palm plantations in Pará 65

7. Agricultural Technology: The importance of integrated fuel and food chains 69 Figure 1. Agroforestry systems according to their structural and functional characteristics 72 Figure 2. Crop, livestock and jatropha integrated system 73 Figure 3. Interaction of jatropha with cattle in Santa Vitoria, Triangulo Mineiro region 74 Figure 4. Interaction of jatropha, corn and Brachiaria spp. in Conceição da Barra de Minas Gerais 74 Figure 5. Interaction of jatropha with dairy cattle in Santa Helena de Goiás 75 Figure 6. Interaction of jatropha with sheep in Redenção da Serra, São Paulo 76 Figure 7. Interaction of African oil-palm with pineapple 76 Table 1. Macronutrients from green fertilizer,organic and mineral sources 73

8. Oilseed intercropping: making biodiesel production feasible 79 Figure 1. Examples of colors, sizes and types of castor seeds 81 Figure 2. Castor seed in interaction with black beans 82 Figure 3. Castor seed in interaction with black beans planted at different times 83 Table 1. Amount of oil and efficiency in land use 83 Table 2. Average values of individual volume for eucalyptus intercropped with castor seed in Minas Gerais 84

9. Vegetable oil extraction for the production of biodiesel 85 Box 1. Definitions 85 Box 2. Raw material for biodiesel production 98 Figure 1. Oilseed reception and storage for the extraction of vegetable oils 86 Figure 2. Pre-extraction operations for oilseeds 87 Figure 3. Vegetable oil extraction by batch pressing 89 Figure 4. Continuous press, cooking vessels, auger and cylinder 90 Figure 5. Solvent extraction of vegetable oils 91 Figure 6. Oil degumming with water 93 Figure 7. Free fatty acid neutralizing 94 Figure 8. Oil bleaching 95 Figure 9. Castor seed dehuller and firewood cooker 96 Figure 10. Small-scale continuous press for oil extraction 97 Figure 11. Filter press assembly and cleaning 98 Figure 12. Location of decentralized pressing units 99 Figure 13. Model routes to collect vegetable oil 100 Table 1. Composition of soybean oil before and after refining 93 Table 2. Average phosphatide content of some oils and fats 93 Table 3. Recommendations on the type of process for oil extraction 96 Table 4. Average fatty acid composition, saponification and iodine indexes of oils and fats 101 vii

10. Use of oil extraction by-products as feed 103 Graph 1. Participation in the world demand for protein, 2011 103 Table 1. Participation in the total demand of protein sources for commercial feeds, 2012 104 Table 2. Ether extract and crude protein in castor seed by-products from different oil extraction technologies 105 Table 3. Chemical composition and dry matter digestibility of cottonseed meal with different degrees of decortication 105 Table 4. Nutritional characteristics and recommendations for using oilseed cake and meal in animal feeding 105

11. Promoting investment in biodiesel agro-industrial chains: Methods of analysis and BiodieselFAO 111 Figure 1. BiodieselFAO presentation screen 113 Figure 2. Decision-tree of agro-industrial projects in BiodieselFAO 114 Figure 3. BiodieselFAO system screen for price, internal rate of return and farmer's profit 114 Figure 4. North-central region of Bahia and the city of Morro do Chapéu 115 Figure 5. BiodieselFAO system screen for costs breakdown 117 Figure 6. BiodieselFAO system screen for sensitivity analysis 118 Figure 7. BiodieselFAO system screen for scenarios 119 Table 1. General configuration of the castor seed project 116 Table 2. Results for agricultural production 116 Table 3. Results for agro-industrial production 117

12. Family farming product trading and production cooperative, Bahia State 121 Figure 1. Area where COOPAF was working, 2006 122 Figure 2. Area where COOPAF was working, 2009 125 Figure 3. Area for castor seeds production in Bom Jesus da Lapa 125 Figure 4. Warehouse where the processing plant would be installed 126 Figure 5 Plan for the castor seed processing plant 126 Graph 1. Price of a 60-kg bag of castor seed, Irecê, 2005 to 2007 123 Graph 2. Price of a 60-kg bag of castor seed, Irecê, 2006 to 2007 123 Graph 3. Price of a 60-kg bag of castor seed, Irecê, 2006 to 2009 124

13. Biodiesel in the mesoregion of Norte de Minas 129 Figure 1. Norte de Minas mesoregion 130 Figure 2. PETROVASF, municipalities that produce castor seed 131

14. Guariba Biodiesel Project 135 Figure 1. Location map of Colniza, Mato Grosso 135 Figure 2. Location of the deforestation zone in Legal Amazon 136 Figure 3. Guariba Biodiesel Project facilities 137 Figure 4. Guariba Biodiesel Project sustainability network 138 Figure 5. Raw materials to obtain oil 139 Figure 6. Oil extraction equipment 140 Figure 7. Biodiesel production equipment 141 viii

Preface

The perspectives of fossil fuel shortages in the world market and the growing concern with protecting the environment have motivated a continued search for renewable energy resources. At the same time, strategies to promote socioeconomic development are being sought that can increase incomes in rural areas and reduce the rising trends in rural-urban migration. The utilization of biomass as an energy source poses growing interest to the energy industry, public policy formulators and the development community at large. Production of biofuels from a range of alternative agricultural raw materials has already proven to be a workable option not only to substitute fossil fuels, but also to generate farm and off-farm employment and enhance rural incomes. The Agricultural Development Economics Division (ESA) of the Food and Agriculture Organization of the United Nations fosters food and agricultural industries to add value and increase the demand for farm outputs. This strategy is focused on contributing to poverty reduction and food security in rural areas. Within its broad and rich spread of technical areas, ESA works on the agro-industrial activities that transform non-food agricultural materials and create diversification options for small-scale producers. These activities multiply the opportunities for employment and income generation in developing countries. These works cover, among others, the area of production of bio-energy from oil crops and other forms of biomass, including the production of biodiesel. Therefore, this publication contributes to provide specialized technical information about bio-diesel production as a strategy to promote agro-industrial development in close connection with family farming. It focuses on the experiences in Brazil that foster sustainable feedstock production by smallholder farmers and promote their linkages to bio-diesel value chains. The book was developed with contributions from a team of specialists, and seeks to address the potential benefits of agro-industrial diversification that can be generated through small-scale production of biodiesel. Factors considered were concepts, fundamentals, technical aspects of agricultural and industrial production, and other elements involved in the development of biodiesel value chains. In view of the recent controversy around the food versus fuel uses of agricultural land, the book considers the technical and economic advantages and disadvantages of alternative bioenergy feedstock, and addresses biofuel and food chain integration and development. FAO is proud to present this publication, which enriches the information available on the important and also controversial subject matter of bioenergy, renewable energy, biodiesel, agro-industrialization and small farmers development. ix

Editorial synthesis: Bioenergy Agro-Industries to Support Rural Development

Roberto Cuevas García; Carlos A. da Silva

The strategic position of bioenergy in FAO’s goals Rural agro-industries, particularly small-scale enterprises, play an essential role for rural development globally, as generators of employment and sources of economic and social benefits (FAO, 2004; da Silva et al., 2009). Generated employment may be in-farm but also off-farm in activities such as handling, transportation, processing, packaging, storing and marketing, and also in those businesses which provide a variety of support services. Agro-industries can contribute to environmental protection and food security, and are a feasible alternative to reduce migration to the cities, to support local culture and foster the role of women. Agro-industries also contribute to enhancing the quality of farm products and increase their demand, as well as the demand of agricultural inputs (FAO, 2011). The rural development issue is composed of many interrelated factors, and it has been demonstrated that there is a symbiosis between small-scale farmers, small-scale processors and innovative policies and institutions, which causes the definite need to set enabling environments for competitive agro-industries and for generalized progress (FAO, 2004a; FAO, 2004b; da Silva et al., 2009). However, agro-industries have not yet realized their full potential as promoters of rural progress in many developing countries. More specifically, a range of rural agro-industries still strive for solutions to the full participation and benefits of small-scale farmers (Vorley et al., 2009), and to secure the supply of energy they need to operate and survive (FAO, 2004b). In fact, many rural agro-industries in the Latin America and the Caribbean (LAC) region still use fuelwood as an energy source. FAO concluded that there is a close relationship between quality and competitiveness of the rural agro-industry in the LAC region and the efficient and sustainable use of energy (FAO, 2004b). The perspective of price fluctuations of fossil fuels, historically on the rise, and the eventual scarcity in the global market lead to the urgent search of feasible renewable fuels, which help reduce green-house gas emissions, respect the environment and promote social and economic growth. This is true for rural transport, a specific and omnipresent activity in agrifood chains where a limiting factor and usually the most pressing one is transport costs, directly related to, and dependent on, fuel costs and availability, which in turn deeply affect value chain efficiency and competitiveness (FAO, 2008a). The Food and Agriculture Organization of the United Nations (FAO) has been deeply concerned with the issue of world energy supply and has been involved in the scientific and technical production, dissemination and discussion of reliable and relevant information on bioenergy topics in many countries. FAO has also addressed the role of agro-industries in the whole development process of the rural sector in Latin America and the Caribbean, Africa and Asia, as well and in other regions of the world. This is part of FAO’s mandate, that is, to lead international efforts in achieving food security through the development and promotion of sustainable and energy-efficient agro-industries. In this sense, FAO has been providing specialized support in the areas of policy advice, capacity building and investment promotion (FAO, 2011). Intensive work in other areas such as rural education, plant protection, forestry, environmental protection and nutrition complement those actions focused on sustainable and renewable energy. The support in market information and agro-industrial market studies has been notable (Shepherd, 2000 and 2003), as well as in training of small agroprocessors (Santacoloma and Cuevas, 2011). FAO has been fully involved over several decades in promoting the efficient use of biomass, especially from agriculture, to obtain renewable energy sources. Following are examples of such specialized work. FAO (1978) studied the utilization of rice husk as an energy source in the developing countries. The alternatives are many, from just burning in a controlled atmosphere to dry distillation, pyrolysis, gasifica- tion and other thermochemical and biochemical processes. x

The production of alcohol as a by-product of the agro-industrial processing of sugar cane, either as an azeotropic mixture with water (93 to 95 percent alcohol) or in the anhydrous form (greater than 99 percent alcohol), for its applications as a fuel for domestic and automotive use, or as a raw material for the industry has been also studied by FAO (2001). The energy potential of the sugar cane agro-industry, particularly for the production of fuels from sugar cane biomass in terms of the generation of electric power and steam for sugar production is of interest to FAO, as a means of having a balanced, cost-efficient and energy-efficient agro-industry, and also as a means for improving the use of by-products from sugar processing (FAO, 2001). The evaluation of sugar crops as renewable resources for the production of biofuels has been the subject of work of national agencies for decades. Experts have studied the development of technically sound, economically feasible processes for producing biofuels from biomass. This is a multidisciplinary effort that requires agricultural, agro-industrial and energy conversion technologies, besides the social and economic aspects, to ensure environmentally sound and sustainable solutions (FAO, 2001; Nathan, 1978). Further work by FAO (2006, 2013) in the renewable energy area reported the use of lignified cactus cladodes as fuelwood in some African countries, and the fermentation of mixtures of cactus cladodes with animal manure to obtain biogas. FAO also studied the production of ethanol through fermentation and distillation (FAO, 1999 and 2013). In summary, there has been great interest in bioenergy in recent years. This is not only because it is an alternative to fossil fuels and to dampen the high prices of oil, but also because of the enormous potential of bioenergy for rural development, climate change mitigation and natural resource protection (FAO, 2012b). In order to ensure that modern bioenergy development is sustainable and that it safeguards food security, a number of good practices can be implemented throughout the bioenergy supply chain. FAO has sought to identify the factors essential to minimize the risk of negative environmental impacts from bioenergy production (FAO, 2012a). These practices aim at improving the efficiency in the sustainable use of land, water and agricultural inputs for bioenergy production, including a reduction in the potential competition with food production and in the negative impacts on biodiversity and ecosystems. FAO (2012c) has pointed out that there could be important impacts of bioenergy development on food security. This would depend on the type of bioenergy, the way production is managed (including owner- ship and scale), and the context (environmental, agricultural, technological, socio-economic, agribusiness models and policy factors). Cohen et al. (2008) stated that biofuel production can have negative impacts on nutrition through increased green-house gas emissions as a result of land preparation and agricultural and agro-industrial activities. Water shortages and contamination when growing water-intensive crops that will be used as feedstock for biodiesel production may adversely affect humans, animals and plants. Care should be taken not to divert food and feed crops and land to biofuel production with the implied negative effects to food and feed production. Intensive energy crops production can also put a pressure on use of agro- chemicals that could damage health and contribute to contamination. Governments have a crucial role and responsibility in designing and enforcing policies that make biofuels development to be pro-poor, pro-environment and pro-natural resources protection. This will contribute to make bioenergy development to be sustainable. Therefore, any national effort to develop biofuels as an important factor in the national economy must respond to critical questions on the implications surrounding the design of appropriate policies for the sector (FAO, 2008b). Questions such as: Do biofuels threaten food security? And, can biofuels help promote agricultural development, especially benefitting smallholder farmers? Or, can biofuels help reduce greenhouse gas emissions? And finally: do biofuels threaten land, water and biodiversity? The key areas for policy action identified by FAO are: (i) protecting the poor and food-insecure; (ii) taking advantage of opportunities for promoting broad-based agricultural and rural development; and (iii) ensuring environmental sustainability. This can be done through reviewing and updating existing biofuel policies, obtaining institutional and political support based on sustainability criteria, and promoting effective business networks and public-private partnerships for agribusiness development (FAO, 2008b, 2011; da Silva et al., 2009). The Interministerial Working Group from Sierra Leone (2013) proposed that the main factors to be considered for sustainable bioenergy investment are, among others, land tenure, impacts (environmental, social, health), food security, water, energy access, biodiversity, agrochemical management, waste and residue management, labor rights and employment, contracts, community development, gender equity and cultural factors. xi

FAO also reported studies on agro-industries development in different national contexts, and addressed the emergence of small agro-industrial enterprises in relation to contract farming in Brazil (Wilkinson et al., 2011). These authors concluded that transforming local conditions and resources into durable basis for sustainable development depends on the availability of institutional and regulatory frameworks appropriate to small farmer initiatives, and on consolidating markets outside the region with the support of broad alliances. According to FAO (2012b), the focus should be on enhancing the benefits that smallholders can gain from participation in local, regional, national or global value chains through reducing the barriers to smallholder inclusion. There is enormous interest within FAO regarding renewable energy sources and the possibility to promote rural development, sustainable production of raw materials by small-scale family famers, and value addition through agro-industrialization, while at the same time promoting efficient agribusinesses and the required enabling environments. This context led FAO to investigate the factors that played vital roles in the development of biodiesel value chains in Brazil. The scenario described above is the genesis of this volume.

The nature of this book To provide country-specific information on the implementation of biofuel chains, and to contribute to address the specific hurdles of coordinating family farming, agro-industrial processing and institutional actions in a large and complex tropical country, the FAO gathered the views of renowned scholars and researchers who provided analytical insights on key issues regarding renewable energy sources and specifically biodiesel. This book comprises a collection of chapters which address the context in which biodiesel value chains with participation of family farmers were developed in Brazil. The linkages, policies, technical and economic aspects, and surely the complex social issues that comprise those value chains are discussed from the different perspectives of expert scholars. These selected people are knowledgeable of the success stories of biodiesel in Brazil and possess strong backgrounds in their fields of technical and scientific work. As can be seen in this book, there are multiple challenges for smallholder inclusion in bioenergy value chains. The different success factors and also the hurdles are discussed throughout the 14 chapters, where the success of interventions and the roles of the diverse actors are identified. For the purpose of this book, according to FAO (2008b) and the National Biodiesel Board (2015), “Biodiesel is a fuel comprised of mono-alkyl esters of long chain fatty acids derived from vegetable oils or animal fats, designated B100, and meeting the requirements of ASTM D 6751.” In Europe, a mixture of fatty acid methyl esters is commonly referred to as biodiesel. Also, “Biodiesel blend is a blend of biodiesel fuel meeting ASTM D 6751 with petroleum-based diesel fuel designated BXX, where XX represents the volume percentage of biodiesel fuel in the blend.” The ASTM D 6751 specifications refer to the characteristics and properties of biodiesel as intended for use in diesel engines. Biodiesel refers to the pure biofuel before blending with diesel fuel. Biodiesel can be made from a single raw material or from a diverse mix of feedstocks through the chemical process of transesterification whereby the vegetal oil or animal fat is combined with an alcohol (methanol or ethanol) in the presence of a catalyst (usually alkaline, e.g., KOH or NaOH), producing methyl esters and glycerin. The technical details of biodiesel production are beyond the scope of this publication, but can be found in specialized sources such as Thanh et al. (2012) and EBTP (2011). Vegetable oil used for biodiesel production is usually extracted from rapeseed in Europe and soybean in Brazil and the United States. In other countries biodiesel is produced from jatropha, palm oil, coconut oil, peanut, sunflower, castor seed and other oil crops, animal fat and recycled cooking oil (Castor et al., 2007). Due to the wide range of raw materials, biodiesel can display a great variety of physical and chemical properties. Its energy content is less (88–95 percent) than that of diesel but it improves the cetane value (FAO, 2008b; National Biodiesel Board, 2015). The United States had produced 122 million gallons (4.62 x 108 L) of biodiesel by June 2015. Sales of biodiesel (June 2015) included 80 million gallons (3.03 x 108 L) sold as B100 (100% biodiesel) and 45 million gallons (1.7 x 108 L) of B100 sold in biodiesel blends with diesel fuel derived from petroleum. There was a total of 911 million pounds (4.14 x 105 tonnes) of feedstocks used to produce biodiesel in that month, and soybean oil was the largest biodiesel feedstock. In 2014, the United States produced 1 270 million gallons (4.8 x 109 L or around 4.2 million tonnes) of biodiesel. Besides soybean oil, other important sources of feedstock were canola oil, corn oil, palm oil, poultry fat and tallow (US Energy Information Administration, 2015). xii

Table 1 Biodiesel projections

Production (min L) Growth (%)1 Domestic use (min L) Growth (%)1 Average Average 2012-14est 2024 2015-24 2012-14est 2024 2015-24

North America Canada 392 486 0.33 538 794 1.56 United States 5 149 4 723 0.41 5 719 6 633 2.19 Europe European Union 11 599 13 120 0.27 13 014 13 452 -0.34 of which second generation 52 185 – – – – Oceania developed Australia 63 280 11.96 72 276 11.04 Other developed South Africa 77 268 17.55 77 268 17.55 Sub-Saharan Africa Mozambique 74 78 -0.07 29 42 3.70 Tanzania 63 101 4.70 6 38 14.97 Latin America and Caribbean Argentina 2 565 2 923 1.17 1 043 1 429 0.62 Bazil 3 118 5 094 1.23 3 119 5 070 1.19 Colombia 666 968 3.34 665 968 3.37 Peru 98 108 0.03 275 272 1.57 Asia and Pacific India 300 792 12.89 433 900 8.65 Indonesia 2 044 6 789 7.62 1 007 5 638 9.92 Malaysia 240 619 5.42 105 294 11.28 Philippines 187 281 2.04 187 281 2.04 Thailand 944 1 001 1.01 944 1 001 1.01 Turkey 13 14 0.88 13 14 0.92 Viet Nam 28 145 10.02 28 145 10.14 TOTAL 27 913 38 569 2.13 27 568 38 297 2.14

Note: Average 2012-14est: Data for 2014 are estimated. 1 Least-squares growth rate. Source: OECD/FAO, 2015.

According to the UFOP, around 210 million tonnes of diesel fuel are consumed yearly in the European Union, while 14.6 million tonnes of biodiesel are expected to be produced by all 27 countries together in 2015. For many European countries, rapeseed is considered the ideal crop type for extending crop rotations in the European Union (UFOP, 2013). Global biodiesel production in 2011 was 18.8 million tonnes; the leading producer was the United States with 2.8 million tonnes, followed by Germany with 2.8 million tonnes and Argentina with 2.4 million tonnes (EBTP, 2011). Brazil produced 2.3 million tonnes in 2011 (USDA, 2011) and 3.1 million tonnes in 2014 (USDA, 2014). Table 1, taken from OECD/FAO (2015), shows the projections for biodiesel production until 2024. Definitely Brazil is among the big players in the world scenario for biodiesel production and domestic use, and it is projected that it will remain in such a privileged position for at least one more decade. Although in Brazil the production of ethanol has been one of the strong agro-industrial pillars and even though the country is a world leader in the renewable energy sector, it is also seeking to excel with other liquid fuels from renewable resources, particularly biodiesel. In this scenario stands out the National Program for Production and Use of Biodiesel, that promotes inclusion of family farming in the production, processing and trading of oil crops, aiming at increasing income and promoting product diversification. xiii

The purpose of this publication is to disseminate the Brazilian experience in the organization of public policies and the structuring of oilseed and biodiesel value chains. The book addresses the improvement of agricultural production, the addition of value through the creation of agro-industries and the coordination between key actors that have made the chains possible and successful. The book is intended to be useful as an input to expand biodiesel production with family farming and small-scale processing units, not only in Brazil and Latin America and the Caribbean, but in all developing countries. The themes covered in this book include the evolution of biofuels, the technical factors in the agricultural and agro-industrial links of value chains, the policies and mechanisms that made those chains feasible, and the situation of family farmers as central actors of oilseed and biodiesel production, in the context of a highly complex and vast country as Brazil. Several examples of the projects implemented in Brazil and their production and marketing contexts are presented and thoroughly discussed, as well as the prevailing institutional networks. Therefore the intended audience for the book includes the private sector and farmers cooperatives working in agro-industrial chains, government and academic institutions, development agencies, and social promoters, wishing to get involved or to improve their participation in biodiesel value chains and family farming diversification.

The organization of the text This book intends to approach the various possibilities for agro-industrial development that may be implemented through small-scale production of oil crops, vegetable oil and biodiesel, with full involvement of family farmers. With a comprehensive style, fundamental concepts are linked in the book with technical aspects of agricultural production and agro-industrial processing, in the context of biodiesel value chains that besides family farmers include government’s agents, private sector investors and service suppliers. For that purpose, the book is organized in four parts, addressing each part the various specific topics which complement each other to effectively address the complex theme of biodiesel production in Brazil. Each part contains several chapters, prepared by the invited specialist scholars. Part 1 comprises two chapters and provides the beginning of the book by stating some fundamental concepts and setting the scenario for subsequent discussions. Thus, Chapter 1 by authors Teixeira, Passos, Perez and Silva, reviews the concepts of bioenergy, biofuels and production chains, among others, that will be later referred to in the document. Concretely, the various forms of biomass and the most important biofuels are presented, with specific discussion on biodiesel and ethanol, and a general view of the different technological paths for their production. Chapter 2, by Passos, Oliveira, Perez and Silva, provides the reader with a general overview of bioenergy, its evolution and situation in the world, with emphasis on biofuels. Energy supply and the production of biodiesel and ethanol in different countries and regions are presented and discussed for a range of years, providing a scenario regarding renewable energy in a global context. Data presented by the authors demonstrate the evolution of the use of biofuels, mainly in Europe, Brazil, North America, and some Asian countries. According to the authors, the commitment to the development of biofuels is based on a market which would demand adequate and continuous supply. This chapter shows that biofuels have a role to play as an energy source in all countries. Part 2 deals with the Brazilian experience on biofuels in four chapters. Authors Passos, Barrél, Perez and Silva present in Chapter 3 an historical overview of Brazilian policies and actions regarding biofuels. This chapter presents the main factors that have enabled the introduction of biofuels in Brazil, and have made Brazil one of the most important countries regarding the production of ethanol. Those factors have also made Brazil to be known for its production of biodiesel based on social inclusion. As discussed by the authors, the National Alcohol Program was vital for the agricultural, agro-industrial and commercial success of ethanol in Brazil and for international trade. In this subject, the Brazilian sugar cane agro-industry in visited by the authors. The chapter also discusses the evolution of the Brazilian biodiesel agribusiness, with data on production, agro-industrial capacity and plant distribution by region. The nature and accomplishments of the National Program of Biodiesel Production and Use are thoroughly analyzed, including the roles of the different actors in this program. The government’s initiative of biodiesel auctions is particularly discussed in this chapter, providing details of 31 auctions and related market conditions and auction consequences. The authors make reference to the Social Fuel Seal, which establishes the requirements for biodiesel producers to obtain tax benefits and credits from the purchase of oil coming from oilseeds produced by family farming. Finally, the production and use of biodiesel in Brazil xiv

is discussed in detail. The importance of the coordinated actions by government, private sector, organized farmers and academics is highlighted. Chapter 4, by Viana, Jesus, Gomes, Peres and Silva, addresses the characteristics of the Brazilian market of oilseeds, oils and meals as related to the production of biodiesel. As a major producer of these products, this country has had a direct influence on the development of the biofuel market in the world. The production of major oil crops in Brazil is presented, as well as the production and installed capacity for oil extraction. Particular discussions on soybean, castor seed, cottonseed and sunflower seed are presented. Vegetable oils are also addressed in depth, particularly soybean oil, cottonseed oil, palm oil and sunflower oil, including installed agro-industrial capacity in the country. Finally, the market situation for cakes and meals is presented. The authors state that even though soybean stands out in the Brazilian market, other oilseeds are of great importance at the global, regional and national levels. With the development of biodiesel in Brazil, the actors in the value chains expect other oils to be acknowledged so that they could be directed to the biofuel chain while the cake may be used for animal feeding. Expert Carmélio focuses, in Chapter 5, on the important subject of public policies for development, in particular regarding biodiesel. This chapter discusses the policy implementation processes and the concurrent factors and affecting forces. It also shows how the government sought to balance those forces. Thus, the history, model and implementation of the regulatory framework for the National Program for Produc- tion and Use of Biodiesel are the core of the chapter. The roles of the different government ministries and institutions organized in the “Management Group” are discussed. In addition, in this chapter the social aspects are particularly depicted. Specifically, the detailed paths for policy design and implementation of the National Alcohol Program and PETROBRAS Biofuels are addressed. The author concludes that biodiesel is a social reality, and that on spite of the short period of development, production has grown significantly. The repercussion of biodiesel production and agro-industrialization on rural organization and development is one of the key messages of the chapter, and indeed of the whole book. This part of the book closes with Chapter 6, in which authors Carmélio and Grossi analyze in great detail and from different angles the cornerstone of Brazilian programs for biodiesel production: the Social Fuel Seal Program. The authors highlight the importance of the participation of small-scale producers through family farming and the impacts of the criterion of minimum purchases from family farmers. They present examples of calculation of percentage for those purchases, and address the context and implications of technical assistance to family farmers. This chapter shows additional perspectives of the relevant aspects of the social component of the National Program of Biodiesel Production and Use, such as the contracts supporting all transactions within the Seal program. It presents the learned lessons and some paths to follow in the process of building and implementing this program. Along those lines, the importance of family farming for Brazil is stressed. The key elements of the Social Fuel Seal are discussed and an analysis of the performance of the program is presented. The authors conclude that it is possible to build biodiesel value chains and encourage social development through concerted efforts and linkages of the main actors of those chains. Part 3 of the book, integrated by four chapters, covers the technological aspects for the production of oilseeds, vegetable oil and biodiesel. Chapter 7 concentrates on agricultural technology as an element of integrated fuel and food chains, as was prepared by authors dos Dias, Müller, Fernandes and Santos Dias. These researchers discuss agro- energy as part of the energy solution, as well as agrosilviculture as a strategy for the interactive production of food and biofuels. Finally they address the effects of interacting crops in integrated systems for the production of feedstock for biodiesel production, particularly jatropha and oil-palm. The authors claim that there are great opportunities for the production of oil crops through agrosilvicultural systems. For developing countries this may be an efficient way of increasing productivity and promoting diversification and integration. Chapter 8, by authors Jesus, Silva and Perez, deals with oilseed intercropping and crop rotation systems as strategies to assure the feasibility of biodiesel feedstock production. Examples of experiences are presented, mainly for soybeans and castor seed, given that the oil of the former represents 80 percent of the oils destined for production of biodiesel in Brazil; and castor seed because it is considered a key culture for the development of the National Program for Biodiesel Production in semiarid regions of Brazil. The authors assure that these are feasible options for the farmers to better use their available arable land. Chapter 9 is a technical treatise of the extraction of vegetable oil as a raw material for the production of biodiesel, by experts Silva and Passos. The technology for the obtention of vegetable oils is discussed xv

in considerable detail, and the authors followed the sequence of unit operations of the process, from preparation of raw materials through pre-extraction operations, extraction by press or by solvent and oil refining, especially in relation to further processing for biodiesel production. This chapter also includes a discussion on the advantages and disadvantages of small-scale extraction of oils, including some proposals for investment and location of small-scale extraction plants in relation to a centralized refining plant, and a section on extraction of palm oil. This chapter closes nicely with a section on the quality characteristics of vegetable oils. To complete this part of the book, Oliveira discusses in Chapter 10 the use of by-products from oil extraction in animal feeding. This author assures that adequate and timely use of by-products from agro- industrial processing can make small-scale production of vegetable oils and biodiesel feasible. The main products from solvent extraction or pressing are cake and meal, and from biodiesel production is glycerin. This chapter provides information about the protein market for animal feeding and on the main factors that affect the nutritional value of by-products from oil extraction. Remarkably, the author provides detailed recommendations regarding the use of oilseed cakes and meals in animal feeding for a range of products and different animal species. Part 4 enriches and rightly complements the previous parts of the book, by presenting four case studies of biodiesel production initiatives in Brazil. This is the heart of the book since practical, applied aspects play the counterpart role to the previous analyses, describing the success (or failure) stories that took place while biodiesel projects intended to open new ways for biofuel production in Brazil. Chapter 11, by Borges, Perez, Silva and Teixeira, deals with BiodieselFAO, a tool intended to analyze feasibility and scenarios for the promotion of investment in biodiesel agro-industrial chains. This system was developed by the Regional Office for Latin America and the Caribbean of FAO (Chile) and the Federal University of Viçosa, Brazil. The authors analyze the context of the biodiesel market in Brazil and the need to examine the economic and financial viability of investments in the agro-industrial production of biodiesel integrated with family farming projects to produce oilseed raw materials. They argue that the BiodieselFAO system is a tool that can help the user answer questions related to the agro-industrial integration process. To illustrate the use of the system, the authors provide practical examples of its application to analyze castor seed production in the northern-central part of Brazil, and also for the agro-industrial link of the value chain. They conclude that the information provided by the system is a valuable input for decision making. In the context of promoting rural agro-industries and family farmers, undoubtedly it is of the foremost importance for those who provide technical assistance and for development institutions to count on sound basis for their actions. The subsequent chapters of this part of the book present cases of various projects in different Brazilian ecosystems for the production of oilseeds, vegetal oil and biodiesel. The organization of the value chains and the economic, social and technical aspects are discussed. This is a very important part of the book, since it contains real-life experiences of the development of supply chains for biodiesel production in varied social and agricultural contexts, which added to the geographical and ecological complexities of Brazil, provide rich information for the development of similar projects in other regions of the country or in other countries. Thus, Chapter 12 addresses the case of the trading and production cooperative of family farmers of Bahia State, as reported by authors Barata, Ervilha, Perez and Silva. This cooperative was created to associate biodiesel producers with family farmers. The results from operating in partnership with Brazil Ecodiesel, or after the partnership had ended, are discussed in detail. Specifically, the impacts of the cooperative on the National Program of Biodiesel Production and Use are addressed regarding different aspects, such as castor seed production, prices and negotiations. The importance of the cooperative in the organization of the production of castor seed in Bahia is highlighted. The cooperative also had projected to install a castor oil extraction plant, and to expand its operations to other productive chains such as dairy farming, utilization of oilseed by-products, and traditional activities in the region such as the production of flour and handmade sweets. As a consequence, according to the authors regional development and supply chain development were boosted thanks to the cooperative model. Chapter 13 reports the case of Norte de Minas, by authors Ervilha, Perez and Silva. The role and impacts of a PETROBRAS biodiesel production plant, as well as the roles of other institutional and corporate actors are discussed in this chapter. The authors claim that support services are relevant to solve a range of problems that affect value chain development, in such a way that family farmers are able to become xvi

suppliers not only of feedstock for oil extraction but also of vegetable oil. If vegetable oil is a product of family farming many benefits could be brought to the region. Value addition, linkages and diversification are seen as essential factors for rural development. Closing Part 4, Chapter 14 deals with the Guariba project, and was prepared by Dall’Oglio and Souza. This chapter addresses the agricultural and extractive potential for the construction of a processing plant for producing oil, biodiesel and electricity in that region. In addition the biodiesel production chain was studied, and the feasibility of supplying raw materials and the use of products and by products were assessed. These authors point out that small-scale production of biodiesel in the Amazon may be feasible if inserted in a wider context of exploitation of high added-value oils from plants native to the region. Based on the results of the environmental, agronomic, economic, and technological assessments, they concluded that biodiesel should be produced using oils obtained as by-products from extraction processes of fine oils (high added-value); and from oils with lower market value. Throughout the book, the authors tell the story of biofuels in Brazil, discussing the key milestones that marked the consolidation of this agro-industrial activity as one of the most important economic, social and technical endeavours of the country. This is illustrated by the summary timeline presented in Table 2. The fourteen chapters address the broad and complex subject matter of biodiesel production in a sustainable and environmentally friendly manner, while promoting socioeconomic development of family farmers of Brazil. The authors acknowledge that enabling environments are factors essential for success, mainly an appropriate policy framework and farmers’ and small-scale processors organization. In various chapters the experts have stressed the role of the government in facilitating those enabling environments for biodiesel agro-industries development linked with family farming for feedstock production. The government has applied creative measures such as the Social Fuel Seal and the auctions, besides other incentives, to promote production of biodiesel in inclusive arrangements where small-scale farmers receive the benefits. The particular discussions illustrate how in Brazil, as in many developing countries, there is an immense collection of natural resources, mainly oil crops, which could be integrated into biodiesel and biofuel value chains. The availability and access to technology adequate for the natural, social and economic context of the region, and timely financial support were also recognized as success factors by several of the scholars in different chapters. A variety of approaches and drivers to chain integration and small-scale farmer inclusion is presented in this book. These include state corporations, private companies, cooperatives and policy instruments. Strategies to link production by family famers to markets where biodiesel is traded and agro-industrial development programs as part of rural development plans are also privileged approaches. The importance

Table 2 Evolution of biofuels in Brazil

Year Milestone

1974 Brazil establishes the National Ethanol Program

1977 Addition of 4.5% anhydrous ethanol to gasoline enforced

1979 Addition of 15% anhydrous ethanol to gasoline

1985 Ratio of anhydrous ethanol to gasoline reaches 22%

1990s Ratio of anhydrous ethanol to gasoline between 20% and 25%

2003 Firs flex-fuel cars (ethanol and gasoline)

2005 The Brazilian National Biodiesel Program begins

2008 Mandatory addition of biodiesel to fossil diesel (B2)

2010 Mandatory ratio of biodiesel to B5

2011 Law 12490: The ANP regulates ethanol

2014 Mandatory ration of biodiesel B6 in July, B7 in November

2014 Ratio of anhydrous ethanol to gasoline reaches 27.5%

Source: ANP, 2014. xvii

of government’s decision and support to the rural areas and the agricultural and agro-industrial sectors is reinforced with practical evidence and statistical data. The role of the public sector and specialized governmental agencies in creating enabling environments, both through technical and financial assistance as well as through policy instruments for value chains integration, is identified and stressed by several authors. The different sections of the book identify key factors for successful implementation of oilseed and biofuel production in various particular eco-political regions. The book also recognizes initiatives that will make it possible for family farmers to be inserted in efficient production chains, which remains as a challenge that the biofuel agro-industry has to face in developing countries. The invited scholars highlight that Brazil has excelled in the biofuel industry and today ranks among the largest producers and consumers of biodiesel and ethanol worldwide as a result of research, incentives, government support and investments by corporate groups, as well as the proper enabling environments, value chain organization and technology properly disseminated amongst all actors. Furthermore, the chapters seek to address the questions that occupy FAO’s strategic and working objectives, as outlined in the introductory paragraphs of this first chapter. The authors have illustrated that, for Brazil, competitive and sustainable value chains must be based on programs whose objectives go beyond the implementation and growth of biodiesel production and the possibility of reducing the use of diesel, but also to foster the inclusion of family farmers and the development of rural agro-industries in a sustainable way, supported by timely investments and proper policies in the sector. Indeed, the Brazilian Government has implemented several policies related to agro-energy, given that Brazil’s three champion sources of renewable energy from agriculture are ethanol (from sugar cane), firewood and charcoal (from forests) and biodiesel (mainly from oil crops). The support has materialized through financing for infrastructure and mandatory blending ratios of biodiesel with fossil diesel, with a current ratio of 7 percent, which will make biodiesel use increase. Domestic use is expected to grow to 5.1 billion litres by 2024. As a matter of fact, Brazil became the world’s third largest producer and consumer of biodiesel in 2014. This same year, 85 000 family farms were participating in the PNPB and 42 companies (99 percent of national biodiesel production) had the Social Fuel Seal (OECD/FAO, 2015). This book presents discussions on the details and intimate characteristics of those initiatives. As stated by Cohen et al. (2008), governments in developing countries should conduct comprehensive analyses, including food security, nutrition, water, environment and land impact assessments before preparing policies and programs for biofuel development. This can be distilled from the Brazilian experience discussed in this book. The arguments, data and experiences presented demonstrate that small-scale, rural- based production sustained by family farming will open opportunities for biodiesel production projects that can improve poor people’s livelihoods. The book illustrates how organization of family farmers and providing them with the right and timely linkages and support can make them grow and become agro- industrialists with better income and opportunities for development. The expectations of the editors and the authors is that all readers concerned with sustainable, inclusive, feasible, efficient and environmentally sound biodiesel projects, enrich their planning processes with the lessons learned described in the book. xviii

Contributors

Ana Carolina Alves Gomes;André Soares de Oliveira; Aziz Galvão da Silva Jr; Denise Cunha Fernandes dos Santos Dias; Edna de Cássia Carmélio; Elizabeth Nogueira Fernandes; Evandro Luiz Dall’Oglio; Joélcio Cosme Carvalho Ervilha; Jonas Roberto Barrél; Karina Rogério de Oliveira Viana; Luis Felipe Sad Grossi; Luiz Antônio dos Santos Dias; Luiz Bacelar Barata; Marcelo Dias Müller; Marco Túlio Coelho Silva Marcos Marinho Teixeira; Marina Barbosa Passos; Moacir Chagas Borges; Paulo Teixeira de Souza Jr; Ramon Barrozo de Jesus; Ronaldo Perez; Thomás Valente de Oliveira. xix

Acronyms

41 868 x 106 J or 11 630 kWh ABIOVE Brazilian Association of Vegetable Oil Industries ANFAEVA National Association of Automobile Manufacturers ANP National Agency of Petroleum, Natural Gas and Biofuels ATER Nacional Policy for Technical Assistance and Rural Extension BASA Bank of Amazonia BNDES National Bank of Economic and Social Development BSBIOS Biodiesel Industry and Commerce, South Brazil CAN National Alcohol Commission CBI Caribbean Basin Initiative CCC Fuel Consumption Account CDM Clean Development Mechanism CEIB Interministerial Executive Committee of Biodiesel CGEE Center of Management and Strategic Studies CIDE Tax on intervention in the economic domain CME Coconut methyl ester CODEVASF Company for the Development of the San Francisco and Parnaíba Valleys COFINS Contribution for Financing Social Security CONAB National Supply Company CONTAG National Confederation of Farmers Agricultural Workers COOPAF Family Farming Product Trading and Production Cooperative COOPERCAT Cooperative of Producers of Catuti CTU Central of Workers DSS Decision Support System EMATER Technical Assistance and Rural Extension Enterprise EMBRAPA Brazilian Agricultural Research Corporation FELDA Federal Land Development Authority (Malaysia) FETRAF National Federation of Family Farm Workers GTI Interministerial Working Group ICMS Tax on circulation of merchandise and transportation services INCRA National Institute for Colonization and Agrarian Reform IPI Tax on industrialized products IRR Internal rate of return MAPA Ministry of Agriculture, Livestock and Supply MARR Minimum attractive rate of return xx

MCT Ministry of Science and Technology MDA Ministry of Agrarian Development MDIC Ministry of Development, Industry and Foreign Trade MDS Ministry of Social Development MF Ministry of Finance MI Ministry of National Integration MMA Ministry of the Environment MME Ministry of Mines and Energy MP Ministry of Planning MT Ministry of Transport Mtoe Million tonnes oil equivalent; energy from one tonne of petroleum (crude oil), that is, approximately 41.87 gigajoules NPV Net present value PAA Food Acquisition Program PBIO PETROBRAS Biofuels PCPR Program against Rural Poverty PETROBRAS Petróleo Brasileiro S.A. PIS Tax on social security PNPB, PNPBIO National Program for Production and Use of Biodiesel PRONAF National Program to Strengthen Family Farming SDT Secretary of Territorial Development SEBRAE Brazilian Service for the Support of the Micro- and Small Enterprises UBCM Macaw Palm Fruit Processing Unit UBRABIO Brazilian Biodiesel Union UFMT Federal University of Mato Grosso UFV Federal University of Viçosa 1

Chapter 1 Concepts

Mariana Barros Teixeira; Marina Barbosa Passos; Ronaldo Perez; Aziz Galvão da Silva Jr

Bioenergy wind), hydraulic energy (kinetic energy from flow- The first section of the book brings up the subject ing water masses), solar energy (proceeding from of bioenergy, especially biofuels, and it refers to the sun), and biomass energy (chemical energy some basic concepts and agro-industrial produc- proceeding from plants). These are forms of energy tion chains. that renew cyclically in a reduced time scale. Bioenergy refers to the renewable resources The technologies that are under development from natural cycles of solar radiation conversion, enable such energy resources to be exploited as primary source of almost every available source on alternative fuels (such as biodiesel and alcohol) Earth (Pacheco, 2006). Bioenergy is obtained from or used in the production of heat and electric- organic matter. In other words, bioenergy is the ity (wind, solar, hydroelectric). Bioenergy is very result of the solar energy conversion into chemical important for the development of agro-industries energy by vegetable biomass through its photo- and productive agrifood chains. Figure 1 shows synthesis process. the technological paths for the production of bio- Therefore, these renewable energy resources are energy from biomass. Biomass is a major source not based on fossil fuels. This category includes for bioenergy production. It is the only renewable wind energy (kinetic energy proceeding from the energy source that can be converted into gaseous,

figure 1 Technological paths for the production of bioenergy from biomass

Chemical conversion Biochemical conversion Liquefaction Combustion Gasiﬁcation Digestion Fermentation Extraction pyrolysis

Oil Vapor Gas Gas Oil Coal Biogas

Distillation Esteriﬁcation Reﬁning Gas Combined Synthesis engine cycle Ethanol Biodiesel engines Diesel Steam turbines Fuel cells

Heat Electricity Fuel

Source: BNDES & CGEE, 2008a. 2 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

liquid, or solid fuels. Biomass may also be used in In the United States, biodiesel is defined as a its raw form or through processing of its deriva- renewable fuel produced from vegetable or ani- tives. The variety of possible uses of biomass, the mal oils to be used in diesel engines (Prates et al., advantages of safe storage, and the possibility of 2007). Biodiesel must meet specifications of the integrating local suppliers, such as agricultural and American Society of Testing and Materials (ASTM forestry businesses, offer a vast range of sustain- D 6751, 2010). able applications. In Brazil, Law 11.097/05 defines biodiesel as “biofuel derived from renewable biomass for use Biofuels in internal combustion engines with compression Biofuels are fuels of biological origin produced ignition, or in accordance with regulations, to gen- from biomass such as corn, wheat, soybeans, cot- erate another type of energy that can partially or ton, sugar cane, sugar beets, wood, algae, or organic totally substitute fossil fuels”. The specifications waste. The seeds from plants rich in oil are used to for biodiesel in Brazil are regulated by ANP Reso- produce biodiesel, which has the potential to par- lution 42, November 24th, 2004 (ANP, 2004, 2014). tially or completely replace diesel oil. Crops that The most common process of producing bio- are rich in sugar or starch and cellulose are used diesel is through the reaction of vegetable oil or to produce bioethanol, which can be combined animal fat with alcohol. This reaction is induced by with gasoline (if it is anhydrous alcohol) or even be the presence of a catalyst (which may be an acid, a used alone for appropriate engines (if it is hydrated base, or an enzyme). Biodiesel and glycerin are the alcohol). products of this reaction. Figure 2 shows the main Regarding the physical aspects, biofuels can be: processes used to obtain biodiesel. solid, such as firewood, charcoal and wood; liquid such as ethanol, biodiesel and vegetable oil; or gas, Ethanol such as biogas. The main types of biofuels are sum- Ethanol is an alcohol, which may be used as fuel, marized in Table 1. that comes mostly from fermentation processes Biofuels can be divided into two types: first and based on raw materials containing sugars (sugar second generation. Those of first generation use as cane, beets, grapes, etc.), starches (from cassava, feedstock for biofuel production agricultural and maize, wheat, etc.), or cellulosic material, and is agro-industrial materials rich in sugar, starch, or commonly referred to as bioethanol. oils. Second generation biofuels are produced from The technology to produce ethanol, at least for cellulosic biomass from a wide variety of sources, some raw materials, is well established. Brazil, the such as agricultural and forestry residues, city second largest ethanol producer in the world, uses dump, and algae. sugar cane as feedstock and has the lowest production costs in the world. The United States, which Biodiesel is a major producer, uses corn as feedstock for The European Union defines biodiesel as a methyl ethanol production. Commercial production of ester produced from vegetable or animal oil (Direc- ethanol from cellulosic biomass is low, but there tive 2003/30/EC of the European Parliament, 2003). are relevant studies towards second generation Thus, biodiesel sold in Europe must be obtained fuels. Some technologies used to produce ethanol through the methyl route (Prates et al., 2007). are simplified in Figure 3.

Table 1 Most important biofuels, definitions and sources

Types Definition Sources

Ethanol produced from biomass or from the biodegradable Bioethanol Sugar cane, corn, beets, cassava fraction of biological waste

Biodiesel Methyl or ethyl ester, produced from vegetable oils or fats Oil from oil crops and tallow

Organic matter, such as vegetable Fuel gas produced from biomass or the biodegradable fraction Biogas crop residues, animal dung and urine, of waste that can be purified to the quality of natural gas and human household waste

Vegetable oil Oil obtained from the extraction of oleaginous plants Oil crops, mainly oilseeds

Biomethanol Methanol produced from biomass Biomass

Source: European Parliament and the Council, 2003. Chapter 1 – Concepts 3

figure 2 Technological routes for the production of biodiesel

Oleaginous materials

Processing By-products

Oil extraction Cake

Oil

Transesteriﬁcation Fatty acids Cracking

Biodiesel Glycerin Esteriﬁcation Other Bio-oil* by- products Biodiesel Water

*According to international nomenclature, the fuel produced by cracking is not considered biodiesel, although it may have similar characteristics to oils. Source: Prepared by the authors.

figure 3 Technological routes for the production of ethanol

Starchy material Processing Current sources (corn, sorghum, Starch cassava) Hydrolysis Glucose Juice processing Sugarcane Sucrose Fermentation and distillation Pre-hydrolysis Bagasse Fermentation and distillation Ethanol

Lignins Hemicellulose Cellulose

Ethylene, Oil, phenolacetic Glucose propylene, acid butene, and derivatives Hydrolysis Sugars Potential sources

Furfural, resins, maleic acid, Biomass xylose, xylitol, mannose, mannitol

Source: Bastos, 2007. This page intentionally left blank. 5

Chapter 2 Bioenergy overview

Marina Barbosa Passos; Thomás Valente de Oliveira; Ronaldo Perez; Aziz Galvão da Silva Jr

The Evolution of Bioenergy fuels: first it was coal, and in the second half of the For many years, bioenergy has been a major source nineteenth century, oil. Fossil fuels would then of energy for humankind. Biomass was the most start to be of great importance, and that could be commonly used form of bioenergy; fuelwood has noted in the twentieth century, a time when oil and been used abundantly to supply the energy needed coal became the major contributors to world sup- for light, heating, and household chores (BNDES ply and consumption of energy. & CGEE, 2008a). In the United States, and prac- The advance of industrialization, the intensive tically around the world, woody biomass was the use of transportation systems, and changes in con- most important source of energy until about the sumption behaviors caused an increase in world nineteenth century (EIA, 2010a). The use of fire- energy supply over the past 40 years. Energy wood in some countries started to change from the became more available and there was concomitant- eighteenth century, because its availability in much ly an increase in supply from other sources, such as of Western Europe was reduced. This led to the natural gas and nuclear energy (Graph 1). exploitation of coal, which was a highly available Although there was an unfavorable global sce- and easy to obtain fossil fuel at the time (BNDES nario for woody biomass, it remained for a longer & CGEE, 2008a). period as an important energy source in most tropi- Wood shortage, coupled with the development cal developing countries, including Brazil, where promoted by the Industrial Revolution in some fossil fuels became relevant only in 1915. Thus, regions and more intensely in Europe, gave rise until the mid-1960s fuelwood was still largely used, to the exploitation of other fuels, especially fossil mainly in the Brazilian railway sector. Although

graph 1 World energy supply by source, 1971 to 2010 (106 toe)

14 000

12 000

10 000

8 000

6 000

4 000

2 000

0 1971 1975 1980 1985 1990 1995 2000 2005 2010

Other Renewable fuels Hydraulic Nuclear Natural gas Petroleum Coal

Source: International Energy Agency, 2012. 6 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

fossil fuels have taken the prominent position occu- In many countries, the incentives for the use pied by wood, the latter still represents a relevant of bioenergy, particularly biodiesel and ethanol type of source. According to the Brazilian Institute are based on policies and instruments that oper- of Geography and Statistics (IBGE), wood is still ate largely in the energy sector. Governments use used by about one quarter of the households in subsidies, tax reductions, availability of credits and Brazil, and it is also largely used in the agricultural mandatory or voluntary goals for blending ethanol and ceramic industries, mainly in the smaller ones with gasoline, and biodiesel with diesel. Thus, in (BNDES & CGEE, 2008a). Graph 2 shows the the past decades, such actions and measures have evolution of energy supply in Brazil. promoted the steady production of biodiesel and In recent years, there has been a development of ethanol, as well as the building of the market. renewable energy in the world scene, especially for The development of the global production of biofuel, wind, and solar sources. This development biodiesel and ethanol are shown in Graphs 3 and 4, has always been related to times when fossil fuels respectively. were scarce, such as in time of war or in time of Large-scale production of biodiesel began crises related to oil supply. The global demand for recently and there has been significant production energy is increasing, and in this context, biofuels growth in the last ten years. In 2002 the major pro- have great potential to fulfill part of that need. ducers were Germany, France and Italy (together they accounted for nearly 90 percent of the total Biofuels production). This scenario lasted during the two The development of biofuels, and their insertion as following years. However in 2005 this share fell an important source of energy in many countries, to 72 percent due to increased production in other has always been dependent on political support and countries such as the United States. In the following encouragement of their production and use. In a years production was expanded and decentralized way, public policy programs on biofuels are focused and, as a consequence, other countries were inserted on energy security, climate change mitigation, and in this scenario, for instance European Union coun- rural development especially for developing countries, Brazil, Argentina and Indonesia. tries; and on environmental issues in developed Nowadays the production of biodiesel is of countries. approximately 22 billion litres. Germany and the

graph 2 World energy supply by source, percentages, 2002 to 2011 (106 toe)

100 Other

90 Sugar cane products

80 Wood and charcoal 70

60 Hydraulic and electricity

50 Mineral coal

30 Petroleum, natural gas and derivatives

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: EPE, 2012. Chapter 2 – Bioenergy overview 7

United States are the main producers, accounting for biodiesel: global ethanol production increased 26 and 19 percent of the total production, respective- more than twofold. In 2004 and 2005, the major ly, followed by Argentina with 14 percent, France producers were the United States, Brazil, China, (13 percent) and Brazil (12 percent). See Table 1. and India, accounting for 86 percent of the ethanol Large scale ethanol production developed in production. Currently, ethanol production is still the 1970s, prior to the production of biodiesel. It concentrated in these countries, although there showed small variations in the period of 1985 to was a decrease in production in India, which was 2002 but then its growth was similar to that of among the largest producers. Other countries,

graph 3 Worldwide production of biodiesel, 1991 to 2012 (106 L)*

25 000

20 000

15 000

10 000

5 000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

*Estimated. Source: F.O. Licht, 2007, 2009 and 2010.

graph 4 Worldwide production of ethanol, 1991 to 2012 (106 L)*

100 000

90 000

80 000

70 000

60 000

50 000

40 000

30 000

20 000

10 000

0 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

*Estimated. Source: Licht, 2007, 2009 and 2010. 8 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

such as France and Canada, showed significant ment to the development of biofuels is based on increases in their production (Table 2). using them as an energy source for transporta- Data presented for the production of ethanol tion, in order to encourage increased energy secu- and biodiesel demonstrate the evolution of the rity, mitigate climate change, and encourage rural use of biofuels, mainly in Europe, Brazil, North development. America, and some Asian countries. The commit-

Table 1 Production of biodiesel by country, 2004 to 2012 (106 L) Country 2004 2005 2006 2007 2008 2009 2010 2011 2012* Germany 1 166 1 880 2 998 3 255 3 175 2 859 3 251 3 181 5 645 United States 106 345 947 1 703 2 650 1 816 1 192 4 163 4 163 France 392 554 837 982 2 044 2 206 2 170 1 771 2 790 Argentina – – – 180 1 205 1 222 2 070 2 760 3 000 Brazil – 0.7 69 730 1 100 1 608 2 386 2 673 2 700 Indonesia – – 590 760 684 398 455 650 700 Italy 360 446 503 409 670 830 802 544 2625 Malaysia – – 141 150 541 258 91 15 17 Thailand – – 35 – 394 607 660 680 810 China – – 35 338 338 341 341 454 568 Belgium – 1 28 187 312 468 494 536 875 Poland – 112 130 90 310 373 420 412 1 004 Portugal – 1 102 197 302 281 328 326 548 Austria 64 96 139 301 240 349 328 256 607 Spain 15 82 111 189 233 967 1 051 686 4 989 United Kingdom 10 57 216 169 216 154 164 247 652 Greece – 3 47 113 120 86 37 88 922 Others 128 440 505 898 1 888 ––––

*Estimated Source: Personal reference, EBB, 2012.

Table 2 Production of ethanol by country, 2004 to 2011 (106 L) Country 2004 2005 2006 2007 2008 2009 2010 2011 United States 12 894 14 788 18 501 24 500 34 070 38 600 50 076 52 611 Brazil 14 647 16 040 17 764 21 300 24 500 24 897 26 198 21 066 China 3 652 3 803 1 613 1 840 1 900 --- 2 049 2 087 France 101 144 293 539 950 1 250 1 050 1 007 Canada 231 231 455 800 900 1 100 1 350 1 749 Germany 25 165 431 394 581 750 761 770 Spain 254 303 402 348 346 465 472 463 Thailand 280 299 130 300 340 1.647 ------Colombia ------284 256 315 ------India 1 750 1 701 --- 250 250 347 ------Poland 48 64 120 155 200 166 200 167 Hungary --- 35 34 --- 150 150 186 173 Sweden 71 153 140 70 --- 175 205 200 Italy --- 8 128 60 --- 72 60 60 Others ------253 674 ------

Source: Licht, 2010; EREA-ePURE, 2012. 9

Chapter 3 Historical overview of Brazilian biofuel policies

Marina Barbosa Passos; Jonas Roberto Barrél; Ronaldo Perez; Aziz Galvão da Silva Jr

Introduction versities and institutes in Brazil, the National Insti- The Brazilian energy matrix is considered one of tute of Technology (INT) for instance, performed the cleanest in the world. According to the Ministry several studies related to the use of alternative and of Mines and Energy (MME), renewable sources renewable fuels in engines (Wilkinson and Her- account for about 45 percent of energy consump- rera, 2008). From 1931 anhydrous alcohol officially tion; and, according to the National Agency of became a gasoline additive, and the role of the Sugar Petroleum, Natural Gas, and Biofuels (ANP), they and Alcohol Institute (IAA) was to establish prices, account for 22 percent of fuel consumption in Bra- production quotas by plant, and volume of alcohol zil. The main liquid biofuels used in the country in the mixture (BNDES and CGEE, 2008a). are ethanol, made from sugar cane, and biodiesel However, despite initiatives to promote the produced from vegetable oils and animal fats. inclusion of renewable fuels in the Brazilian ener- The Brazilian interest in the development of gy matrix, it was only after the first oil shock in alternative energy sources is longstanding. It has 1973 and subsequent increases in oil prices, that been already nearly a century that Brazil has used programs were created and actions were taken in ethanol as fuel. The ethanol program has yielded order to contribute to the development of alterna- significant results, ranging from improvement in tive fuels in the country. In that year, the Brazil- sugar cane varieties to the development of flexible- ian oil imports accounted for expenditures of US$ fuel engines capable of operating with gasoline, 600 million, and reached US$ 2.5 billion in 1974 ethanol and blends of both fuels. More recently, (BNDES and CGEE, 2008a). During this period, the use of biodiesel appears to have great poten- the increase in oil prices caused a significant tial to strengthen the Brazilian energy matrix of growth in Brazil’s foreign debt and also a national renewable fuels and reduce diesel consumption in trade deficit (Carvalho and Carrijo, 2007).1 the country. In November 1975, in response to high oil This section firstly presents the main factors, prices, to sinking sugar prices and to difficulties in actions, and milestones that have enabled the fossil fuel supply (due to the hindrance imposed introduction of biofuels in Brazil, and have made by major oil producers in the Middle East), the Brazil one of the most important countries regard- National Program of Alcohol was launched ing the production of ethanol. Those factors have (PROÁLCOOL), and started to be managed also made Brazil to be known for its production by the National Alcohol Commission (CNA) of biodiesel based on social inclusion. Afterwards, through Decree 76,593 (Wilkinson and Herrera, the evolution and current situation of the Brazilian 2008; BNDES and CGEE, 2008a). The program biodiesel agro-industry and production chain are was basically aimed at increasing ethanol produc- discussed, with data on production, plant distribution in order to replace petroleum products, espe- tion throughout the country and market situation. cially gasoline, and trying to cause an increase in alcohol use by the chemical sector (Carvalho and A Brief History of Carrijo, 2007).2 Biofuels in Brazil In 1978 the second oil shock happened, when The Brazilian involvement with biofuels dates back barrel prices went rapidly up in world markets. to the 1920s, a time when vegetable oils and their derivatives were considered as possible alternatives 1 to diesel (especially in periods of petroleum short- The first oil crisis was due to Yom Kippur’s war, and as a result oil prices increased significantly. age), and when alcohol was already being produced 2 Crude oil world prices increased over 550 percent to be added to gasoline. Since the 1930s, several uni- between the years 1972 and 1974. 10 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

That caused the already existing biofuel programs to the large supply of raw materials (Suarez and to be more intense, which was the case of PROAL- Meneghetti, 2007). COOL. Also, the research for alternative energy At that time, many other programs emerged sources gained additional financial incentives (Car- with the primary objective of introducing biodiesel valho and Carrijo, 2007).3 in the Brazilian energy matrix, which happened in The Federal University of Ceará (UFCE), still subsequent years. during the 1970s, carried out experiments to find alternative sources of energy, and its researchers Restructuring of the sugar cane agribusiness found a biofuel derived from vegetable oil with The sugar cane agribusiness in Brazil was subject properties similar to those of diesel. It was in 1980 to strict government control until the early 1990s. that professor Expedito Parente, who at that time Agricultural and agro-industrial production was was also devoted to researching topics related to under the control of the processing plants; there the production of ethanol in UFCE, applied for were strong differences in productivity and scale of Brazilian patent PI – 8 007 957 regarding fuel production within a production region; and espe- made through transesterification of vegetable oils cially there were significant technical differences (Marques et al. 2008). UFCE also developed for between the units in the North-Northeast regions the Air Ministry in late 1982, kerosene for aviation and those from the South-Central regions (BNDES based on vegetable sources, the Prosen (Suarez and and CGEE, 2008a). Meneghetti, 2007). During the 1990s the industry went through a In the late 1980s, with oil prices dropping, many series of changes, including structural liberalization government programs that addressed the experi- and reorganization. Subsidies were abolished and it mentation and production of biodiesel, such as the was the end of bioethanol pricing based on tables, Program for Vegetable Oils (OVEG) established and the beginning of the process of liberation of in 1983, were gradually extinguished. However, prices for the sugar and alcohol sectors, finally Brazilian researchers, institutions, universities, completed in 1999 (BNDES and CGEE, 2008a). and private companies kept on working on their With all these changes, the structure of the research on biodiesel (Holanda, 2004). relationship between producers and distributors The discussion about the use of biodiesel was changed. Nowadays the price of sugar cane is trad- taken up by the Federal Government at the end of ed freely, but in most areas it is determined based the twentieth century. The production of biodiesel on a voluntary contractual model, coordinated and was no longer just experimental; it began on an agreed upon between cane growers and sugar and industrial scale. In November 2000, the first unit ethanol producers. In this model, the price paid for for the production of fatty acid esters was installed sugar cane is based on the value of total recover- in Mato Grosso, which started with a capacity of 1 able sugars, determined based on the amount of 400 tonnes/month of ethyl ester from soybean oil sugar available in the raw material, less losses in the (Suarez and Meneghetti, 2007). manufacturing process, and on the prices of sugar In 2002, the Ministry of Science and Technology and ethanol in the domestic and foreign markets was encouraged by the results of the Mato Grosso (BNDES and CGEE, 2008a). unit and launched the Brazilian Program of Tech- During the restructuring of the ethanol agribusi- nological Development for Biodiesel (PROBIO- ness, through Law 9 478 of 1997, two institutions DIESEL). This program was aimed at developing were created: the National Council of Energy Policy technologies for the production of biodiesel, and at (CNPE), with the role of establishing policies and establishing the consumption market of biofuels. It guidelines for specific programs of biofuel use; and was also expected to establish a Brazilian network ANP, to regulate and inspect the economic activi- of Biodiesel that would integrate the actions of all ties of the petroleum sector. The institutional review those involved in the development of this sector process for bioethanol ended with the creation, by (Holanda, 2004). Further, the program proposed Decree 3546, 2000, of the Inter-ministerial Council an ambitious goal of replacing all diesel consumed for Sugar and Ethanol (CIMA), whose responsibil- by the B5 blend by 2005 and by the B20 blend in ity is to decide on policies related to activities of the 15 years. The program considered the ethanolysis sugar and alcohol sector. CIMA is also responsible of soybean oil as the main technological route, due for defining and revising the content of ethanol added to gasoline, which is around 20 to 25 percent 3 The oil barrel price increased from US$12.9 in 1978, to and may be reduced depending on availability and US$30.5 in 1980. market conditions (BNDES and CGEE, 2008a). Chapter 3 – Historical overview of Brazilian biofuel policies 11

BOX 1 The Development of the National Alcohol Program

In its initial phase (1975-1979), PROÁLCOOL focused its efforts on stimulating the production of anhydrous alcohol to be added to gasoline, setting production targets of 3 and 10.7 billion liters of ethanol (anhydrous and hydrated), for the years 1980 and 1985, respectively. As shown in Chart 1, four years after the program was in operation, there was an increase in production that went from 580 000 m3 to 3 676 000 m3 (BNDES and CGEE, 2008a). According to the Union of Bioenergy Producers (UDOP), there was also an increase of 33 percent in harvested area and 56 percent in total production of sugar cane (Carvalho and Carrijo, 2007). Throughout the initial period of the program, the impacts of oil shocks were softened; therefore, the trade deficit declined and the value of oil imports had stabilized by mid-1978 (Carvalho and Carrijo, 2007). Marked by the second oil shock in 1978, the second PROÁLCOOL phase began in 1979 and is regarded as the climax of the program. This stage was characterized by a series of subsidies and measures4 to make the production, distribution, and consumption of ethanol easier. Basically, at this stage the main goal was to produce the hydrated alcohol for use in vehicles which had been adapted to run on biofuel (Wilkinson and Herrera, 2008). Through the investments provided by the program, during its years of operation and especially in its second phase, there were significant changes in the situation of ethanol in Brazil. There was a significant increase in ethanol production, which reached its maximum value (11.7 billion gallons per year) in 1985-86. Gasoline consumption dropped dramatically, reaching less than 50 percent of all liquid fuels consumed in the country, while the consumption of ethanol went from 1.1 to 55.5 percent due to an increased fleet of vehicles running on ethanol (Carvalho and Carrijo, 2007).

graph 1 Brazilian production of sugarcane, sugar, and ethanol, 1975 to 2012

103 m3 or 103 tonnes 103 tonnes sugar cane 40 000 700 000

Sugar (103 tonne) 35 000 600 000 Ethanol (103 m3) 30 000 Sugar cane (103 tonne) 500 000 25 000 400 000 20 000 300 000 15 000 200 000 10 000

5 000 100 000

0 0 81/82 83/84 85/86 87/88 89/90 91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12

Year of harvest

4 Actions by the government included: adjustment of ethanol prices to 65 percent of the price of gasoline; mandatory supply of ethanol in gasoline stations; support for research and development for the adaptation of vehicles to be able to use hydrous ethanol; the creation of the National Council of Alcohol (CNAL) to take the overall lead of the program; and the creation of the National Executive Committee of Alcohol (CNAL) to implement the program. 12 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

BOX 1 (continued)

The collapse of PROÁLCOOL occurred in the second half of the 80s, due to a combination of factors (drastic reduction in oil prices, recovery of international sugar prices, difficulties in maintaining subsidies, increase of external and internal debts, among others) (Carvalho and Carrijo, 2007). Sugar cane started being destined for exportation, and that caused a huge problem of internal supply which made the price of alcohol rise. This occurred just when sales of alcohol-powered cars reached their highest point – 85 percent of total sales of new cars in 1985. Such situation affected consumer confidence, causing a sharp decline in the sales of those vehicles (Wilkinson and Herrera, 2008). In the early 1990s, the conjuncture of affairs regarding production and use of ethanol in Brazil led to important consequences: the liberalization and institutional restructuring of the sugar cane industry and extinguished the Institute of Sugar and Alcohol (IAA), which had regulated the Brazilian sugar cane market for decades; the drastic decrease in production of vehicles running on ethanol and ethanol imports, reducing the amount of anhydrous alcohol to be incorporated into gasoline; the reduction of hydrated ethanol and even its replacement by methanol, ethanol and gasoline (MEG) blend (BNDES and CGEE, 2008a).

However, Brazilians continued adding anhydrous ethanol to gasoline, and the mixture containing 22 percent of ethanol became mandatory in 1993. This government measure encouraged the expanding of the anhydrous ethanol market, which has become quite strong and persists nowadays (BNDES and CGEE, 2008a). It is estimated that between 1975 and 1989, PROÁLCOOL spent about US$ 7.1 billion, both from government and from private sources. Ethanol consumption in the period between 1976 and 2005 provided savings in foreign exchange of US$ 195 billion (BNDES and CGEE, 2008a).

Once the sugar cane agribusiness had been restruc- ian territory the area harvested for sugar cane was tured, the alcohol fuel sector went through a period 9.4 million hectares, mainly in the South-Central of revitalization, strengthened in 2003 by the advent region (personal communication, IBGE, 2013). of flex-fuel vehicles, which use blends of ethanol The ethanol produced is consumed mainly by and gasoline, in addition to the opportunities for the Brazilian market itself, and part is destined exporting ethanol. The Brazilian consumer adhered to foreign markets. According to the Bureau of rapidly to dual-fuel vehicles, which represented Foreign Trade (SECEX), for the 2008/2009 crop about 88 percent of car purchases in 2009, accord- year, exports were about 4.7 billion liters of etha- ing to the National Association of Automobile nol, which represented approximately an income Manufacturers (ANFAVEA). Over recent years, of US$ 2.2 billion. The main export destinations the sector made considerable investments, expand- were the United States and the Netherlands ed its production, and became more technologically (SECEX, 2010). updated. Recently, sugar cane products have 15.7 With the goal of improving ethanol trade in Bra- percent of participation in the Brazilian energy zil, the ANP approved in December 2009 a law that matrix and 35.5 percent in the renewable energy establishes agents (one is the supplier and another is market (MME, personal communication, 2012). the operator of commodities and futures) to oper- Brazilian ethanol production was undergoing a ate in the Brazilian ethanol market (ANP, 2009a). period of growth since 2000, as shown in Graph With the investments made, the sugar cane sector 2. In 2012 the volume produced was 22.6 billion has undergone extensive expansion becoming one liters, which corresponds to approximately 27 of the most important sectors of Brazilian agribusi- percent of world ethanol production expected for ness, and is responsible for a turnover of around that year (Earth Policy, 2013). According to data US$ 30 billion (personal communication, MAPA, from the Ministry of Agriculture, Livestock and 2013). With new investments, an increase of pro- Supply (MAPA), there are 401 plants in Brazil; 10 duction and consumption of ethanol is supposed to of them are sugar producers, 294 are mixed, 95 are happen, as well as an expansion in the acreage of distilleries and two still to be launched. According sugar cane and the empowerment of the Brazilian to the IBGE, in the 2012 harvest, along the Brazil- agribusiness (Wilkinson and Herrera, 2008). Chapter 3 – Historical overview of Brazilian biofuel policies 13

graph 2 Brazilian production of ethanol, 1980 to 2012 (106 m3)

30 000

Hydrated (m3) 25 000 Anhydrous (m3)

20 000

15 000

10 000

5 000

1980 1981 1982 19831984 19851986 19871988 19891990 19911992 1993 1994 19951996 19971998 19992000 20012002 20032004 20052006 20072008 20092010 2011

Source: Personal communications, MAPA (2013) and UNICA (2013).

The consolidation of biodiesel and encouraged research studies (MME, personal agribusiness in Brazil communication, 2009). In contrast to the government’s efforts in the etha- Law No. 11,097 of January 13, 2005, established nol fuel industry, biodiesel has been relegated to the obligatory addition of 2 percent biodiesel to research institutes and universities. Thus, the com- diesel sold throughout the country starting Janu- mercial production of biodiesel is recent (since ary 2008 and 5 percent by January 2013. The mix- 2005), which occurred only after the creation of ture was allowed to oil refineries and distributors the National Program of Biodiesel Production and of its derivatives. It was forbidden for the biodiesel Use (PNPB) in 2004 (ANP, 2010a, 2010b; Portal producer to sell directly to final consumers, with do Biodiesel, 2010). Even though biodiesel pro- the exception of sales to large customers (corpora- duction is recent, what the program of bioethanol tions), if authorized by ANP (Azevedo, 2008). had brought as far as learning, made it possible to In order to promote social inclusion throughout develop biodiesel production quickly. the biodiesel production chain, some relevant fac- PNPB was the result of the action of various tors were taken into account: the creation of a tax ministries of the Brazilian government, which policy in favor of family farming and the inclusion promoted actions for the introduction of biodiesel of the Social Fuel Seal, which establishes the require- in the Brazilian energy matrix. The program was ments for biodiesel producers to obtain tax benefits launched to stimulate the production and use of and credits from the purchase of family farm oil. biodiesel in a technical, economical, and sustain- In an innovative way, the inclusion of this new able manner, focusing mainly on social inclusion fuel in the Brazilian energy matrix was largely and regional development, by increasing people’s due to the biodiesel public auctions promoted by income and opportunities to work (personal com- ANP. These auctions determine volumes of pur- munication, MAPA, 2006). chase, highest offers, places and dates for delivery, The Federal Government, through the PNPB, and they oversee compliance of quality standards has organized the biodiesel production chain. (ANP Resolution No. 42 of 2004; ANP, 2004). Thus, the government established funding, devel- Additionally, they require that offering companies oped the technological base and issued a regula- have the Social Fuel Seal, that is, that companies tory framework for biodiesel. It also assessed tax carry out oil purchases and organize their actions structure, organized the distribution structure with family farming. 14 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

figure 1 Outline of the actions of the main actors involved in the PNPB

Family farming

Production of oilseeds

Contract Stamp contract monitoring Unions, Social Stamp monitoring Government FETRAF1 and Contract CONTAG2 Price negotiation and Technical support organization of monitoring production to the production

Agronomic technical support to family farming Distributors ANP Biodiesel Distribution to gas Industry Quality control Production stations and market of oilseeds

Control and taxes Government Auctions

Conduct auctions

ANP Delivery monitoring

1FETRAF – Federação Nacional dos Trabalhadores e Trabalhadoras na Agricultura Família (National Federation of Family Farm Workers). 2CONTAG – Confederação Nacional dos Trabalhadores na Agricultura (National Confederation of Agricultural Workers). Source: Adapted from Wilkinson and Herrera (2008).

Besides this important role, ANP is also expected in the world and is still undergoing expansion, as to define and supervise the quality of biofuels and shown in Graph 3. promote regulation, contracting, and supervision Between 2005 and 2007 the mandatory rule to of biofuel economic activities. Specifically for bio- add biodiesel to mineral diesel was not yet valid. diesel, ANP is responsible for regulating; operat- According to Law N. 11.097/05, mixing was ing permits; and overseeing activities related to the optional during this period. In addition, there entire production chain (ANP, 2010c). were many doubts as to the rules and long-term The onset of the organizational development of policies, which made many investors doubt on the the biodiesel supply chain in the country required implementation of processing units. two years. As shown in Figure 1 regarding the When the measure became compulsory on Jan- National Program of Biodiesel Production and uary 1st, 2008, the percentage of biodiesel in the Use, there are various actors involved in the coor- blend was 2 percent. All legal and political disputes dination of biodiesel production and use chains, had already been defined which allowed a rapid which, depending on the policies, regulations, and increase in production (Graph 4). Thus, in July returns, will conduct the appropriate actions. 2008 the mixture went from 3 percent to 4 percent in May 2009, and 5 percent in January 2010. As a Data of the Evolution and result of mandatory blending in 2008 the volume Current Situation of the of biodiesel produced (1.17 billion liters) had an Brazilian Biodiesel Agribusiness increase of 188.7 percent over the previous year. In Evolution of the production of biodiesel the end of 2009, biodiesel production was 1.61 bil- Although production started recently, the volume lion liters an increase of 38 percent over the previ- of biodiesel produced in 2009 was the third largest ous year (MME, personal communication, 2009). Chapter 3 – Historical overview of Brazilian biofuel policies 15

By the time the percentage of 5 percent biodiesel The experience that had been gained with the in the mixture became mandatory there was an development of alcohol in the country was prob- increase of 48 percent in the biodiesel supply (2.39 ably important in this process. Moreover, most billion liters in 2010). of the demanded infrastructure was ready, such The rapid evolution was a consequence of sev- as the facilities for blending biodiesel and diesel, eral factors: the market dynamics, the efficiency of allowing the mixture to reach the entire country soybean production, the existing infrastructure, in a matter of months after its introduction into and the links between the government, compa- the market. During this process it was important nies, and institutions participating in the PNPB. to have the oil extraction agro-industry already

graph 3 Brazilian production of biodiesel, 2005 to 2012 (m3)

3 000 000 2 672 760 2 718 954

2 500 000 2 386 399

2 000 000 1 608 448 1 500 000 1 167 128

1 000 000

500 000 404 329

69 002 1 902 0 2005 2006 2007 2008 2009 2010 2011 2012

Source: Personal communication, ANP (2013).

graph 4 Monthly biodiesel production in Brazil, 2005 to 2012 (m3)

300 000

250 000

2012 200 000 2011 2010 150 000 2009 2008 100 000 2007 2006 50 000 2005

April May June July March August January February October September NovemberDecember

Source: Personal communication, ANP (2013). 16 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

graph 5 Biodiesel production in Brazilian regions

NORTH

NORTHEAST

MIDWEST

SOUTHEAST

SOUTH

100%

80%

60%

40%

20%

jan/10 jul/10 oct/10 jan/11 jul/11 oct/11 jul/12 oct/12 feb/10mar/10apr/10may/10jun/10 aug/10sep/10 nov/10dec/10 feb/11mar/11apr/11may/11jun/11 aug/11sep/11 nov/11dec/11jan/12feb/12mar/12apr/12may/12jun/12 aug/12sep/12 nov/12dec/12

Midwest South Southeast Northeast North

Source: MME based on ANP, personal communication, 2013. installed in several Brazilian states, mainly for while the North is the region that had the low- soybean processing, plus a surplus of vegetable est participation (Graph 5). In December 2012, oil that had been exported, and a surplus of beef regional production was distributed as follows: tallow available in the Brazilian market. This situ- Midwest 45 percent; South 32 percent; Southeast ation accelerated the responses to the PNPB. 10 percent; and Northeast 13 percent (MME, per- Thus, the most important units with greater sonal communication, 2013). capacity came to be located close to the grain,, oil This situation was partially due to the authorized and tallow producing regions. Biodiesel produc- production capacity and the delivery by the state. tion was concentrated in the Midwest and South, The states with the largest installed capacity were: Chapter 3 – Historical overview of Brazilian biofuel policies 17

graph 6 Authorized capacity of biodiesel production plants per region, 2008 to 2012 (m3)

3 000 000

2 500 000

2 000 000

1 500 000

1 000 000

500 000

0 North South Southeast Northeast Midwest

2008 2009 2010 2011 2012

Source: ANP, personal communication, 2013.

Table 1 Contribution of the states and regions to the supply to biodiesel auctions, 2012 (m3)

Region State State total (m3) Participation

MT 477 008 Midwest GO 566 558 42.8% MS 76 635 RS 748 986 South 33.0% PR 115 709 SP 154 591 Southeast MG 81 313 9.7% RJ 16 719 BA 237 520 CE 59 001 Northeast 11.3% MA – PI – TO 75 474 North RO 9 110 3.2% PA –

All All 2 618 624 100%

Source: ANP, personal communication, 2013.

Mato Grosso, Rio Grande do Sul, Goias and Sao (477 008 m³) and Bahia (237 520 m³) as shown in Paulo, located in the Midwest, South and Southeast. Table 1. That same year, the volume of biodiesel The evolution of the installed capacity of biodiesel delivered by the four states accounted for 77 per- plants by region, from 2005 to 2009, is shown in cent of the total volume delivered in the auction. Graph 6. The states with the largest supply of bio- As for the economic groups (companies) with diesel to the auctions in 2012 were: Rio Grande do greater participation in the production of bio- Sul (748 986 m³), Goiás (566 558 m³), Mato Grosso diesel, seven of them produced 49 percent of the 18 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Table 2 Business groups with greater contributions to the production of biodiesel (m3)

Year Company State 2010 2011 2012

Anápolis - GO A Campinas – SP 335 343 318 196 352 440 Cachoeira do Sul - RS B RS 196 144 237 756 240 392 C MT 237 535 150 032 149 547 C GO 198 793 239 994 265 138 E RS 129 396 125 118 136 752 F MT 109 430 140 238 126 533 G SP 119 653 100 520 18 800

Source: Personal communication, ANP/SRP (2013). country’s total production in 2012 (Table 2). In ference in capacity is associated with the greater 2011, three groups were responsible for more than availability of oil crops and vegetable oils, and it is 29 percent of national production. also a region of traditional family farming. These Virtually all Brazilian plants use the process of factors facilitate the creation of plants and verti- transesterification and the methyl route, except for cal contracts with family farmers (IEA, 2009). In Agropalma (Pará), producing the biofuel through the Midwest there are more units and the region direct esterification of fatty acids. has the largest installed capacity in the country, 3.1 million cubic meters per year, equivalent to 35 Brazilian biodiesel plants percent of the national installed capacity). Currently, there are 66 plants established in the Table 3 shows the number of plants and their country authorized to operate by ANP, of which installed capacities for each region. The distribu- 61 are authorized for trading blend B100. tion of plants in the Brazilian territory is shown As for the distribution of biodiesel production in Figure 2. units in Brazil, there are only a few biodiesel plants The evolution of installed capacity of biodiesel in the North and South. However, the difference plants with Marketing Authorization and Special between regions is in the installed capacity of the Registration from 2011 to 2013 is shown in Chart plants: the Southern region has larger units; they 7. In January 2013 the value exceeded 580 million represent 28 percent of national installed capac- gallons per month, representing about 7 billion ity, compared to 3 percent of the North region gallons annually, of which 77 percent came from (MME, personal communication, 2013). This dif- companies who hold the Social Fuel Seal (MME, personal communication, 2013). An estimate of oil acquired from family farms Table 3 in 2012, indicates a minimum of 441 471 million Biodiesel plants and production capacity by geographic gallons, of which 115 251.7 million came from region, 2010 the Midwest; 214 209.3 million from the South; Number Installed capacity Region 50 673.5 million from the Southeast; 48 988.3 of plants 103 m3/year Percentage million from the Northeast; and 12 384.2 million North 4 202 3 from the North. Northeast 6 741 11 The estimated oil volumes from family farms Midwest 27 3 073 46 were calculated based on the annual production Southeast 11 890 13 of biodiesel by region. The theoretical volumes of biodiesel produced by region were calculated South 8 1 818 27 based on average percentages of main raw mate- Total 56 6 724 100 rials used such as soybeans and cotton, which Note: Table includes only plants with a marketing authorization together account approximately 73 percent. in the PA and recording special RFB/MF. Source: DCR n. 60 Bulletin – March 2013. MME, personal communication, 2013. Chapter 3 – Historical overview of Brazilian biofuel policies 19

figure 2 Location of biodiesel plants with Marketing Authorization and Special Registration

Plants with seal Plants without seal (103 m3/year) (103 m3/year)

< 25 < 25

25–75 25–75

75–150 75–150

> 150 > 150

Source: MME, personal communication, 2013.

graph 7 Installed capacity of authorized biodiesel production plants (106 L/month)

600 Total installed capacity Installed capacity with social seal 500

400

300

200

100

Jul Jul Jan Feb Mar Apr May Jun Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Aug Sep Oct Nov Dec Jan Feb 2011 2012 2013

Source: MME, personal communication, 2013. 20 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Raw materials for the Final Remarks production of biodiesel Over recent years Brazil has been prominent in Soybean oil is used as the main feedstock for biofuel the biofuel industry and today it ranks among the production, followed by beef tallow and to a lesser largest producers and consumers of biodiesel and amount by cottonseed oil. The evolution of the use ethanol worldwide. This position was achieved as of raw materials for biodiesel production is shown a result of research, incentives, government support in Graph 8. In December 2012, the share of use of and investments by corporate groups. each raw material was 70.5 percent soybean oil, 19.6 The result of combining these elements is percent tallow, 5.7 percent cottonseed oil and 4.2 reflected in the success of the PNPB and in the percent for the other fatty materials. For 2012 the experience accumulated by Brazil in the produc- use of raw materials was 75.2 percent soybean oil, tion and large scale use of biofuels. This can be 17.2 percent tallow and 4.5 percent cottonseed oil demonstrated by the continuous increase in the (MME, personal communication, 2013). percentage of biodiesel added to diesel, and by the development of a fleet of flexible fuel vehicles that History of biodiesel auctions prevail in the current national fleet. Moreover, the The trade in biodiesel is regulated by ANP, through objectives of PNPB go beyond the strong growth public auctions established to sell fuel. The auctions of biodiesel production and the possibility of began in 2005, initially with the aim of generating reducing the use of diesel. Through the program, markets and thereby stimulate the production of there are efforts to foster, gradually, the inclusion biodiesel to meet the demand needed to compose of family farmers. Because of the surplus obtained the B2 blend (diesel with 2 percent biodiesel). In by the insertion of biofuels in the country, it is the auctions biodiesel is purchased by refineries and expected that the production will grow, and that it is their responsibility to add biodiesel to diesel. there will be more investments in the sector. ANP continues conducting auctions to ensure the addition of biodiesel to all diesel fuel sold in the country, according to the percentage in force (B5), according to the ANP (2009b). As a total, since 2005, there were 31 auctions to 2013 and the results are summarized in Table 4.

graph 8 Use of raw materials for biodiesel production, percentage, 2012

100

0 jan feb mar apr may jun jul aug sep oct nov dec

Soybean Tallow Cotton Other fatty materials

Source: ANP, personal communication, 2013. Chapter 3 – Historical overview of Brazilian biofuel policies 21 ue date D Until Dec/2007 Jul/06 to Jul/07 Jul to Sep/2008 Jul to Sep/2010 Jul to Sep/2009 Jul to Sep/2008 Jul to Sep/2009 Jul to Sep/2010 Jan to Jun/2009 Jan to Jun/2008 Jan to Dec/2006 Jan to Dec/2007 Jan to Dec/2007 Apr to Jun/2010 Oct to Dec/2008 Oct to Dec/2009 Oct to Dec/2010 Oct to Dec/2008 Apr to Jun/2009 Apr to Jun/2009 Oct to Dec/2009 Apr to Jun/2010 Oct to Dec/2010 Jan to Mar/2010 Jan to Mar/2011 Jan to Mar/2009 Jan to Mar/2009 Jan to Mar/2010 Jan to Mar/2011 0.79 4.24 3.54 0.39 1.82 1.07 1.31 3.31 4 0.59 0.59 0.46 5.82 2.25 1.58 0.91 2.54 5.46 0.42 2.53 7.93 8.29 2.22 22.4 24.37 25.72 27.97 24.65 22.3 iscount D (Percent) d ) 3 $/m US Price 4 190.65 3 223.34 4 511.19 3 904.54 4 279.91 4 888.76 4 209.42 3 988.99 3 158.28 1 720.00 2 243.11 4 522.06 4 271.61 5 416.06 5 422.73 5 023.26 4 260.96 4 867.73 4 187.72 4 005.09 3 945.37 3 947.98 1 750.00 2 310.17 3 963.66 3 875.43 3 859.72 3 891.87 3 227.49 average ( ef. d ) 3 $/m US 4 224.00 4 152.00 4 710.72 4 048.00 4 296.80 4 979.60 4 255.00 4 042.00 4 176.00 2 320.00 2 320.00 4 710.72 4 296.80 5 448.00 5 448.00 5 333.60 5 333.60 4 979.60 4 255.00 4 042.00 4 048.00 4 176.00 2 320.00 2 320.00 4 044.96 4 209.70 4 208.97 3 980.43 4 152.00 Maximum price r )( 3 olume old (m V S ) 3 92 500 70 000 76 000 76 000 94 760 66 000 50 000 45 000 olume 181 810 66 000 565 000 113 000 645 624 92 000 684 931 92 000 725 179 115 000 600 000 120 000 492 000 123 000 480 000 120 000 473 140 264 000 347 060 264 000 449 890449 890 264 000 578 152 66 000 578 152 252 000 645 624 63 000 368 000 684 931 368 000 725 179 460 000 565 000 452 000 600 000 480 000 492 000 123 000 480 000 120 000 315 520 170 000 125 400 50 000 304 000 304 000 V ffered (m ffered 1 141 335 550 000 O . N . – 29 – 31 8 4 6 4 7 4 N 3020 10 13 42 20 20 17 3232 27 34 27 28 4547 27 24 2421 17 23 20 2327 21 32 21 27 18 21 27 26 29 24 29 27 30 29 28 27 25 12 8 25 12 26 11 ffers Winners O ot 2 ot 2 ot 2 ot 1 ot 1 ot 1 L L L ot 2 ot 2 ot 2 L L L ot 1 ot 1 ot 1 L L L ot 2 L L L ot 1 L L 8/15/2008 5/29/2009 - 8/27/2009 - 11/17/2009 - 3/2/2010 - 5/31/2010 - 09/03/2010 - 11/19/2010 - 8/14/2008 11/24/2008 11/24/2008 2/27/2009 2/27/2009 5/29/2009 - 8/27/2009 - 11/17/2009 - 3/2/2010 - 5/31/2010 - 09/03/2010 - 11/19/2010 - c b c c c c c b c b c b c b c b c b c b 11/14/2007 4/11/2008 4/10/2008 b c b Auctions 1st Auction 11/23/2005 8th Auction 16th Auction 14th Auction 2nd Auction 3/30/2006 18th Auction 10th Auction 12th Auction 19th Auction 20th Auction 15th Auction 17th Auction 11th Auction 13th Auction 15th Auction 17th Auction 19th Auction 9th Auction 12th Auction 13th Auction 14th Auction 16th Auction 18th Auction 20th Auction 3rd Auction 7/11/2006 4th Auction 7/12/2006 5th Auction 2/13/2007 6th Auction 11/13/2007 7th Auction

4 e l verview of auctions to sell biodiesel, 2005 2013 Phases Optional mixture 2 % (Jan/06 to Dec/07) Mandatory mixture 3 % (Jul to Dec/08) and (Jan to Jun/09) Mandatory mixture 5 % (from Jan/10) Mandatory mixture 4 % (Jul to Dec/09) Mandatory mixture 2 % (Jan to Jun/08) ab T O 22 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience ue date D Jul to Sep/2011 Jul to Sep/2011 Apr to Jun/2011 Apr to Jun/2011 Oct to Dec/2011 Oct to Dec/2011 Oct to Dec/2011 Oct to Dec/2011 Oct to Dec/2011 Apr to Jun/2012 Apr to Jun/2012 Oct to Dec/2011 Oct to Dec/2011 Oct to Dec/2011 Oct to Dec/2011 Oct to Dec/2011 Apr to Jun/2012 Apr to Jun/2012 Apr to Jun/2012 Jan to Mar/2012 Jan to Mar/2012 Jan to Mar/2012 Jan to Mar/2012 Jan to Mar/2012 Jan to Mar/2012 Jan to Mar/2012 Jan to Mar/2012 Jan to Mar/2012 Jan to Mar/2012 8.73 7.41 7.38 2.75 2.75 1.91 1.49 0.7 1.54 0.83 0.85 0.83 0.82 0.8 14 15.18 13.88 11.18 11.82 17.13 10.78 12.85 16.91 17.11 12.12 14.52 12.1 14.14 11.15 iscount D (Percent) d ) 3 $/m US Price 2 046.00 2 046.00 2 027.70 2 110.61 2 178.57 1 967.22 2 398.63 2 385.35 2 121.81 2 045.29 2 025.91 2 387.52 2 358.87 2 064.06 2 038.00 2 252.58 2 310.88 2 423.22 2 340.72 2 609.57 2 632.54 2 414.50 2 440.46 2 423.74 2 557.49 2 526.55 2 064.59 2 038.00 2 272.00 average ( ef. d ) 3 $/m US 2 320.00 2 320.00 2 261.00 2 376.20 2 470.00 2 376.20 2 628.00 2 673.60 2 434.80 2 461.40 2 444.10 2 578.70 2 546.90 2 348.80 2 376.20 2 261.00 2 376.20 2 470.00 2 376.20 2 628.00 2 673.60 2 434.80 2 461.40 2 444.10 2 578.70 2 546.90 2 348.80 2 376.20 2 272.40 Maximum price r )( 3 olume old (m V S ) 3 15,2 15,2 26 000 26 000 60 200 60 200 15 400 15 400 15 400 15 400 23 000 23 000 26 000 26 000 54 400 54 400 13 400 13 400 21 000 21 000 27 000 27 000 62 600 47 000 104 00 104 000 61 600 61 600 61 600 61 600 92 000 92 000 60 800 60 800 53 600 53 600 84 000 84 000 64 000 64 000 olume 528 000 132 000 528 000 132 000 560 000 140 000 560 000 140 000 240 800 240 800 104 000 101 000 217 600 217 600 108 000 108 000 250 400 250 400 V ffered (m ffered O . 6 6 6 9 5 6 8 7 7 6 5 9 5 8 7 N . – 27 –– 27 – 32 –– 15 – – – –– 11 – – – – –– 31 –– 20 – 14 –– 11 –– 22 – 12 – –– 10 – 14 11 N ffers Winners O ot 1 ot 2 ot 2 ot 2 ot 4 ot 6 ot 8 ot 10 ot 2 ot 4 ot 6 ot 8 ot 10 ot 2 ot 1 ot 1 ot 3 ot 5 ot 7 ot 9 ot 1 ot 3 ot 5 ot 7 ot 9 ot 1 ot 3 ot 5 ot 4 L L L L L L L L L L L L L L L L L L L L L L L L L L L L L 02/18/2011 - 02/18/2011 - 05/26/2011 - 08/28/2011 - 08/28/2011 - 08/28/2011 - 08/28/2011 - 08/28/2011 - 11/23/2011 - 11/23/2011 - 11/23/2011 - 11/23/2011 - 11/23/2011 - 02/29/2012 - 29/022012 - 05/26/2011 - 08/28/2011 - 08/28/2011 - 08/28/2011 - 08/28/2011 - 08/28/2011 - 11/23/2011 - 11/23/2011 - 11/23/2011 - 11/23/2011 - 11/23/2011 - 02/29/2012 - 02/29/2012 - 02/29/2012 - c b c b c b c b c b c b c b c b c b c b c b c b c b c b c Auctions 21th Auction 21th Auction 22th Auction 23th Auction 23th Auction 23th Auction 23th Auction 23th Auction 24th Auction 24th Auction 24th Auction 24th Auction 25th Auction 25th Auction 24th Auction 25th Auction 23th Auction 23th Auction 23th Auction 23th Auction 23th Auction 25th Auction 25th Auction 22th Auction 24th Auction 24th Auction 24th Auction 24th Auction 24th Auction 4 e l Phases Mandatory mixture 5 % (from Jan/10) ab T (continued) Chapter 3 – Historical overview of Brazilian biofuel policies 23 ue date D Jul to Sep/2012 Jul to Sep/2012 Jul to Sep/2012 Jul to Sep/2012 Jul to Sep/2012 Jul to Sep/2012 Jul to Sep/2012 Jul to Sep/2012 Jul to Sep/2012 Jul to Sep/2012 Jan to Feb/2013 Jan to Feb/2013 Jan to Feb/2013 Jan to Feb/2013 Oct to Dec/2012 Oct to Dec/2012 Oct to Dec/2012 Oct to Dec/2012 Apr to Jun/2012 Apr to Jun/2012 Apr to Jun/2012 Oct to Dec/2012 Oct to Dec/2012 Apr to Jun/2012 Apr to Jun/2012 Oct to Dec/2012 Oct to Dec/2012 Oct to Dec/2012 Oct to Dec/2012 – – – – – – – – – – – – – – – – – – – – – – – – 6.92 5.78 9.02 13.81 12.22 iscount D (Percent) d ) 3 $/m *** *** *** *** *** *** *** *** US Price 1 958.65 2 260.75 2 247.75 2 551.04 2 610.00 2 548.15 2 587.00 2 670.00 2 288.45 2 329.68 2 467.51 2 550.81 2 458.71 2 559.72 2 644.24 2 794.66 2 719.52 2 856.62 2 529.29 2 655.45 2, 709.45 average ( ef. d ) 3 $/m US 2 272.40 2 428.90 2 560.60 2 587.10 2 609.80 2 501.40 2 657.60 2 699.50 2 711.80 2 734.50 2 626.10 2 782.10 2 824.20 2 680.60 2 703.30 2 428.90 2 560.60 2 614.30 2 641.70 2 537.90 2 694.10 2 826.10 2 745.10 2 762.40 2 659.10 2 797.10 2 939.20 2 713.90 2 731.20 Maximum price r )( 3 0 0 0 0 0 0 0 0 277 olume old (m V S ) 3 0 0 0 0 0 0 450 3 600 3 000 4 000 2 884 16 000 16 000 12 800 12 800 21 600 16 000 20 00051 000 3 000 35 150 33 180 33 000 51 200 51 200 86 400 86 400 84 000 69 500 35 000 26 500 80 259 74 259 60 773 60 733 olume 300 400 236 020 420 500 420 500 103 000 73 400 276 730 257 718 316 850 310 763 102 000 94 700 231 000 172 980 V ffered (m ffered O . 9 6 4 1 1 0 1 0 0 0 1 1 0 0 0 7 9 7 6 2 3 7 5 0 3 7 6 N . – – – – – – – – – – – – – – – – – – – –– 18 – – – –– 17 – – – N ffers Winners O ot 6 ot 8 ot 10 ot 2 ot 4 ot 6 ot 8 ot 10 ot 2 ot 4 ot 6 ot 8 ot 10 ot 2 ot 4 ot 7 ot 9 ot 1 ot 3 ot 5 ot 7 ot 9 ot 1 ot 3 ot 5 ot 7 ot 9 ot 1 ot 3 L L L L L L L L L L L L L L L L L L L L L L L L L L L L L 02/29/2012 - 02/29/2012 - 02/29/2012 - 06/14/2012 - 06/14/2012 - 06/14/2012 - 06/14/2012 - 06/14/2012 - 09/24/2012 - 09/24/2012 - 09/24/2012 - 09/24/2012 - 09/24/2012 - 12/12/2012 - 12/12/2012 - 02/29/2012 - 02/29/2012 - 06/14/2012 - 06/14/2012 - 06/14/2012 - 06/14/2012 - 06/14/2012 - 09/24/2012 - 09/24/2012 - 09/24/2012 - 09/24/2012 - 09/24/2012 - 12/12/2012 - 12/12/2012 - b c b c b c b c b c b c b c b c b c b c b c b c b c b c b Auctions 25th Auction 28th Auction 26th Auction 27th Auction 27th Auction 27th Auction 28th Auction 27th Auction 25th Auction 25th Auction 26th Auction 26th Auction 26th Auction 26th Auction 27th Auction 27th Auction 25th Auction 25th Auction 28th Auction 28th Auction 26th Auction 26th Auction 26th Auction 26th Auction 26th Auction 27th Auction 27th Auction 27th Auction 27th Auction 4 e l Phases Mandatory mixture 5 % (from Jan/10) ab T (continued) 24 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience ue date D Jan to Feb/2013 Jan to Feb/2013 Jul to Aug/2013 Jan to Feb/2013 Jan to Feb/2013 Jan to Feb/2013 Jan to Feb/2013 Jul to Aug/2013 Jul to Aug/2013 Mar to Apr/2013 Mar to Apr/2013 Mar to Apr/2013 May to Jun/2013 May to Jun/2013 May to Jun/2013 Mar to Apr/2013 Mar to Apr/2013 May to Jun/2013 May to Jun/2013 Mar to Apr/2013 Mar to Apr/2013 Mar to Apr/2013 Mar to Apr/2013 Mar to Apr/2013 May to Jun/2013 May to Jun/2013 May to Jun/2013 May to Jun/2013 May to Jun/2013 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – iscount D (Percent) d ) 3 $/m *** *** *** *** *** *** *** *** *** *** US Price 2 658.71 2 102.47 2 350.46 1 820.00 2 260.00 2 597.90 2 767.86 2 215.25 2 300.80 2 245.47 2 351.43 2 447.43 1 958.60 2 161.68 2 018.26 2 180.74 2 254.66 1 935.71 2 060.22 average ( ef. d ) 3 $/m US 2 594.90 2 751.10 2 793.00 2 583.70 2 606.50 2 498.10 2 653.70 2 696.10 2 458.40 2 481.10 2 372.70 2 528.40 2 570.80 2 403.10 2 627.90 2 766.00 2 900.00 2 617.00 2 634.40 2 531.10 2 668.60 2 811.10 2 491.70 2 509.00 2 405.70 2 543.30 2 685.80 2 436.40 2 453.70 Maximum price r )( 3 0 0 0 0 0 0 0 0 0 0 olume old (m V S ) 3 0 0 0 0 0 0 0 2 000 5 500 2 000 2 000 1 080 4 500 1 895 21 080 25 907 17 367 23 000 6 320 16 000 67 000 64 000 61 773 56 283 19 700 13 995 66 000 58 000 55 503 34 243 17 00059 000 8 890 49 000 60 273 38 301 olume 250 300 193 055 240 320 154 435 299 800 215 277 274 000 181 229 316 150 206 955 291 740 213 586 V ffered (m ffered O . 0 2 0 0 0 2 1 0 1 6 0 1 0 0 0 3 7 6 1 3 6 1 3 6 9 N . – – – – – – – – – – – – – – –– 17 – – – –– 14 – – –– 17 – –– 10 – N ffers Winners O ot 1 ot 6 ot 8 ot 10 ot 2 ot 4 ot 6 ot 8 ot 10 ot 2 ot 4 ot 6 ot 8 ot 10 ot 2 ot 5 ot 7 ot 9 ot 1 ot 3 ot 5 ot 7 ot 9 ot 3 ot 5 ot 7 ot 9 ot 1 ot 3 L L L L L L L L L L L L L L L L L L L L L L L L L L L L L 12/12/2012 - 12/12/2012 - 12/12/2012 - 02/07/2013 - 02/07/2013 - 02/07/2013 - 02/07/2013 - 02/07/2013 - 04/05/2013 - 04/05/2013 - 04/05/2013 - 04/05/2013 - 04/05/2013 - 06/03/2013 - 12/12/2012 - 12/12/2012 - 12/12/2012 - 02/07/2013 - 02/07/2013 - 02/07/2013 - 02/07/2013 - 02/07/2013 - 04/05/2013 - 04/05/2013 - 04/05/2013 - 04/05/2013 - 04/05/2013 - 06/03/2013 - 06/03/2013 - c b c b c b c b c b c b c b c b c b c b c b c b c b c b c Auctions 28th Auction 29th Auction 29th Auction 30th Auction 30th Auction 30th Auction 31th Auction 28th Auction 29th Auction 31th Auction 28th Auction 29th Auction 29th Auction 30th Auction 30th Auction 28th Auction 29th Auction 29th Auction 29th Auction 29th Auction 29th Auction 30th Auction 30th Auction 30th Auction 30th Auction 30th Auction 28th Auction 28th Auction 31th Auction 4 e l Phases Mandatory mixture 5 % (from Jan/10) ab T (continued) Chapter 3 – Historical overview of Brazilian biofuel policies 25 ue date D Jul to Aug/2013 Jul to Aug/2013 Jul to Aug/2013 Jul to Aug/2013 Jul to Aug/2013 Jul to Aug/2013 Jul to Aug/2013 – – – – – – – iscount D (Percent) d ) 3 $/m *** *** *** US Price 2 175.00 1 971.45 2 173.36 2 198.46 average ( ef. d ) 3 $/m US 2 425.80 2 317.40 2 473.10 2 515.50 2 350.40 2 488.00 2 630.50 Maximum price r )( 3 0 0 0 olume old (m V S ) 3 0 0 180 4 500 2 360 17 00055 000 4 490 50 000 olume 337 077 206 706 V ffered (m ffered O . 0 0 1 0 2 3 N . – – – – –– 17 – N ffers Winners O ot 4 ot 6 ot 8 ot 10 ot 5 ot 7 ot 9 L L L L L L L 06/03/2013 - 06/03/2013 - 06/03/2013 - 06/03/2013 - 06/03/2013 - 06/03/2013 - 06/03/2013 - b c b c b c b Auctions 31th Auction 31th Auction 31th Auction 31th Auction 31th Auction 31th Auction 31th Auction 4 e l Phases Mandatory mixture 5 % (from Jan/10) a) Participation of biodiesel producers authorized by the ANP and ongoing projects. b) Participation of biodiesel producers authorized by the ANP and holders Special Registration (SRF). holders of the Special Registration (SRF) and Social Fuel Seal (MDA). c) Participation of the biodiesel producers authorized by ANP, COFINS and without GST. d) Price: FOB position with PASEP personal communication, 2013. Source : ANP, ab T (continued) This page intentionally left blank. 27

Chapter 4 Brazilian market of major oilseeds, oils and meals for the production of biodiesel

Karina Rogério de Oliveira Viana; Ramon Barrozo de Jesus; Ana Carolina Alves Gomes; Ronaldo Perez; Aziz Galvão da Silva Jr

Introduction complex of soybean accounts for about 16 percent The harvest records reached over recent years allow of the whole agribusiness system in the country criticism as regards to the hypothesis that the use and generates more than 1 million direct jobs. One of farmland for soybeans, cotton, rapeseed, and of its major roles is to supply the world demand for other oilseeds for the production of biofuels, might vegetable oils and feed production for cattle, swine, become an obstacle to food production, given the and poultry. Furthermore, the production of other scenario of production expansion, often followed oilseeds, besides soybeans, has been encouraged by price reduction. due to the global interest in biofuels (Table 2). Accordingly, despite the serious world crisis which started in 2008, and eventually affected Soybean (Glycine max (L.) Merrill) harvest in the following years, some agricultural Brazil is the second largest producer and a major commodities such as cotton, ended up suffering a exporter of soybeans in the world. The Brazilian reduction of up to 20 percent in their world market production of the 2011/2012 harvest was about 66 prices, according to the National Supply Company million tonnes while the total world production was (CONAB). approximately 269 million tonnes (FAOSTAT, 2011). This price and production turnover occurred Around half of the total agricultural production in similarly in the markets for vegetable oil, cake and meals, which are the main products and co-prod- Table 1 ucts of grain processing, Because the major grain 3 producers are also often the largest processors, oil Major oilseed producers worldwide (10 tonne) and co-product price and production tendencies Production share Product Country (percentage) end up similar to those of main products. China 27.8 Brazil stands out in the production of oils from India 24.2 soybean, cotton, sunflower, palm and castor bean; Cotton and the meals from coconut, cotton, palm and soy- USA 10.4 bean. This chapter presents a brief survey of the Pakistan 7.8 markets for grains, oils, cakes and meals in Brazil. China 45.4 As a major producer of these products, this coun- Peanut India 15.5 try has a direct influence on the development of USA 4.7 the biofuel market in the world. Ukraine 26 Russia 23.9 Brazilian oilseed market Sunflower Brazil is historically one of the largest producers European Union 20.5 of grains in the world. Thus, it is known that any Argentina 8.3 variation that may occur in the Brazilian domes- India 84.7 tic market will have strong influence on the world Castor bean China 6.6 market. Other major world producers of oil are the Brazil 4.2 United States, China and India. Table 1 presents the USA 35.2 main oilseeds producers worldwide. Brazil 27.8 Soy is currently the most important oilseed pro- Soybean duced in Brazil. According to the National Supply China 6 Company (CONAB), production in 2011/2012 India 4.6 was around 66 million tonnes, The agro-industrial Source: USDA (2012). 28 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Table 2 Production of major oilseeds in Brazil (103 tonne) Grosso do Sul (5 million tonnes on 2.9 million ha). The average Brazilian productivity reached 2,753 kg/ Product Season Production ha IBGE, 2011), which is higher than the American 2010/2011 3 228.6 Cotton average of 2 936.5 kg/ha (USDA, 2011 (see Figure 1). 2011/2012 3 018.6 With regard to the cultivation of soybean in the 2010/2011 226.5 2011 to 2012 harvest, over 24 million hectares were Peanut 2011/2012 294.7 planted, resulting in a national harvest of around 2010/2011 83.1 68 million ton (Table 3). Sunflower 2011/2012 116.4 Apart from the areas occupied by pastures, 2010/2011 141.1 soybean is still occupying the largest amount of Castor bean crop land in the country, with Brazil being one 2011/2012 24.8 of the only countries that can expand its produc- 2010/2011 75 324.3 Soybean tion. This is a good sign for the bioenergy chain in 2011/2012 66 383.0 the country, since domestic demand for biodiesel Source: CONAB (2012). tends to increase, and soybean currently consti- tutes the main source of raw material in Brazil. One of the main characteristics of the soybean Brazil is soybeans. According to the Brazilian Insti- trading market is the early negotiation of the tute of Geography and Statistics (IBGE), the highest crop, which requires agreements and high level of producing states in the 2011/2012 season were Mato resources from involved companies. Grosso (20 million tonnes on 6.4 million ha); Paraná The production losses suffered by the United (15 million tonnes on 4.5 million ha); Rio Grande States in 2007/08 and by Brazil and Argentina in do Sul (11.6 million tonnes on 4 million ha); Goiás 2008/09 had a strong impact on the commodity (7.7 million tonnes on 2.5 million ha); and Mato prices in the domestic and international markets,

figure 1 Soybean production and average productivity by municipality, 2008

Productivity of soybean (kg/ha)

100 – 1 999 2 000 – 2 499 2 500 – 2 999 3 000 – 3 450 Lack of data (-) or unidentified value

Source: Produção Agrícola Municipal (PAM-2008), IBGE (2010). Chapter 4 – Brazilian market of major oilseeds, oils and meals for the production of biodiesel 29

Table 3 given that these three countries together account Production, productivity and cultivated area for more than 80 percent of all soybeans produced of soybeans in Brazil in the world. See Graph 1. Production Planted area Productivity Season (106 tonne) (106 ha) (kg/ha) Castor seed (Ricinus communis L.) 1998/1999 30 765.0 12 995.2 2 367 The development of the castor bean industry, the 1999/2000 32 890.0 13 622.9 2 414 rising prices of castor oil in the international mar- 2000/2001 38 431.8 13 969.8 2 751 ket, and the recent development of the bioenergy 2001/2002 42 230.0 16 386.2 2 577 matrix in Brazil, made castor seed the interest of 2002/2003 52 017.5 18 474.8 2 816 major producers, exporters, and processors. Brazil is currently the third largest producer of 2003/2004 49 792.7 21 375.8 2 329 castor berry, having produced nearly 24.4 thou- 2004/2005 52 304.6 23 301.1 2 245 sand tonnes in the 2011/2012 crop, behind India 2005/2006 55 027.1 22 749.4 2 419 and China only, which together account for more 2006/2007 58 391.8 20 686.8 2 823 than 90 percent of world production, according 2007/2008 60 017.7 21 313.1 2 816 to FAO data (2013). The Brazilian production of 2008/2009 57 165.5 21 743.1 2 629 castor oil has sharply declined in the last decade, 2009/2010 68 688.2 23 467.9 2 927 reaching levels that made it necessary to import 2010/2011 75 324.3 24 181.0 3 115 castor oil or castor berry, so that the domestic castor oil processing industry could meet the require- 2011/2012 68 748.5 24 972.20 2 753 ments of the international market. Source: MAPA/CONAB (2012). Brazil has been number one in the production of castor oil, surpassed only by India from 1981 to 1985, and by China from 1990 to 1993 (FAO, thousand tonnes (738 kg/ha); Ceará, 2.7 thousand 2009), The decline was due to marketing problems tonnes (79 kg/ha); and São Paulo, 0.8 thousand and poor technology used in the cultivation of cas- tonnes (1 554 kg/ha) (CONAB, 2013). tor bean in Brazil. Federal government investments to encourage Brazilian states with the highest production in biodiesel production have temporarily contrib- the 2011 to 2012 season were: Bahia, 17.9 thousand uted to the settlement of castor seed planting in tonnes (average of 207 kg/ha); Minas Gerais, 2.1 some regions of the country. Castor seed showed a

graph 1 Prices of soybeans in Chicago (US$/tonne) and in Rondonopolis (R$/60 kg), 2009 to 2012

600 70

60 500

50 400

40 300 30

200 20 Rondonópolis (R$/60 kg)

Chicago exchange (US$/tonne) 100 10

0 0 2009 2010 2011 2012

Chicago prices (US%$/tonne) Rondonópolis prices (R$/60 kg)

Source: ABIOVE (2013). 30 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Table 4 Production and cultivated areaof castor seed in Brazil Cotton (Gossypium hirsutum) The demand for fibers made the domestic produc- Castor bean tion of cotton increase and brought about a larger Production Planted area Season (103 tonne) (103 ha) amount of cottonseed available for the production 2001/2002 72 126 of vegetable oil. Brazil’s cotton production was 3 018.6 million tonnes in the 2011 to 2012 season, and 2002/2003 86 128 it was the 5th largest producer of cotton in the world. 2003/2004 107 166 After a downturn, domestic prices of lint and 2004/2005 210 215 cottonseed were stable until 2009. From 2009 to 2005/2006 104 148 2011 the prices increased approximately 129 per- 2006/2007 94 156 cent. In 2012 the average prices of lint and cotton- 2007/2008 123 163 seed dropped approximately 37 percent in relation 2008/2009 93 158 to the previous year. 2009/2010 100 158 The Food and Agricultural Policy Research Institute (FAPRI) depicted a scenario for the 2016 2010/2011 141 219 to 2017 season, which estimated that global pro- 2011/2012 25 128 duction would grow at an annual rate of 1.9 per- Source: CONAB (2013). cent. World production was expected to reach 30.5 million tonnes in the 2016 to 2017 season and 37.1 decrease of 40 percent going from 215 000 ha planted million hectares of harvested area. in the 2004 to 2005 season to 128 000 ha in the 2011 Cottonseed is the second oilseed and third raw to 2012 season, with reductions in both production material most used to produce biodiesel in Brazil, and planted area since the beginning of the PNPB. corresponding to 3 percent of the demand. In 2012 The cultivation of castor seed has recovered from a the production of biodiesel from cottonseed was sharp drop in the 1990s, when the planted area was 75.5 x106 L. reduced more than 80 percent, resulting in 70 percent reduction of domestic production (Table 4). Sunflower (Helianthus annuus) Changes in planted area and, consequently, in The investments of the PNPB for the production the amount of castor seed produced, caused strong of oilseeds were evidenced by the increase in the impacts on the price of grain (Graph 2), in a way cultivated area of sunflower. From 2010 to 2012, that it halted the use of castor oil for biodiesel pro- sunflower culture increased from about 71 000 ha of duction, due to its high market value. cultivated area to approximately 75 000 ha (Table 5).

graph 2 Prices of castor seed in Irecê, 2005 to 2011 (R$/60 kg)

100

80 70 60 50

R$/60 kg 40 30 20 10 0 2005 2006 2007 2008 2009 2010 2011

Source: SEAGRI (2012). Chapter 4 – Brazilian market of major oilseeds, oils and meals for the production of biodiesel 31

Despite that, the Brazilian production is small in the sunflower production is still the fact that much of global scenario, where the largest producers were the processed grain is imported from Argentina, one Russia and Ukraine (2011 to 2012 season), and the of the largest producers in the world. The changes in world production was around 10 million tonnes. sunflower seed prices from 2008 to 2012 are shown The biggest challenge for the development of in Graph 5.

graph 3 Planted area and production of cottonseed in Brazil, 1998 to 2012

3 500 1 600

1 400 3 000

1 200 2 500

1 000 ton

3 2 000 10 ha

800 3 10 1 500 600

1 000 400

500 200

0 0 1997/98 1999/00 2001/02 2003/04 2005/06 2007/08 2009/10 2011/12

Production (103 ton) Area (103 ha)

Source: MAPA/CONAB (2013).

graph 4 Domestic prices of cottonseed and cotton lint, 2002 to 2009 (R$/25 lb)*

100 90 80 70 60 50

R$/25 lb 40 30 20 10 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Cotton lint Cottonseed

* Primary data Source: SEAGRI, BA. 32 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Table 5 Production and cultivated area of sunflower in Brazil Brazilian market Sunflower for vegetable oils World production of vegetable oils has increased, Production Planted area Season (103 tonne) (103 ha) and the prospect is that consumption also contin- 2001/2002 71 52.6 ues to grow. Besides the increased use of vegetable oils for human consumption, this product has been 2002/2003 56.4 43.2 used in the production of biodiesel (Graph 6). 2003/2004 85.8 55.1 The main types of vegetable oils produced in 2004/2005 68.1 50.1 the world and relevant international market for 2005/2006 93.6 66.9 the 2011 to 2012 season, according to a survey by 2006/2007 106.1 75.4 Oil World, is shown in Table 6. Other sources of 2007/2008 147.1 111.3 vegetable oils have only regional importance and 2008/2009 109.4 75.0 small production and are not relevant in terms of 2009/2010 80.6 71.0 international trade. The vegetable oil market in Brazil is extensive, 2010/2011 83.1 66.4 but it is mostly focused on the production of soy- 2011/2012 116.4 74.5 bean oil. Table 7 shows the top ten oils produced Source: CONAB (2013). in the country and their contribution to national

graph 5 Prices of sunflower seed, 2008 to 2012 (R$/60 kg)

R$/60 kg 20

1/3/2008 1/6/2008 1/9/2008 1/3/2009 1/6/2009 1/9/2009 1/3/2010 1/6/20101/9/2010 1/3/2011 1/6/20111/9/2011 1/3/2012 1/6/20121/9/2012 1/12/2008 1/12/2009 1/12/2010 1/12/2011 1/12/2012

Source: CONAB (2013).

graph 6 Prospects for the consumption of vegetable oils

140

120 Food Food and energy

100

Million t 60

95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12

Source: Oil World Monthlies 2006 and Oil World Annual 2005 by Andrade et al. Chapter 4 – Brazilian market of major oilseeds, oils and meals for the production of biodiesel 33

production, from 2008 to 2013. Currently, soy- 10 years. During this period, the amount of cotton beans, cotton and palm are still the ones with larg- increased 18 percent from 294 to 347 thousand est production levels. tonnes; palm increased 139.6 percent from 142 to Production throughout the Brazilian territory 340 thousand tonnes; and sunflower 17.6 percent, is not homogeneous and it concentrates in the from 34 to 40 thousand tonnes (FAOSTAT 2013). South and Midwest regions. The major produc- Due to the growing production of biodiesel, the tion areas of vegetable oil are the same as the areas oil market in Brazil and in the world can still change of increased production of soybean oil (Figure 2). considerably. The Renewable Fuels Department of Up to 90 percent of the vegetable oil produced the Ministry of Mines and Energy is focusing on in Brazil comes from soybean and 4 percent comes encouraging diversification of raw materials, and from cotton, and these are the two oilseeds with thus, on reducing reliability on soybeans, which is lower oil content per unit weight. One reason why and has always been very important. Brazil mostly produces soybeans is the increasing The possibility of using different types of vege- demand for its meal, which is used as raw material table oils to produce biodiesel allows some degree for animal feed. of vegetable oil replacing. Thus it is very important Cottonseed, sunflower, castor, and palm oils are to observe price fluctuations in the international a small portion of the market. Even being small, market over time (Graph 7). their production has greatly increased over the past Soybean oil In the 2012 to 2013 season, soybean oil was the sec- Table 6 ond highest in production and consumption in the World production of major vegetable oils, 2011 to 2012 world with approximately 27 percent of the total. It Production was surpassed in recent years by palm oil (USDA, Vegetable oil (106 tonne) Percentage 2013). Brazil produced 6.82 million tonnes of soy- Palm 50.6 32.7 bean oil, which is 16 percent of world vegetable oil Soybean 42.5 27.5 production (USDA, 2010). Sunflower 13.8 9.2 The production of soybean oil in Brazil comes Palm kernel 5.7 3.7 mostly from the South and Midwest regions. Par- Cottonseed 5.4 3.5 aná is the largest producing state of oil, followed Peanut 5.2 5.2 by Mato Grosso and Rio Grande do Sul. Graph 8 shows the soybean processing capacity of the main Coconut 3.7 2.4 Brazilian states from 2001 to 2012. Olive 3 2 Table 8 shows how production and domestic Corn 23.3 15 consumption of soybean oil have increased in Total 153.2 100 Brazil. The creation and operation of PNPB in Source: ISTA Oil World (2013). 2005 contributed to this growth and to directing a

Table 7 Oils produced in Brazil Production (103 tonne) Vegetable oils 2008/09 2009/10 2010/11 2011/12 2012/13 Soybean 6 120 6 470 6 970 7 090 6 820 Cottonseed 318 326 454 455 347 Palm 230 250 270 310 340 Castor seed* 40 50 37 39 49 Peanut 35 33 33 50 48 Sunflower 48 43 33 46 40 Rapeseed 22 19 35 29 – Palm kernel 25 35 36 37 43 Total 6 838 7 226 7 868 8 056 7 687

* Estimated. Source: Foreign Agricultural Service/USDA, 2013. 34 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

figure 2 Installed capacity of the vegetable oil industry by region (103 tonne/day)

North region (2.3) Northeast region (10.9) Midwest region (66.9) Southeast region (22.3) South region (66.2)

Source: Created according to data from ABIOVE (2012).

graph 7 Vegetable oil prices, 2001 to 2013 (US$/tonne)

2 500

2 000

1 500

US$/tonne 1 000

500

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

Palm Soybean Corn Rapeseed Cottonseed Sunﬂower Peanut

Source: Foreign Agricultural Service/USDA, 2013. Chapter 4 – Brazilian market of major oilseeds, oils and meals for the production of biodiesel 35

large share of the domestic production to the bio- of cottonseed oil increased significantly from 4.6 fuel industry. Domestic consumption had higher million tonnes in the 2009 season to 5.4 million yearly growth than before the creation of PNPB. tonnes in 2011 (Anuário Estatístico de Agroener- As for exports and imports, there were no gia, 2012). major changes after the creation of PNPB (Table The price of cottonseed oil is rather instable. 8). The main destinations of Brazilian soybean oil According to the graph below, 2011 showed great- were India, China and the European Union. er variations and even had a price variation of R$ Graph 9 shows the prices for soybean oil in the 400 from January to March. In 2010, there were no Brazilian market in recent years, including taxes. great variations, and in 2012 there was a significant increase in prices (Chart 10). Cottonseed oil The world’s production of cottonseed oil was 5.33 Palm oil million tonnes in the 2011 to 2012 season, account- In Brazil, palm oil is known as “azeite de dendê” ing for 3.32 percent of vegetable oils. The countries and is the most produced oil worldwide, with 50.67 that stand out in production, consumption, and trade million tonnes in the 2011 to 2012 season, account- were China, India, Turkey and the United States. ing for 34.28 percent of vegetable oil production Cottonseed oil was the most consumed oil in (USDA, 2012). the world, but lost ground to soybean oil due to The countries that stood out in the production higher earnings from the latter after a technique and trade of palm oil in the 2011 to 2012 season of deodorizing was developed. World production were Indonesia and Malaysia (USDA 2010).

graph 8 Processing capacity (tonne/day)

2012 Paraná

2011 Mato Grosso Rio Grande do Sul 2010 Goiás 2009 São Paulo 2008 Mato Grosso do Sul 2007 Minas Gerais 2006 Bahia 2005 Santa Catarina 2004 Piauí 2003 Amazonas Pernambuco 2002 Ceará 2001 Maranhão

20 000 40 000 60 000 80 000 100 000 120 000 140 000 160 000

Source: ABIOVE (2013).

Table 8 Brazilian market of soybean oil, 2005 to 2013 (103 tonne) Economic activity 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Production 5 709 5 512 6 047 6 187 5 963 6 973 7 341 6 970 Domestic consumption 3 120 3 239 3 648 4 098 4 518 5 393 5 495 5 413 Exports 2 418 2 342 2 315 2 033 1 593 1 563 1 741 1 757 Imports 24 39 25 27 27 16 1 1

Source: ABIOVE (2010); ALICEWEB (2013). 36 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

With an offer of a little over 275 thousand Sunflower oil tonnes, Brazil is only the 9th in this ranking, but World production of sunflower oil reached 14.15 its potential area for cultivating palm is the world’s million tonnes in the 2011 to 2012 season, approxi- largest. In Brazil, the state of Pará is the largest mately 8.7 percent of all vegetable oils produced. The producer, followed by Bahia and Amapá. The Bra- most important countries in the market of sunflower zilian market for palm oil has been strengthened, oil were members of the European Union, Russia, driven by new investments in production and pro- Turkey, Ukraine, and Argentina (USDA, 2012). cessing units. Even with increased demand for sunflower oil, The price of palm oil in the Brazilian market prices in 2012 did not show great variation when varies little throughout the year (Graph 11). compared to previous years (Graph 12).

graph 9 Soybean oil prices, 2008 to 2012 (R$/tonne)

3 500

3 000

2 500

2 000

1 500 R$/tonne plus tax 1 000

500 2008 2009 2010 2011 2012

0 jan feb mar apr may jun jul aug sep oct nov dec

Source: Personal communication, Cepea/Esalq, 2013.

graph 10 Cottonseed oil prices, 2008 to 2012 (R$/tonne)

2 600

2 400

2 200

2 000

1800

R$/tonne 1 600

1 400

1 200

1 000 jan feb mar apr may jun jul aug sep oct nov dec

2008 2009 2010 2011 2012

Source: Personal Communication, Aboissa, 2013. Chapter 4 – Brazilian market of major oilseeds, oils and meals for the production of biodiesel 37

graph 11 Palm oil prices, 2008 to 2012 (R$/tonne)

4 000

3 500

3 000

2 500

2 000 R$/tonne 1 500

1 000

500 2008 2009 2010 2011 2012

0 jan feb mar apr may jun jul aug sep oct nov dec

Source: Personal communication, Aboissa, 2013.

graph 12 Sunflower oil prices, 2009 to 2012 (R$/tonne)

2 600 2 400 2 200 2 000 1 800 1 600

R$/tonne 1 400 1 200 1 000 2009 2010 2011 2012 800 600 jan feb mar apr may jun jul aug sep oct nov dec

Source: Personal communication, Aboissa, 2013.

World market for oilseed amount of oil they contain. Therefore, the oilseeds cakes and meals with lower oil content result in higher amounts of Meals and cakes, from the industrial processing of cakes and meal. In the 2011 to 2012 season, when oilseeds, have been used mainly in animal feeding world meal production reached 268.35 million and as organic fertilizer. tonnes, soybean meal had the highest production In the 2011 to 2012 season, 265.7 million tonnes (182 million tonnes), followed by canola, cotton of meal and cake were consumed worldwide, and and sunflower meals (USDA, 2012). Trade of such the main consumers were the European Union, byproducts is essential for the economic feasibility China, the United States, Brazil, and India. Soy- of an oil extraction industry, and in many cases, it bean meal is the most consumed oilseed meal is the main source of revenue. around the world (181.8 million tonnes), followed In general, those countries with higher oil pro- by rapeseed, cottonseed, sunflower, and palm ker- duction are also those that produce greater volume nel meals. Soybean meal is widely used in the man- of cake and meal. According to USDA data (2012), ufacture of animal feed (USDA, 2012). According the countries that have excelled other countries in the to USDA data, meal production, consumption, production and consumption of cake and meal from and global trade have increased recently. oilseeds were China, the United States and Brazil. The amount of byproducts produced depends The European Union countries imported on the volume of crushed oilseeds as well as on the approximately 35.20 percent of the total meals in 38 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

the world in 2011 to 2012. Argentina is the third Brazilian market for oilseed largest producer of soybean meal and the first cakes and meals major exporter with more than a third of the total Most cakes or meals from oilseeds used for bio- exports in the world. Indonesia and Malaysia, the diesel production in Brazil can be used for animal largest producers of vegetable oil, are not promi- feed. However, each type of cake or meal has its nent in the production of meals, due to the low own peculiarities with impacts to animal health, to revenue resulting from the meal obtained from be considered before they are fed to animals. Due to palm, which is their major oil crop. toxic or anti nutritional factors which the seeds may Graph 13 shows the price variation of the main contain, there are maximum amounts to be used for meals and cakes in the world market. the formulation of animal feed (Abdalla et al. 2008).

graph 13 Average price of major meals in the USA, 2001 to 2013 (US$/short ton)*

480 000 420 000 360 000 300 000 240 000 180 000 120 000 60 000 0

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13*

Soybean meal Sunﬂower meal Rapeseed meal Cottonseed meal Peanut meal Linseed meal

* Preliminary data. Source: USDA (2012).

Table 9 Balance of demand and supply of soybean meal (103 tonne) Economic activity 2008/09 2009/10 2010/11 2011/12 2012/13(p) 2013/14(p) Initial stock 862 764 678 813 852 752 Production 24 164 23 549 27 154 28 320 26 700 29 300 Imports 113 47 36 21 0 0 Domestic consumption 11 845 11 644 12 900 13 828 13 300 14 200 Exports 12 530 12 038 14 155 14 474 13 500 15 000 Final stock 764 678 813 852 752 852

Note: The above data refer to the commercial year, which in Brazil starts in February and ends in January. Source: Personal communication, ABIOVE (p) Forecast February 04, 2013.

Table 10 Brazilian production of cotton (103 ha) and its by-products (103 tonne) Product or by-product 2008/09 2009/10 2010/11 2011/12 2012/13 Cottonseed 1 927 1 977 2 750 2 900 2 650 Cottonseed meal 1 015 972 1 350 1 425 1 300 Cottonseed oil 335 326 454 478 437

Source: USDA/FAS, 2014. Chapter 4 – Brazilian market of major oilseeds, oils and meals for the production of biodiesel 39

Brazil largely participates in the trade of such 0.24 percent; rapeseed, 0.06 percent; sunflower, byproducts. This country produces, exports and 0.09 percent; and others 7.29 percent. consumes large amounts of cakes and meals, since Recently, soybean has been the major oilseed it produces huge amounts of oil given the large crop used for biodiesel production and hence also scales of livestock operations. The country uses for meals. In 2012 it accounted for approximately 85 mainly soybean followed by cottonseed (Tables 9 percent of the total meal produced, followed by cot- and 10). tonseed meal, with 3.62 percent (FAOSTAT, 2012). There was a steady growth between the seasons The domestic prices of meals and cakes in the 2008 to 2009 and 2012 to 2013 for soybean meal period from 05/01/2012 to 28/12/2012 underwent and cottonseed meal, at the rates of 10.5 percent changes over the year, as shown in Graph 14. and 28.07 percent respectively. The soybean market is highly influenced by Production of meals and cakes is shown in Table the international market, and price varies espe- 11. According to data from FAOSTAT (2010), in cially during the winter (Rural Bioenergy, 2010). 2011 coconut meal production represented around According to IPEADATA, the mean price of soy- 3.34 percent; peanut, 0.35 percent; palm kernel oil, bean meal varied as shown in Graph 15.

Table 11 Brazilian production of oilseed meals and cakes (106 tonne)* Oilseed 2007 2088 2009 2010 2011 Soybean 57.86 59.83 57.35 68.76 74.82 Cotton 2.59 2.51 1.83 1.86 3.19 Coconut 2.83 3.22 2.96 2.84 2.94 Peanut in shells 0.26 0.31 0.26 0.26 0.31 Palm kernel 0.13 0.15 0.18 0.21 0.21 Canola 0.04 0.04 0.04 0.07 0.05 Sunflower 0.10 0.15 0.10 0.09 0.08 Others 4.81 5.11 4.05 4.29 6.41 Total 68.63 71.33 66.76 78.37 88.02

*Estimated. Source: FAOSTAT (2010).

graph 14 National price of meals and cakes, 2012

1 400

1 200

1 000

800

600 R$/tonne 400

200

0 jan feb mar apr may jun jul aug sep oct nov dec

Soybean*** Palm kernel** Sunﬂower 28%**** Cottonseed 28% Peanut 45%*

*FOB SP; **Mean Min/Max; ***IEA – Conversion ton short/ton; ****FOB MT 4.8 % ICMS from 01/05/2012. Source: Personal communication, ABOISSA/IEA, 2013. 40 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

graph 15 Average wholesale price of soybean meal (R$/tonne)

1 600

1 400

1 200

1 000

800 R$/tonne 600

400

200

jan/08 jan/09 jan/10 jan/11 jan/12 jan/13 may/08 sep/08 may/09 sep/09 may/10 sep/10 may/11 sep/11 may/12 sep/12

Source: Personal communication, IPEADATA, 2013.

Final Considerations strengthening of the food chains (especially meat The Green Revolution, in the 1960s and 1970s, and milk).This is extremely important for the gen- allowed food supplies to the world in good quanti- eration of jobs and income in rural areas, and also ties and at affordable prices. Later, global markets to increase food supply and enhance the Brazilian were developed and Brazil and Argentina became a economy. major source of agricultural products internationally. Regarding oils and other vegetable byproducts, With the introduction of oilseed crops, pro- it is a fact that soybean stands out in the market. ducers generated surpluses of cakes, which have Even so, oil crops and other oilseeds have been enabled Brazil to build and strengthen its poultry of great importance at the global, regional and and pork chains. The availability of vegetable pro- national levels. With the development of biodiesel tein also gave rise to high levels of productivity in Brazil, producers expect other oils to be adopt- of the dairy herd. As a result of a larger oilseed ed in the market so that they could be directed to production in Brazil, Brazilians benefited from the the biofuel chain. 41

Chapter 5 Biodiesel: The creation of public policies for social and economic development

Edna de Cássia Carmélio

Introduction tral Workers Union (CUT), social movements and The Brazilian Government set a challenge in 2003 trade unions linked to family farming, the sugar to promote social inclusion along with the develop- industry and equipment manufacturers. ment of the energy chain. Biodiesel development in Each institution had a different opinion about Brazil is a rare example of a concentrated effort to the model that should be established in Brazil, as organize and strengthen the forces of government shown in Chart 1. and society. Despite the divergence of opinions and The attitude of financial institutions could have viewpoints regarding both the government and changed in light of new approaches that emerged society, Brazil has built in just two years the entire in discussions with civil society. The govern- legal framework for the safe introduction of this new ment adopted a systematic division of work in biofuel in the Brazilian energy matrix. Brazil focused groups according to thematic areas. The groups on the consumer giving special attention to the qual- were formed and key questions to be studied and ity and security of supply, But it was not enough: answered were prepared, as shown in Chart 2. Brazil had to work with a whole set of mechanisms Some findings, presented in a report, recom- to ensure the inclusion of family farming. mended the incorporation of biodiesel in the This chapter discusses some details regarding Brazilian energy matrix in a manner that it would this developing process experienced by govern- embrace the diversity of Brazilian oilseeds, the ment and society. It will show some divergence different technological routes of industrial produc- of views and interests, and an illustration of how tion, the guarantee of supply and the quality of government sought to balance these forces. In fuel for the consumer, and that it should promote addition, on this chapter we will depict the current social inclusion of family farming. social situation of the program. In December 2003, after the approval of GTI’s report, there was political support for the introduc- History of the creation of the tion of biodiesel in the Brazilian energy matrix. By seal within the PNPB regulation doing this, the government did not give rise to any framework further questions related to the structuring of the In 2003 a Ministerial Working Group, GTI, was production chain; it simply started implementation. established by Decree. It was “…instructed to sub- As conceived, the program should have as pillars mit studies on the feasibility of using vegetable oil, social inclusion through family farming, environ- biodiesel, as an alternative source of energy, propos- mental sustainability and economic viability. For ing actions to be taken, if necessary, for the use of its implementation, the Interministerial Executive biodiesel”. The GTI was coordinated by the Presi- Committee of Biodiesel (CEIB) was established dential Chief of Staff Cabinet and it was composed through a Presidential Decree in December 23rd of 11 ministries. 2003. The CEIB became responsible for imple- The GTI has worked by encouraging a cycle menting the recommendations in the report and of hearings involving universities, experimental for establishing the National Program of Biodiesel biodiesel producers, specialists, automotive indus- Production and Use (PNPB). This committee was tries, the Brazilian Association of Vegetable Oil permanent and composed of representatives of Industries (ABIOVE), PETROBRAS1, the Cen- the involved ministries, and by the Management

1 Petróleo Brasileiro S/A is a publicly traded company, of Janeiro, operates in 27 countries, working in the energy which the major shareholder is the Brazilian Government sector, especially in the areas of exploration, production, (The Union). It is a state-owned enterprise of mixed econ- refinement, trading and transportation of petroleum and omy. Founded in October 3rd 1953 and located in Rio de petroleum-derived products in Brazil and abroad. 42 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Group linked to CEIB, of executive nature and such as ANP, PETROBRAS and BNDES. The composed of representatives of the ministries that work plan of the Management Group is shown comprise CEIB and other institutions and entities, below (Chart 3).

Chart 1 Visions on the model to be adopted in Brazil

Institution Opinion regarding the model

Implementation: Limited to B5 to B20 ANP Raw material: any Critical points: difficult conservation of biodiesel (low stability to oxidation and hygroscopicity)

Implementation: B5 to B100 ABIOVE Raw material: soybean Critical points: inception of the program in the Northeast region

National Association of Implementation: Limited to B2 to B5 Automobile Raw material: from the Northeast region Manufacturers Critical points: difficult conservation of biodiesel (low stability to oxidation and hygroscopicity) (ANFAVEA)

National Implementation: Limited to B2 to B30 Confederation Raw material: soybean of Agriculture Critical points: inception of the program in the Northeast region (CNA)

Implementation: With distribution centered at PETROBRAS PETROBRAS Raw material: castor seed Critical points: inception of the program in the Northeast region

Form of adoption and why: through authorization, due to the lack of studies and infrastructure Ministry of Raw material: any Planning (MP) Implementation: in the Northeast

Ministry of Form of adoption and why: initially voluntary then mandatory. Accelerating the program Development, considers nonrestrictive technological issues Industry, and Raw material: from the Northeast region Foreign Trade Implementation: B5 metropolitan (MDIC)

Ministry of Form of adoption and why: through authorizationgiven that production costs could make it Agriculture, impracticable, if compulsory Livestock, and Raw material: any Supply (MAPA) Implementation: no manifestation

Ministry of Form of adoption and why: through authorization. Feasibility should be fostered through Science and public policy rather than imposition, Technology Raw material: any (MCT) Implementation: up to B100

Ministry of Form of adoption and why: depends on the position of the Ministry of Finance Mines and Raw material: any Energy (MME) Implementation: B2 in 2005 and B5 in five years

Ministry of Form of adoption and why: through authorization due to the lack of studies and infrastructure Agrarian Raw material: any Development Implementation: up to B100 (MDA)

Form of adoption and why: mandatory. without justifying motivation Ministry of Raw material: from the Northeast region Transport (MT) Implementation: Up to B100

Form of adoption and why: Mandatory up to B5 and through authorization from B5, to provide Ministry of credibility to the program National Raw material: any Integration (MI) Implementation: from B5 to B100

Source: institutional presentations and meeting minutes Chapter 5 – Biodiesel: The creation of public policies for social and economic development 43

Chart 2 Development of the National Alcohol Program

1. Social Inclusion and Regional Aspects: Question a) How many jobs are created when one tonne of diesel or biodiesel is produced (the latter, from soybean, castor seed, palm, sunflower, etc.)? If possible, stratify by type of agriculture (business or family). Responsibility of: MAPA/MDA and the Ministry of Integration

Question b) If we consider the actual and projected regional consumption of diesel as reference, which would be the best strategy for its gradual replacement by biodiesel, considering the availability of arable land in the different regions of Brazil? Responsibility of: MME based on data presented by ABIOVE, in collaboration with MAPA

Question c) Brazil is an heterogeneous country in many respects, standing out, as far as energy issues, the uneven distribution of consumption (isolated communities; small, medium, large cities; industrial concentration, etc.). Should the biodiesel program address these disparities, or be implemented on a massive scale? What are the advantages and disadvantages of each of these alternatives? Responsibility of: MME (in collaboration with other members of GTI)

2. Environmental Aspects: Question a) When compared to diesel, which is the reduction of pollution as a result of the use of biodiesel, considering the whole lifecycle of the product? Are there any significant differences when we use different raw materials to produce biodiesel? (Environmental impact study). Responsibility of: MMA in collaboration with the Ministry of Cities.

Question b) With which raw materials (for the production of biodiesel) will it be possible to use carbon credits under the Clean Development Mechanism (CDM)? What value can be attributed to one tonne of carbon sequestered? Responsibility of: MMA

3. Economic Aspects: Question a) Are there any significant differences in terms of production costs for biodiesel produced in large as compared to small industrial plants? Responsibility of: MDIC

Question b) Do biodiesel co-products (meal, bran, cake, glycerin, fatty acids, etc.) represent a solution (reduction of costs) or a problem (saturation of the market) for the production of biodiesel? Question c) How have oil barrel prices behaved as compared to the prices of main vegetable oils such as soybean, palm, and castor seed oil, especially in the past twenty years? What is the tendency for the coming decades? Responsibility of: MME and MDIC

Question d) Would it be necessary to encourage tax exemption for biodiesel production, to make it economically feasible? Does it apply to all cases and regions? Responsibility of: MDIC

Question e) Which is the foreign exchange savings obtained by the use of B5, B20 and B100? In what time period would it be possible? Responsibility of: MDIC

Question f) International situation of production, prices, and incentives for biodiesel production. Responsibility of: MDIC/MME 44 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Chart 2 (continued)

4. Technological Aspects: Question a) What is the cheapest technological route: transesterification (methanol or ethanol) or cracking (catalytic or thermal)? Question b) Can biodiesel be stored for long periods, like petroleum can? If so, would it be necessary to blend in additives? Would that increase costs significantly? Question c) Can a processing plant that has been designed for soybeans, for instance, be used to produce biodiesel from palm oil, castor seed oil, or other raw materials? Question d) What are the advantages and disadvantages of castor seed as compared to other vegetable raw materials? Question e) Is it necessary to significantly change the characteristics of the engines (vehicular and stationary) in order to use biodiesel? Do such changes depend on the type of biodiesel used (B5, B20, B30, etc.)? Question f) What are the key technological issues that need to be answered before implementing a program to encourage the production and consumption of biodiesel? Responsibility: STM was fully in charge of answering item 4.

The following is an example of the detailed of oil exploration in Brazil, was vital in this phase, work plan (Figure 1). because it became responsible for acquiring and With the legal framework defined by the blending biodiesel and diesel. However, the dis- work of this committee, the PNPB was officially tribution of oil-derived products from PETRO- launched in December 2004. Biodiesel fuel started BRAS is performed by a different company called to be mandatory all over the country. It was to be PETROBRAS Distribuidora. This company holds blended with diesel in a proportion of 2 percent about 30 percent of the market for fuel distribu- during the period from 2008 to 2012, and in 5 per- tion in Brazil, sharing it with competitors. cent starting in 2013 (Law No. 11 097/05). At the initial stages of the biodiesel program, The preparation of this blend was allowed only after the first auctions, a shortage of product to oil refineries and distributors of its derived occurred due to problems in the start-up phase products. The direct sale of biodiesel to final con- of processing plants, and also due to difficulties sumers was prohibited except for large consumers in ensuring efficient production flows. When (corporations), if approved by the ANP, the oil, the companies had overcome those difficul- natural gas and renewable fuel regulatory agency. ties, they started to increase their operations and Before 2008, biodiesel use was considered option- make deliveries. PETROBRAS, meanwhile, had al, and it was established that the National Energy exhausted its ability to blend 2 percent biodiesel Policy Committee (CNPE) could anticipate the to diesel, together with the distribution capacity levels to be blended into diesel. of PETROBRAS Distribuidora. At that moment, From 2005 to 2007, biodiesel usage was encour- biodiesel companies compelled the government to aged through public auctions, in volumes that promote sales though the auction system. were consistent with supply. The auctions were The Interministerial Executive Board, CEI, destined exclusively for companies holding the was aware of the situation. This Board was coor- Social Fuel Seal2, or for companies that had their dinated by the Presidential Chief of Staff Cabinet family farming projects approved by MDA. and it created the “Biodiesel Monitoring Bureau” This period of market promotion was neces- to promote better management of the program sary for all stakeholders of the productive chain: implementation process. This Bureau was impor- farmers, processors, distributors and quality tant to synchronize the actual production capacity control laboratories, as well as for the regulatory of the companies with the auctioned volumes, and and funding agencies. PETROBRAS, the state thus enable PETROBRAS Distribuidora to be controlled company that responds for 97 percent redesigned for the incorporation of biodiesel into the Brazilian energy matrix. The government had to make an effort to make 2 See details on the Social Fuel Seal in Chapter 6. other distributors work with the B2 blend starting Chapter 5 – Biodiesel: The creation of public policies for social and economic development 45

Chart 3 Work plan of the Management Group

Activity sub-group Institution in charge

State of the art of biodiesel in Brazil and abroad MME

Outline of the economically active regions for the production of biodiesel MME

Quantification of internal and external markets MDIC

Structuring of agricultural, industrial and trading chains MAPA

Taxation: pricing policies MF

Adequacy of the regulatory framework ANP

Determining growing rates MME

Lines of credit BNDES

Industrial plants commercial scale MME

Environment MMA

Communication Secretariat Plan for dissemination of the biodiesel program of the Presidency of Brazil

Technological development MCT

Social inclusion and impact MDA

Structuring, institutionalizing and monitoring of program execution MP

Risk analysis MME

Financial resources for the development and implementation of the program Civil House

in January 2008. The main problems were: evision, the biggest mass communication means in a) Most of the distributors did not want to the country, and actively participated in various work with the blend because biodiesel was events. The focus was to associate biodiesel with more expensive than diesel; therefore it was quality and social inclusion through family farm- not profitable in a first phase. ing. PETROBRAS planted castor seed and sugar- b) They would need to make investments to cane in almost every gas station with its flag3. The build the biodiesel facilities for reception, vision of the consumers was that if they bought blending, and quality control to ensure the biodiesel, they would be helping reduce poverty in correct level of blend and its quality. the Northeast region of Brazil. The message was c) This new structure would have to be approved that “Biodiesel is better than diesel for the engine”. by the responsible environmental agency. A private distributor was also immediately interested in this new fuel, and started to work with the The government, with support from the ANP, blend even before it became mandatory, and made called the distributors and the union that repre- good media campaigns. sents them to jointly establish a form of work and After the period of optional blending of biodies- an implementation schedule, so they were ready to el, and understanding the need for a better consoli- commit to the blend from January 2008. The first steps to make biodiesel blends mandatory were car- 3 Gas stations that sell products exclusively from one ried on without major difficulties, because appro- distributor carry the name of that distributor, and adopt priate actions were taken timely. its quality control procedures. Those gas stations that PETROBRAS had great influence in building sell from several suppliers are called “white-flag”. The white-flag gas stations are often believed to have unreli- public opinion about biodiesel. This corporation able products in terms of quality, and often practice engaged in media campaigns including public tel- more competitive prices. 46 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience Survey of models Incentive resources Amount of Amount regional incentives regional IPI PIS / Cide ICMS COFINS market demands Aliquots Aliquots Incidence Incidence Price formation for the domestic for formation Price normative actsnormative taxes De nition of Editing and revising Editing the tax model Federal State taxes State tax policies Scenarios of Taxation: pricing policies Taxation: internal and externalinternal markets Scenarios of production cost Simulation of price formation for compliance with compliance for formation of price Simulation Asia USA Other Mercosus Biodiesel incentives Survey of regional European Community European external market Price formation of the formation Price Diesel 1 tax model e Survey of the Coordinator: MF Collaborators: MME, MDA, MI, MP and ANP gur i f biomass of bioenergy from paths for the production Technological Source: MF. Chapter 5 – Biodiesel: The creation of public policies for social and economic development 47

figure 2 Map of biodiesel production poles, 2009

Source: Personal communication, MDA, 2010. dation of the supply chain and of family farming, uct in cases of possible insufficiencies in the sup- the government considered the auction mechanism ply. In July of 2008, the percentage of mandatory as almost the exclusive way to access the market. blend was increased to 3 percent (B3, according to The government started to buy, in addition to the Resolution No, 2002, CNPE); in July of 2009 to 4 biodiesel for the mandatory market, a fraction percent, and in January of 2010 to 5 percent. destined to building stocks (via PETROBRAS) In such scenario, where many enterprises in order to guarantee the availability of the prod- quickly organized themselves for the new market, 48 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

an important player emerged: PETROBRAS Bio- BIO, a civil association comprised of biodiesel fuels (PETROBRAS Biocombustíveis, PBIO). producers, inputs providers, equipment suppliers, The company consisted of representatives from the and technology and service companies related to Presidential Chief of Staff Cabinet, the Ministry the subject (UBRABIO, 2010). Most of the mem- of Mines and Energy, and the Ministry of Agrar- bers are among the largest producers of biodiesel ian Development. This state-owned company was in the country. The institution focuses its actions installed in the Brazilian semiarid region, specifi- on a dialogue with the federal government about cally in the cities of Quixadá, CE; Candeias, BA; topics of mutual interest such as tax exemptions and Montes Claros, MG. The company was organ- and increased levels of biodiesel in diesel. ized to articulate family farming of castor seed in semiarid regions. PETROBRAS Biofuels faced the Instruments for the development of PNPBIOS same problems associated with the poorest farm- The need to orchestrate a basic set of actions aimed ers in Brazil, as occurred with Brazil Ecodiesel4. at developing the program led each ministry to adopt Such problems were social disorganization, lack of a series of measures within its scope of competence. access to credit, and low productivity of castor seed. In the case of MDA, there was at first some difficulty Thus, it was forced to adopt a minimum technology in supporting the implementation of the program at package for the promotion of agriculture, which the local base. Specifically, in the Northeast, this dif- inevitably resulted in low productivity and mini- ficulty was compounded by the high geographical mum income to farmers. Moreover, the company dispersion of small farmers involved, their low organ- promoted family farming contracts to coordinate izational level and their small planting areas (some of its castor bean supply chain, ensuring prices above them had less than 0.5 ha cultivated with castor seed). those in the ricin chemical market that competes for Besides, there was a large diversity of actors who did the same raw material. The contractual agreements not work well together, though they worked in favor provided for long term commitments, about five of rural development. In a given region there could be years long, and included the provision of technical technicians, from the following affiliations: biodiesel assistance. This set of advantages attracted small companies, official technical assistance institutions, farmers to the company, to the detriment of the tra- Banco do Brasil, Banco do Nordeste, CODEVASF ditional supplies the ricin chemicals market5. (a regional development agency), in addition to state From a competitiveness point of view, PBIO and municipal agencies and NGOs. strengthened the auction mechanism adopted by In this scenario, MDA adopted the concept of the government. In this mechanism, PBIO com- “biodiesel production poles”. The idea was to link petes on equal terms with other companies. In a the various local actors, regardless of the institu- free market, PBIO would naturally sell its entire tion or program to which they were bound to, in an production to PETROBRAS Distribuidora (which effort to plan and execute strategic actions to pro- holds about 30 percent of the trading market of mote biodiesel production arrangements through diesel in the country), causing market imbalance. family farming. The work groups formed, called This could cause the bankruptcy of biodiesel pri- GTs, would have as their main goal to improve the vate enterprises and the formation of a monopoly. coordination and understanding of the strategic Nevertheless, in 2010 PBIO started a process of actors from the biodiesel program at the poles, and acquiring biodiesel companies, purchasing a unit of to establish or strengthen cooperatives so that they BSBIOS located in the State of Parana. could trade oil at the poles. The working groups The industrial sector was organized quickly in were composed of at least one syndicated repre- 2007 with the Brazilian Biodiesel Union, UBRA- sentative from farmers, cooperatives and associations; representatives of companies with the Social 4 Brasil Ecodiesel is a Brazilian private company that pro- Fuel Seal, banks of PRONAF and other entities duces biodiesel. that have a solid commitment with biodiesel (such 5 Something similar happened in 2007 when Brazil as: municipal secretaries, state companies, ATER, Ecodiesel hired about 30 000 farmers. The ricin chemi- NGOs, members of the territories of the Secretar- cal industry, through its brokers, acted on the market offering higher prices than those of Brazil Ecodiesel. iat for Territorial Development, promoters of the Brazil Ecodiesel was then unable to cope with the prices Regional Sustainable Development from Banco offered, and gave up its acquisitions with family farming. do Brasil, universities and SEBRAE, the national This would later cause its awarded Social Fuel Seal to be small business promotion agency). In order for the suspended. As a consequence, the company lost the right to sell the purchases from the auctions in the second proposed groups to work, MDA deployed profes- quarter of 2010, when the suspension occurred. sionals specifically dedicated to articulation issues. Chapter 5 – Biodiesel: The creation of public policies for social and economic development 49

graph 1 Marketing of biodiesel by companies with or without the Social Fuel Seal Program

100

0 2008 2009 2010 2011 2012 2013

With seal Without seal

Source: Elaborated by the author, based on data from ANP and MDA.

The poles of biodiesel had very different settings for this market do not benefit from the program. in the northeast and in the south-central regions Moreover it is very difficult for companies to of Brazil (Figure 2). In the Northeast the biggest discover where these farmers are. The possibility challenge was the social organization of family that poles could be created from the crossing of farming. There were very few companies operating information of family farming and through the in the market, the main one being Brasil Ecodiesel. common interest of business in rising areas has The subsequent decline of Brasil Ecodiesel coin- yet to be explored. cided with the entry of PETROBRAS in the The poles themselves were not sufficient for region, which did not cause, in general, conflict the planning of public policies at local level, which between them. In the Center-South region, how- was definitely not their aim but allowed, in many ever, there were multiple companies operating in regions, positive synergies around the actions the same area, and there were a significant number of federal, state and local governments. Perhaps of cooperatives involved. The articulation made one of the most significant positive externalities by MDA permitted positive competition for fam- of the poles has been to allow the growth of the ily production and helped farmers to have added governmental food procurement policies enacted earnings and security in their cooperatives. through the “Food Acquisition Program” (PAA) Based on the existence of the poles, MDA This happened because when arranging for the began a process of strengthening the produc- biodiesel market, a group of farmers learned how tive base through training activities, establishing to get organized for the institutional food market. demonstration units, exchange, and generation of Given that all farmers producing oilseeds are also local agricultural information such as oilseeds and food producers, PAA found a fertile substrate for raw materials prices. MDA also started to identify its development in this core organization. problems as soon as they arouse, improving the overall management of the Social Fuel Seal. The Development of the social However, one can say that the poles were and component of PNPBIO still are created from a demand pull the interest of Since its conception until the end of 2013, there was businesses in biodiesel. The reverse path has not strong adhesion of biodiesel companies to the Social been yet built, namely the organization of pro- Fuel Seal. In 2013 43 companies had the seal, out of duction and the search for companies interested 69 companies accredited to produce biodiesel. They in linking to family farming. The downside of represented over 90 percent of the installed capacity this strategy is that the regions and farmers that in Brazil. Biodiesel that was sold came mostly from are not involved but have the potential to work these companies, as shown in Graph 1. 50 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

The element that most influenced the adhesion which was R$ 12 000.00 in 2009, and turned to of the seal from businesses was, by far, the auc- R$24 000.00 in 2012. tion policy. By defining the largest market share The Food Acquisition Program generated a (80 percent) to companies with the seal, the pri- volume of operations of 2.5 billion Brazilian reais vate sector quickly invested in family farming. in 2011, with 104295 family farmers (MDA, 2013). An emblematic example is the result of the 30th Biodiesel generated incomes in the following year auction held in 2013, when companies that had the were about 38 percent more than what it was concession of the seal were offered a price R$ 0.13 obtained in one of the main programs of market higher per liter than those without it. access for family farms. The evolution of the participation of family The fact that the Northeast region did not farming in the production chain was affected by respond significantly to the incentives offered by the the difficulties of biodiesel companies, especially biodiesel market, despite the efforts of companies Brazil Ecodiesel in the Northeast, as seen in 2007 such as Brazil Ecodiesel and PBIO, leads to some and 2008. The number of family farmers involved considerations on the dynamics of the market cre- was very distant from the goals foreseen by the ated by the government program. Firstly, the most government. This was mainly due to two factors: essential motivation for enterprises to link with the response of family farming in the North- family farms was the existence of cooperatives and east (linked to Brazil Ecodiesel) was lesser than therefore the possibility of doing business in large expected, and companies opted to source from scale, instead of dealing with individual purchases more consolidated family farmers, with higher of fragmented family farmers. Secondly, firms pre- area and better productivity. The revenue from fer to concentrate their production arrangements in the activity was significant, about 2 billion Bra- regions where the required percentage for acquisi- zilian reais in 2012, as shown in Graph 3. This tions of family farming is smaller. These considera- income was mainly due to soybean in the south tions point to the need of revising the logic estab- of the country. The preference for having more lished in the Social Fuel Seal or, perhaps, to review regionally concentrated farmers caused an effect the market dynamics adopted. The latter refers to that reflected in the average income per farmer, the possibility of holding localized auctions, in view

graph 2 Family farming in the biodiesel production chain, 2008 to 2012

120 000

100 000

80 000

60 000

40 000

20 000 Number of family farmers

0 2008 2009 2010 2011 2012

Source: MDA (2013). Chapter 5 – Biodiesel: The creation of public policies for social and economic development 51

of the fact that auctions were held at the national ity. Thus, any possibility of changing this reality level; and thus equated companies that have very remains untenable for now. Another option is to different operating costs and costs of sourcing from hold auctions of castor biodiesel from the North- family farms, such as those located in the North east, regardless of whether the company is located and Northeast regions. For such localized auctions, in that region or not. This hypothesis deserves fur- however, it is necessary to have a diversity of sup- ther attention by the government. pliers. Brazil Ecodiesel, which had four production The development of the participation of family units in the Northeast, ceased their operations due farming in the biodiesel production chain, and the to economic reasons and to the suspension of their generated revenue are depicted in Graphs 2, 3 and 4. social seal. Other companies in the Northeast, with In only three crop seasons it was possible to the exception of PBIO, have low production capac- observe a tendency of diversification in the port-

graph 3 Revenue generated by family farming of biodiesel, 2008 to 2012

2.5

2.0

1.5

1.0

0.5 Total revenue from family farming, 109 R$

0 2008 2009 2010 2011 2012

Source: MDA (2013).

graph 4 A verage revenue per farming family, 2008 to 2012

25 000

20 000

15 000

10 000

5 000 Mean revenue per family farmer (R$)

0 2008 2009 2010 2011 2012

Source: MDA (2013). 52 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

graph 5 Raw materials purchased to family farms by biodiesel companies, 2007 to 2009

100%

98%

96%

94%

92%

90%

88% 2007 2008 2009

Soybean Castor bean Palm Others (peanut, sesame)

Source: Elaborated by the author based on MDA presentation, 4th Hall of the Territories, March 2010.

folio of the soybean raw materials from family like sesame, it will bear most of the risk. In fact, farmers. It should be noted that the figures in the the agricultural learning curve in such cases can chart below refer to the universe of family farm- be rather steep and thus make performance to fall ing and purchases should not be confused with short of the intended target. Under such a hypoth- biodiesel production by type of raw material. esis, it is the biodiesel company that will be pun- This is due to the fact that the acquisitions from ished for not purchasing the minimum amount to family farmers may or may not be converted into comply with the criteria of acquisitions established biodiesel. Although the trend of diversification in the Social Fuel Seal. of soybeans is still small, it clearly shows that the The cancellation of the Seal brings about the diversification policies adopted in the standards of immediate cancellation of the volumes sold at the the Social Fuel Seal have been effective. The land auctions to those enterprises which had it. Given areas have new crops as revealed by field informa- this type of risk, a growing number of companies tion obtained by the MDA, that is, the Seal has decided to rely less on government incentives to succeeded to promote diversification of land use promote diversification at family farms and sought in family farms. their consolidation through promoting soybean Despite the diversification attained, another production. aspect of that reality relates to risk diversification. Another positive impact of the PNPBIO was Although the normative of the Seal46 apparatus the strengthening of family farming cooperatives. favors raw materials that differ from soy, it does not About 70 percent of farmers sold to biodiesel address the risk of failure when investing in crops companies through their cooperatives, and only 30 with low levels of technological absorption and for percent were direct sales in 2010. The use of bio- which risk mitigation measures should be taken. diesel as a business opportunity for cooperatives For example, sesame has the technological took place more intensively in the South, where prerogatives that qualify it for planting (such as they were more consolidated. The intervention agricultural zoning, developed cultivars and man- of farmer organizations improved the prices paid agement technology established by agricultural to their members and the compensation to their research institutions), but its production technol- cooperatives. Among the farmers who marketed ogy has not been mastered by Brazilian farmers. through cooperatives, 70 percent are located in the If a company decides to invest in fostering a crop South, 6 percent in the Northeast Semiarid and 24 percent in the Midwest (MDA, 2010). This shows 6 As described in Normative N°01 of the Ministry of that the effort made by social organizations has Agriculture on February 19, 2009. been effective in the Northeast, which is a lesser Chapter 5 – Biodiesel: The creation of public policies for social and economic development 53

developed region and which does not have a strong segments. For this reason, biodiesel is an agricul- associative culture. tural and social reality that is being written and can be considered still as work in progress. At the fam- Conclusions ily farm level, decision processes are not always as Biodiesel is a social reality nationwide. Despite the fast as expected. Moreover the response of the soil short period of existence of this biofuel in Brazil, to technology and the cognitive processes of the a geometric progression of production has been family farmer may also take a long time, despite observed, associated with the levels established by the intensification and qualification of the techni- the mandatory blending policy: B2 in 2005; B3 in cal assistance provided to them. For these reasons, 2008; B4 in 2009; and B5 in 2010 up to the pre- a few crop seasons only cannot measure well the sent. As a result, Brazil holds the second position development of this chain in Brazil. What can be in the ranking of the largest producers of biodiesel seen clearly is that family farming is already ben- globally. However, the evolution of biodiesel in efiting from the program. Biodiesel is consolidated the country can also be assessed with respect to as well as a means of enabling and providing access the agricultural segment of this renewable energy of chain stakeholders to other public policies and, production chain, where changes in production above all, as a vector of solid organizational pro- patterns are typically slower than in other industrial cesses for associations and cooperatives. This page intentionally left blank. 55

Chapter 6 The Social Fuel Seal Program: Assuring the participation of small-scale producers (family farming)

Edna de Cássia Carmélio; Luis Felipe Sad Grossi

Introduction Depiction of family farming Ensuring social inclusion is one of the main chal- in Brazil lenges of this century, according to Sachs (2009). Family farming is an important segment of society This author calls special attention to “the bias in Brazil. Family farming is acknowledged by Law created around sustainable development, paying No. 11 326 of 24 July 2006, which establishes guide- special attention to the environment, and mar- lines to formulate the National Policy of Family ginalizing what is social”. Sachs argues that the Agriculture and Family Rural Enterprise. objectives of development are always social and There are different ways to define a family farm, that “environmental conditionality is motivated typically taking into account criteria such as the by diachronic solidarity with future generations, management system, the size of the land holdings to which we should bequeath a world in which it and the use of family labour, depending on country’s is possible to live”. And “to make things happen – preferences. According to FAO (2014), “Family that’s the difference between projects and utopias Farming (which includes all family-based agricul- - we must think about the economic viability of the tural activities) is a means of organizing agricultural, proposed solutions”. forestry, fisheries, pastoral and aquaculture produc- Sachs (2009) considers that the creation of the tion which is managed and operated by a family and Social Fuel Seal in Brazil points in the right direc- predominantly reliant on family labour, including tion, since it induces a positive discrimination both women’s and men’s. The family and the farm favouring family farmers. However, the author are linked, co-evolve and combine economic, envi- warns about the flaws of the implementation of ronmental, social and cultural functions”. Further, the program, and about the fact that “the seal itself FAO’s theoretical definition of an agricultural hold- does not replace the coordinated set of policies ing is “an economic unit of agricultural production that support family farmers” (Sachs 2009). under single management comprising all livestock This chapter will show the relevant aspects of kept and all land used fully or partly for agricultural the construction of the social component of the production purposes, without regard to title, legal National Program of Biodiesel Production and form, or size”. In this context, FAO (2014) affirms Use, PNPB. It will present some of the problems that the vast majority of family farms are small by experienced, which are in accordance with the anal- any definition; farms are often considered small ysis by Sachs, and it will point out some paths to when they are less than 1 or 2 hectares. follow which result from the authors’ experience in Data from the Ministry of Agrarian Develop- the process of building and implementing the pro- ments of Brazil show that 60 percent of the food gram with the Ministry of Agrarian Development. that arrives at the table of Brazilian citizens comes In order to do so, the first topic of this chapter from family farming (MDA, 2007). Besides that, briefly depicts family farming and its importance 2005 figures indicate that the segment of family for Brazil, aiming to qualify the public that is the agriculture and the productive chains linked to it target of PNPB’s positive discrimination. Then a accounted for 9 percent of the Gross Domestic brief history of the program is presented, from its Product in Brazil. That amounted to R$ 174 bil- inception to its current situation, and the descrip- lion in value that year, an important contribution tion of the taxation model adopted. The key ele- to generating wealth for the country. The survey ments of the Social Fuel Seal will also be shown showed that 82.8 percent of cassava production and discussed, and, finally, there will be an analy- came from family farming. Swine production came sis of the performance of the program, based on in second place with 59 percent, closely followed available data. by beans (58.9 percent), milk (55.4 percent), poul- 56 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Table 1 Production from farms up to 100 ha try (47.9 percent), corn (43.1 percent), rice (41.3 or more than 100 ha (percentage) percent) and soybean (28.4 percent) (RTS, 2008). The extent of the impact of family farming on Product ≤100 ha (family) >100 ha (employer) agriculture is depicted on Table 1. Tobacco 98 2 Table 1 shows that family farming is responsi- Onions 94 6 ble for most of the production of 14 out of the 22 crops mentioned, when compared to average sized Grapes 91 9 and large scale agriculture, which, for the purpose Cassava 85 15 of this chapter, will be defined as “patronal”. Sisal 82 18 However, in this segment of society regional socioeconomic aspects vary widely among farm Swine 81 19 families. The income differences by region for Chicken 81 19 family farming and commercial farming is pre-

Peanuts 76 24 sented in Table 2, divided into total income and cash income, disregarding the family’s self-con- Beans 71 29 sumption and animal feeding. Tomato 67 33 Family farmers comprise traditional agricultural producers, agrarian reform settlers, fishermen, small Potato 63 37 farmers, sharecroppers and rural workers, as well as Cocoa 56 44 descendants of former slaves or aboriginal people. Milk 55 45 The family farm has been consolidated as a social segment in Brazil by virtue of the country’s Coffee 54 46 social movements and trade unions linked to the Wheat 45 55 rural segment. The segment’s consolidation is also Cotton 44 56 associated with the historical process of agrarian reform in Brazil, which is still ongoing. Corn 44 56 A further significant driver of family farming Oranges 37 63 consolidation in Brazil has been the National Pro-

Rice 29 71 gram to Strengthen Family Farming, PRONAF, which focuses on credit provision. After 13 years Soybeans 25 75 since its inception, PRONAF offered R$ 21 bil- Cattle 23 77 lion through the Harvest Plan 2013/2014, for

Sugarcane 12 88 financing, investment, and marketing. Approxi- mately 3.5 million of families were able to access Source: IBGE, Agricultural Census 1995/96. Elaborated by Homem the PRONAF rural credit (MDA, 2013) (1). Over de Melo. the years, PRONAF became a customized credit line to serve the different needs and types of farmers, as shown in the examples below:

Table 2 Income distribution for family farming and commercial farming (R$/year)

Family farming Commercial farming

Region Total Income Cash Income Total Income Cash Income

Northeast 1 159 696 9 891 8 467

Midwest 4 079 3 043 33 164 30 779

North 2 904 1 935 11 883 9 691

Southeast 3 824 2 703 18 815 15 847

South 5 152 3 315 28 158 23 355

Brazil 2 717 1 783 19 085 16 400

Source: IBGE - Agricultural Census 1996. From the book: “Family Farming and Agrarian Reform in the twenty-first century” Chapter 6 – The Social Fuel Seal Program: Assuring the participation of small-scale producers... 57

Specific lines for funding and investment in Technical assistance is another important factor commercialization, agricultural production influencing the outcomes of family farming. The and agro-industrialization. Constitution of 1988 and the Agricultural Act of Amortization periods that are compatible 1991 stipulate that the Union must hold public and with the expected return of the activity. For free extension services for small farmers. However, example, for sunflower the costs are to be history shows that the nature and extent of this amortized in one year; while for oil-palm it service have declined over the years. In 2003 MDA would be in 10 years, with a grace period of began a process of recovering and reconstructing more than five years as operated by Banco da technical assistance to family farmers, because of Amazonia. production demands and of differences in regional Potential access to additional PRONAF technical assistance services. credits before fully paying previous loans, in In addition to such issues, Brazilian family order to finance additional cultures, as in a farming faces soil and climate problems as well as second-crop (safrinha). structural problems. The semi-arid region, which Specific credit lines for working capital in the accounts for roughly 50 percent of Brazilian fam- case of family agro-industries. ily agriculture, is characterized by low rainfall, Credit lines for credit cooperatives. low soil quality, compacted soils, low amounts Farmers with low income have access to of organic matter and high acidity. Its farmers are credit lines with lower interest rates and real poorly organized and geographically dispersed. discount on the loan value through timely Many properties are classified as small farms, payment. and more than three million farms with up to 10 hectares, represent 52.9 percent of the properties PRONAF has insurance mechanisms to protect occupying only 10 million hectares, which repre- credit and farmers in case of crop failure. Regarding sent 2.7 percent of the total occupied area (IBGE, the Brazilian semi-arid region, there is a protection Agricultural Census, 1985). Many family farmers mechanism in the case of droughts detached from do not have their own land and live in either rent- the access to credit, called the “Harvest Guarantee”. als or partnerships with more established farmers, As a complement to PRONAF credit, the farm- or simply sell their working power. er has specific policies for market access, such as: In the northern region, farmers face problems The Food Acquisition Program, which buys related to logistics due to large distances, high food without a bidding process at reference frequency of rains, and poor road systems Rivers prices which cannot be different from those in are often the only possible transportation option. regional markets, up to the yearly limit of R$ Rural populations are located almost exclusively 3 500 per family farmer in the program (except near or on its margins, and are therefore called riv- in the modality “Encouraging Production and erside people (ribeirinhas). Consumption of Milk”, where the limit is six In this scenario Brazilian biodiesel was intend- months). The aim is to ensure regular access ed to be a vector for inclusion and strengthening to food in adequate quantity and quality to of family farming, besides being another compo- vulnerable populations stricken by food and nent of renewable energy in the Brazilian energy nutrition insecurity; and to promote social matrix. inclusion in rural areas through the strengthening of family agriculture (MDS, Ministry of The adopted tax model Social Development, 8/31/09). Advised by the Interministerial Technical Group, The school lunch program, which by law in the first phase of the Biodiesel program the gov- reserves 30 percent of that market to the ernment established a tax model in which biodiesel production originated in family farms. companies with the Social Fuel Seal would have The Minimum Price Guarantee Program for complete exemption of federal taxes, if the bio- Family Farming Products–by which fam- fuel was manufactured from castor oil and palm ily farmers are assured that the cost of produced in the North, Northeast, and semiarid production is guaranteed for those products regions through family farming. As for the other financed by the PRONAF credit. Thus, the regions, taxes would have a partial reduction of farmer will not have to dispose of its assets 68 percent for any biodiesel produced from raw to repay the financing when market prices are materials from family farming. This reduction in below the cost of production. tax rates could only be used by agribusinesses that 58 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Table 3 The biodiesel tax model

Company Condition Federal taxes (US$/m3 of biodiesel)* Reduction in federal taxes (percentage)

Without the Seal 88.98 0

Without the Seal, and biodiesel from castor oil and palm produced in the NO, 75.75 15 NE, and semiarid regions

With the Seal 35.01 60.7

With the Seal and biodiesel from any raw material produced in the NO, NE, and 0.00 100 semiarid regions through family farming

* Exchange rate: US$1.00 = R$2.00 Source: Decrees No. 5 297 of 12 June 2004; No. 6 458 of 14 May 2008; and No. 6 606 of 21 October 2008. had been granted the use of the Social Fuel Seal, and Social Fuel Seal the lower rate would be applied in proportion to The Social Fuel Seal was designed by the Intermin- the level of proven acquisitions. isterial Executive Commission and its management The restriction on the types of raw materials was assigned to the Ministry of Agrarian Develop- was due to the technological level of development ment, which has developed and inserted the seal on for oilseed cultivation in those regions at that time. the legal framework of biodiesel in Brazil. Its first Palm has a high technological level in Brazil, with version was published in July 2005. more than 30 years of continuous research. This The Seal represents an MDA permit given to crop has high aptitude for the northern region. biodiesel companies to promote the creation of In the northeast and semiarid regions, castor seed jobs and income in family farming through the and cottonseed required minimal technological production of oilseeds. capacity for commercial cultivation and were con- The companies entitled with the permit to use sistent with the regions’ agricultural zoning1. Cot- the Social Fuel Seal have the right to reduced tax tonseed, however, depended on the development rates levied on the biodiesel produced. The access of the productive chain of fiber in the Northeast, to the biodiesel market, during the authorizing in a way that it became impractical to sustain the phase (2005 to 2007) was unique to the companies biodiesel program goals. with the permit. The mechanism used was that of In 2008, the government extended the rule of public auctions. In the phase of mandatory use total exemption from federal taxes to any type of from January 2008 until 2013, the companies with oilseed raw material produced in family farms in the permit to use the Seal had access to 80 percent the North, Northeast, and semiarid regions. The of the volume of biodiesel from auctions. All other decision was based on the need to increase the companies competed for the remaining 20 per- portfolio of raw materials, and on the technologi- cent. Inventory auctions3, held by PETROBRAS cal evolution, mainly due to agricultural zoning were exclusive for companies with the Seal. This suitability of sunflower, sesame, peanuts, palm, mechanism allowed the expansion of the process and coconut in several Northeastern states2. of granting the Seal. Access to federal tax exemption (Table 3) is, The obligations of the biodiesel producers however, conditioned to the granting of the Social which could use of the Seal were: Fuel Seal to biodiesel companies (Decree No. 5 a) Formalizing production purchase contracts 297 of 6 December 2004; and Decree No. 6 458 of with family farmers or their cooperatives, 14 May 2008). in terms and conditions negotiated prior to planting, with the participation of an institution that may represent them. 1 Agricultural Zoning is a mechanism that allows the accurate identification of the most appropriate location and date for planting a certain type of crop, in several Brazilian regions, as well as the most suitable crop for 3 Auctions of inventory were instituted given the man- each region. Risk analysis is based on soil type, local datory use of biodiesel, and were aimed to maintain a climate, and phenological cycle. Source: personal com- strategic reserve to be used in case of any interruption in munication, MDA. supply. Source: Resolution No. 7 of CNPE, 5 December 2 See in www.agricultura.gov.br 2007. Chapter 6 – The Social Fuel Seal Program: Assuring the participation of small-scale producers... 59

b) Purchasing raw materials from family farms seek the adequacy of the companies. Recently, the in at least a minimum percentage in relation mandatory percentages prevailing for purchases to total purchases used for the production of of raw materials for companies in every region of biodiesel. Brazil were: South, 40 percent; Southeast, North- c) Allocating technical assistance to farmers for east and Semiarid, 30 percent; North 20 percent; the production of oilseeds. and Midwest 15 percent.

Five years after the first issue of the Seal, it was nec- Purchases from family farming essary to further qualify the relationship between cooperatives biodiesel industries and family farmers, including According to tax and Seal norms, raw materials can aspects that were not originally foreseen. It was also be purchased from family farmers or from their needed to improve MDA’s capacities so it could cooperatives. The MDA has a system to identify better follow up the program and monitor the and characterize the cooperatives of family farms, social performance of biodiesel. The norms of the which usually are composed mostly of farmers, but Seal were revised by consulting representatives of which can also have medium and large scale farmers farmers, producers of biodiesel, the MDA biodiesel in their membership. Therefore, there was a risk that team and other ministries and institutional partners. the cooperative would sell raw materials from other In February 2009 a new version of the norms of the vendors to biodiesel producers. This practice would Seal was issued. harm the social goal of the program, and it would cause an improper use of tax benefits. To solve this The criterion for minimum problem, an exclusive criterion to characterize and purchases from family farming monitor family farming cooperatives was established According to the original norms of the Seal, a bio- for those cooperatives that had any contractual diesel producer would have to purchase, from fam- undertakings with companies that had the Social ily farms, at least 50 percent of the raw materials the Fuel Seal. The cooperatives had to meet two criteria: company would require to produce biodiesel, if the a) Its membership should consist of at least 70 production came from the Northeast and semiarid percent of farmers under PRONAF. regions. For the Southeast and South, that mini- b) The commercialization of raw materials for mum percentage was 30 percent, and in the North biodiesel companies with the permit to use the and Midwest regions it was 10 percent, regardless Seal must be exclusively from family farming. of the location of the biodiesel unit. The brief experience of eight years with the Seal It was decided that the cooperatives would be showed that establishing a high value of the mini- obliged to report to the MDA all data on purchases mum percentage of purchase from family farms, from small farmers and sales to biodiesel companies. instead of being a stimulus, constituted a barrier to the sustainable integration of family farming into Technical assistance, supplies the market. and services in relation to the Part of this difficulty was associated with compa- minimum purchase percentage nies that did not have the habit of dealing with such As previously mentioned, the minimum purchase a highly targeted audience and, generally, with many percentage from family farms established in the restrictions to have access to agricultural inputs and Social Fuel Seal was calculated in the same way as it to ensure financial support for the farm. The accom- was for the use of reduced rates in federal taxes. The plishment of ambitious family farming production monetary value for the purchases from family farms targets became elusive for many companies. Farm- was estimated in relation to the monetary value of ers, in turn, had been hit by a sudden, aggressive the total purchases made to produce biodiesel. buying pressure from companies, which often com- When companies purchase from family farmers peted with each other. The incorporation of oilseeds (as individuals), the receipt of purchase normally that were not traditionally part of the portfolio of contains only the value of the purchase. Other agricultural production of farmers was disastrous, expenses such as technical assistance, donation of resulting in huge losses and poor performance. inputs, and non-refundable services to farmers are Thus, in 2009 the minimum percentage of the made by biodiesel companies separately, with no Northeast decreased from 50 to 30 percent. In the means of including them when calculating the per- Midwest and North regions, it increased to 15 centage of purchases. As for purchases from family percent, with a period of two cropping seasons to farming cooperatives, however, these expenses are 60 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

often included in the selling price of the product. depending on whether the purchase had been made This indicates that, through the previous Seal norm, from individual farmers or from farmer coopera- for the same amount of purchased product the tives. The following example explains this fact: calculated family farming percentage could vary

BOX 1 Example of calculation of purchase percentage

A biodiesel company purchased 1 000 tonne of castor seed from individual family farmers in the Northeast region for US$ 0.50/kg. The company also bought 800 m3 of soybean oil to produce biodiesel at US$ 2.00/L

In this case, the family farming purchase percentage will be:

((1 000 000 kg × US$ 0.50/kg)/(800 000 L × US$ 2.00/L)) × 100 = 31.25%

In this case, according to tax rules zero rate will be applied to the revenue of 31.25% of the biodiesel produced, and the full rate of US$ 0.089/L will be applied to the remaining 68.75%

Biodiesel production is 800 m3 and the selling price is US$ 1.50/L. The company spent US$ 25 000 in technical assistance and donation of seeds to farmers. The amount of taxes to be paid will be:

800 000 L × US$ 1.50/L × 0.3125 × 0 +800 000 L × US$ 1.50/L × 0.6875 × 0.089 = US$ 73 425

Under the same conditions, if this same company hires a family farm cooperative to provide technical assistance to its members, and donate the needed seeds, the cooperative may add the costs of these items to the final price of the product. Thus, the price of each kg of castor seed sold will be increased in US$ 0.025. Some contracts between companies and cooperatives discriminate these negotiations. So, 1 000 tonne of castor seed is purchased for US$ 0.525/kg and 800 m3 of soybean oil to produce biodiesel at US$ 2.00/L. The family farming purchase will be:

((1 000 000 kg × US$ 0.525/kg) / (800 000 L × US$ 2.00/L)) × 100 = 32.81%

The amount of taxes to be paid will be:

800 000 L × US$ 1.50/L × 0.3281 × 0 + 800 000 L × US$ 1.50/L × 0.67 19 × 0.089 = US$ 71 578.92

By opting for cooperative purchasing the company may, within all the established legal norms, reduce the amount of taxes paid. In this example, the company saved about US$ 1 800.

Table 4 Brazilian trade balance, 2010

Oilseed Amount (tonne) Value (103 US$)

Peanut 51 080 48 090

Palm oil -139 289 -119 280

Soybeans 25 742 945 10 998 204

Sunflower -3 123 -3 908

Other crops 1 324 301 1 099 912

Total 26 975 914 12 023 018

Source: FAOSTAT, 2013. Chapter 6 – The Social Fuel Seal Program: Assuring the participation of small-scale producers... 61

Considering the reality of the Brazilian fam- through biodiesel companies that will guarantee ily farms, especially the poorest ones with low that their products will be purchased at good, organizational level, MDA decided to change the competitive prices. Those companies should also norms of the Seal so that the costs of technical provide farmers with technical assistance, being assistance and training of farmers, as well as the irrelevant if raw materials are destined to more costs of inputs and services advanced to farmers to profitable markets other than biodiesel. Consider- work in oilseed crops could be added to the fam- ing this issue for the country as a whole, if the bio- ily farming purchase percentage. According to the diesel production chain can change the current sce- norms, however, one must present evidence of tax nario of stagnation in the production of oilseeds, compliance, and there are limits when adding such there will be a real gain in the balance of trade, in costs to the total purchase price. It is expected addition to an increased supply of oils with better that companies will be encouraged by this system nutritional quality than soybean oil, which is the to invest in technical assistance to smallholder basis of current domestic consumption. farmers. Regarding the advance of inputs and ser- In order to encourage the diversification of fam- vices, it is expected that many more will start to ily farming, MDA established in the new tax norms participate so that farmers who have no access to that raw materials, except for soybeans, will have PRONAF credit may be included. The intention an increase of 50 percent for the calculation of the has been to extend this rule to tax law, but that is minimum percentage of purchases. For the Seal still being negotiated with the government. program this means that each dollar spent on the purchase of oils from oilseeds such as castor seed, Family farming purchases may sunflower, sesame or oil-palm, is worth US$ 1.50 or may not be used for biodiesel when the family farming purchase percentage is production calculated. Numerically, the required minimum As previously mentioned for the castor seed oil percentage of purchases decreased. case, there is great controversy about using high- value oils to produce biodiesel. Undoubtedly, the The criterion of technical largest profits are obtained when these oils are sold assistance to family farmers in the chemical products market, instead of being Public, free, and universal technical assistance to all processed into biodiesel. However, if they are farmers is one of the goals of MDA. However, in the indeed so valuable, why didn’t these supply chains process of conceptualizing the biodiesel program developed efficiently in Brazil? The Brazilian trade there was an understanding that technical assis- balance data show that Brazil is a net exporter of tance for the cultivation of oilseeds should be an soybeans and peanuts, but it is importing other oils, obligation of biodiesel companies. Technical assis- including palm oil (Table 4). tance could be conducted by company’s in-house In 2012, Brazil produced 66 million tonnes of staff, by outsourced technicians from specialized soybeans and about 1.5 million tonnes of other companies, or else provided by public institutions oilseeds (peanut, sunflower, castor seed, rapeseed through the negotiation of specific agreements. The and oil-palm) (CONAB, 2013). If all of these raw discussions led to internal divergences within the materials, with the exception of soybean, were Ministry, because there was a discrepancy in the used to produce biodiesel, altogether they would precepts of MDA for the new rural extension and meet less than 25 percent of the demand for B44, technical assistance policy (ATER)5. Some of the We may hence conclude that soybean alone has internal divergences are cited below: sustained the national production of biodiesel in a) Farmers would receive “technological pack- recent years. In fact, about 80 percent of biodiesel ages” typical of the Green Revolution, produced in Brazil in 2013 derived from soybean which would be like stepping back in time oil (MME, 2013). regarding the efforts to have a more agro- Considering this scenario, the view expressed ecological family production, less dependent by the Brazilian Government through MDA is that on external inputs. farmers should be encouraged to produce oilseeds b) Technical assistance would be conducted

4 B4 is estimated in 2 billion liters. Based on the average oil 5 ATER must be multidisciplinary, analyse a property as content of the raw materials mentioned above, about 460 a whole, and be public and free for small farmers. For million gallons (1 740 million litres) of biodiesel would more details on the National ATER Policy, please see be produced. http://www.mda.gov.br/saf/arquivos/0878513433.pdf. 62 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

only for the oilseed crop with focus on pro- d) Since the majority of oilseeds were of short ductivity, and with no concern on the part cycle, technical assistance was focused on the of technicians to encourage the integration production period with no continuity in the of production factors in the family property. offseason; nor did it have any type of integra- c) Agro-ecological production systems would tion with other actions, such as rural exten- not be adopted. sion, which caused discontinuity and loss of d) The production dynamics through contracts farmers’ fidelity towards the program. There was typical of the almost vertical integration was also a high turnover of technicians. systems common in some agrifood chains e) In the northeast, the number of farmers in Brazil, which are often criticized under under the responsibility of each technician the argument that farmers would become was too high. dependent on the company that would eventually exploit him or her. Aiming to overcome the problems identified, the e) Public technical assistance would compete Brazilian Government, through the issuance of a with the companies’ technical assistance. new instruction for the Seal, sought to establish objectively what was expected from technical assis- Practical experience clarified many of these doubts, tance actions. and there was a different context for this discussion Technical assistance should observe the follow- afterwards. Despite the massive adoption of pro- ing principles: food security and food sovereignty; duction technologies highly dependent on external sustainability of production systems; income inputs, the very fragile economic situation of the generation; and rural poverty reduction. It should family farmers made it challenging for them to prof- be carried out according to the cycle of the crop, itably engage with the biodiesel companies. Given necessarily in the following phases: that they had no access to bank credit6, and had 1. Planning and decision making on which no resources, farmers were unable to finance their crop to plant. crops. Companies tried to provide a minimum level 2. Preparation and monitoring of the technical of inputs, usually seeds and some working tools. project for the production of oilseeds, either Without proper soil treatment and no application of in the cases of request of financing of agri- fertilizers, productivity was low, causing discourage- cultural production or if advanced supply of ment and abandonment of many farmers, especially inputs is requested to biodiesel producers. in the Northeast and Midwest regions. When the 3. Planting. technologies were applied correctly both the results 4. Crop development. in productivity and financial returns motivated farm- 5. Harvest. ers, as in the case of oil-palm production in Pará. Details of this example are presented in Chart 1. In the case of perennial crops, technical assistance Some problems associated with the biodiesel should be provided permanently throughout the companies’ technical assistance from its inception year, within the guarantee associated with raw until the end of 2008, were: materials purchase. The recommendation is to a) Technicians involved did not know the real- integrate these activities with those organizations ity of family farming. that provide technical assistance and rural extension b) Technicians did not know enough about in the region where the company operates. Each the technologies for production of oilseeds technician could take responsibility for coaching which were new to them, for instance sun- up to 150 family farmers. flower and castor seed, and they were not previously trained. Contract criteria c) Technical assistance was punctual and of low Contracts between biodiesel companies and fam- frequency. ily farmers are a tool of the negotiation process that gives security to both parties. Altogether they define the conditions agreed between the parties, 6 Much of the family farmers involved with biodiesel had containing at least: low income and were from the Northeast region, where a) The identification of the parties. PRONAF credit was not being consistently used. Farm- b) The amount contracted for raw materials ers in the Midwest, in turn, were typically agrarian reform settlers, and the default levels were very high, which also and the specification of the equivalent area made PRONAF credit program impracticable. in hectares). Chapter 6 – The Social Fuel Seal Program: Assuring the participation of small-scale producers... 63

c) The contractual term. agricultural production by family farmers, so as to d) The criteria for pricing, price reference or ensure compliance regarding the required minimum purchase price of raw materials. purchase percentage. This plan should include the e) The criteria for the readjustment of the provision of technical assistance. agreed price. The first action is the choice of raw materials to f) The terms of delivery of raw materials. be promoted with family farming. This decision g) A clause of responsibility of the biodiesel should consider technical, financial, and strategic producer to provide technical assistance to aspects. To illustrate the issue, a biodiesel company the family farmer. that also acts in the food industry and that has only h) The safeguards provided to the parties, one unit of oil extraction would not qualify for explaining the conditions in case of crop non-food oils, like the one derived from castor seed, failure and force majeure. given that it would result in food contamination. i) The identification of representatives of fam- Once the raw materials are defined, the area of ily farmers, and who participated in trade suitability for a given agricultural crop must be negotiations and foresee agreement with the evaluated by specialized technical experts, draw- contractual terms. ing on data from agricultural zoning plans. The choice of the area to be covered is also influenced The contract may be collective, provided that: by the company’s preferred area of operation. a) All farmers will sign it. Although most of the oilseeds are suitable for long b) It contains a clause that does not imply co- distance transportation before processing, there responsibility among the farmers in prod- must be an appropriate logistic infrastructure to ucts delivery. link farms to the processing plants. The profile of c) The provision of technical assistance to family farms is also taken into consideration, and farmers is maintained. the general tendency is that sites where farmers are d) MDA should be informed about collective better organized will be chosen. agreements made by the producer of bio- Family farming organizations that participate diesel by identifying the name of the family more actively in negotiation processes are key farmer, the name of the product under the actors for the articulation with farmers. Experience contract, the area to be cultivated by each has shown that the farmer’s previous knowledge is farmer, amount of contracted production essential for the success of the plantations. As an and date of beginning of the contract and example, good results have been achieved in Rio term of validity. Grande do Sul, in Southern Brazil, with the cultivation of rapeseed, where for more than 10 years It was observed during five years of existence of the cooperatives have been conducting field experi- Seal program, that the process of contract negotia- ments assisted by R&D and technical assistance tion has improved, due mainly to the involvement, institutions. The application of classical methods commitment, and follow-up of the National Con- of technology transfer, such as farmer’s field days, federation of Farmers CONTAG, its federations demonstration lots planted in the farms, and col- and unions. lective technical assistance has been essential. The definition of the model of technical assis- The steps for granting the Seal tance depends on the profile of the company. There The granting of the Seal is the last step in the pro- are those that consider a good strategy to have their cess of legal regularization of a biodiesel producer. own team, a practice that is very common in com- The procedures that a biodiesel producer has to panies that also have their own production of raw follow before applying for the Seal are: materials. Others prefer to outsource from special- a) To register in the ANP as a producer of ized institutions, whether public or private. The biodiesel. unions influence these choices. The costs of tech- b) To receive special authorization as a bio- nical assistance need to be assessed in the viability diesel producer, granted by the Internal analysis of doing business with family farmers. Revenue Service. Once the location and raw materials have been defined, the parties begin a process of articulation For planning and fulfilling the criteria of the Seal, to make the agreement possible. Normally, at least the producer of biodiesel is required to prepare an some of the technicians participate in the initial action plan with the ultimate goal of promoting phase. Family farming organizations must partici- 64 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

pate, especially trade unions and their federations. duced by companies with the Seal7. Recently, 55 Local institutions such as banks, government agen- biodiesel agro-industrial plants were authorized to cies, development agents and social organizations produce biodiesel, of which 42 had a license to use often engage in these production arrangements. the Social Fuel Seal, with an installed capacity of 7.5 The chronology of actions is crucial because billion litres per year (MDA, 2014). the process of working with farmers and others MDA estimated that at least 205 000 farmers involved can be lengthy. The decision regarding the would be producing raw materials for biodiesel in crop depends on a minimum period previous to the an area of 600 000 hectares, moving nearly 350 mil- recommended planting time, so that credit can be lion Brazilian reals when the B2 market was to be secured and land prepared in a timely way. In the established in 2008 (Campos & Carmélio, 2006). Northeast region, many successive failures in the In 2007, about 36 000 farmers sold to biodiesel planting of castor seed were attributed by the farm- industries; most of the family production was from ers to late planting due to late delivery of inputs. the South. In the Northeast, the performance was From the moment the company signs contracts below expectations - although about 30 000 farm- with family farmers through formal recognition of ers had been contracted, only about 5 000 actually their representatives, it is possible to apply for the sold to biodiesel companies (Campos & Carmélio, Seal concession with MDA. 2009). What has been observed during this period The subsequent steps are the cultivation phases, was the failure of production in the Northeast, in which technical assistance is crucial, culminat- where there are poorer family farmers. The planting in the acquisition of family production. ing areas were small and there was no significant After the concession has been granted, the com- contribution of capital to finance production. In the pany has three months to enter into the computer- Southern region, however, the biodiesel production ized system of MDA all data on contracts, acquisi- chain was functioning well, through soybean coop- tions if they have already been implemented and eratives of family farmers. In the 2007/2008 harvest, technical assistance provided to family farmers and biodiesel production generated a gross income for their cooperatives. This data should be updated on family farming of about US$ 115 million, with over a quarterly basis. 90 percent coming from soybeans in the Mid-South. Monitoring by the is carried out through the The 2011 data provided by MDA estimated that analysis of data provided by companies and fam- there were about 100 000 farmers in the activity. ily farming cooperatives, as well of information This information indicated that family farming is provided by the representatives of family farming the most organized category among producers and and by MDA professionals. Field evaluation is has greatly benefited from the program. Soybeans mandatory annually or at any time upon formal ranked as the predominant feedstock in the pro- complaints or if inconsistencies are perceived in duction of biodiesel as in family farm production. the data provided. The regulatory framework for social inclusion of The information system of the Seal was in its the poorest family farmers, characterized by the initial stage at the time of this writing; by then only complete exemption of federal taxes on biodiesel the module concerning registration, contract, and produced from raw materials from family farms of procurement had been implemented. The module the Northeast and semiarid areas was insufficient to for technical assistance was still missing. The com- promote the feedstocks prevalent in those regions. panies had already fed the system and inconsisten- The policy of auctions linked to the Social Fuel cies due to errors in the system or the data were Seal was a fundamental tool for MDA to have corrected. The monitoring of this process was means to promote family farming. Because there crucial for assessing the social performance of the was no specific outline of benefits that could off- program. However, it has been a complex process set the high costs of promotion of family farming that required much financial and staff effort. in the Northeast and as there was no government investment for this purpose, the region remained The performance excluded of that chain. of the Social Fuel Seal Mechanisms to compensate for higher costs Up to August 2009, 30 industrial units had the and lower productivity in the Northeast should permit to use the Social Fuel Seal. The aggregate be created. One feasible possibility would be to production capacity of these units was superior to 3 billion litres, equivalent to the volume of the B5 7 Calculated by the authors based on biodiesel production market. In 2008, 99 percent of biodiesel was pro- data from the ANP and from the MDA [8] [9]. Chapter 6 – The Social Fuel Seal Program: Assuring the participation of small-scale producers... 65

Chart 1 Productive arrangement in biodiesel: the integrated system for oil-palm plantations in Pará

Oil-palm production was carried out in Pará by Agropalma, a private company. Agropalma settled in Pará in 1982 for the production and extraction of palm oil and palm kernel oil. Its refinery had a production capacity of 320 tonnes per day. Agropalma owned 82 000 hectares of land with 32 000 oil-palm trees. The incentive to the inclusion of family farmers to plant oil-palm started in 2002-2003, when, through a partnership with the Bank of Amazonia (BASA), the Government of Pará and the company started working with 50 families. In 2003-2004 and 2004-2005 more families were included, totaling 1 500 ha of plantation, with 150 families. Invest- ment funds were provided through PRONAF, with a grace period of 5 years and a repayment period of 12 years. Since palm oil production begins only after three years of cultivation and since the trees only reach maturity after seven productive years, there was a need to fund the work of the farmer in some form in the early years. This funding issued was addressed by paying farmers for the planting activities and maintenance of crop, at a value equivalent to one minimum wage per farmer every two months. This feature was incorporated into the PRONAF agricultural project, characterized as pre-operating expenses. The company provided technical assistance for planting, maintenance and harvesting of oil-palm. A feature of the initiative was that the plantings were made in continuous and collective areas. Farmers, called river people (“ribeirinhos”), because they live along the rivers, did not have sufficient area at their disposal to carry out the project. The company, in turn, desired proximity to its facilities in order to diminish their collection costs. BASA ruled that the area desirable to match the economic viability with the ability to borrow at PRONAF conditions should be 10 ha. In this arrangement, the company would provide in advance the inputs and resources needed for agricultural production. In 2005-2006, with the involvement of the institutions mentioned above and also MDA and INCRA, the federal land reform agency, Agropalma joined the biodiesel market, including 35 families for the planting of 193 ha. In this initiative, there were changes in project design, which are discussed below. Before planting, MDA asked the Ministry of Environment (MMA) if oil-palm could be grown in degraded land. The motivation of MDA was to reduce the environmental liabilities of the settlers, who had historically been allocated in degraded areas, through a productive activity that could provide for their economic support. Based on the Forestry Code and considering the size and characteristics of family property in the North, MMA concluded that oil-palm could be grown exclusively in small plots of family farms, interspersed with other crops. The negotiation with the company and with the BASA resulted in an agreement whereby each farmer would cultivate six hectares in his or her own property and not in collective areas. The contract negotiation has brought some new elements to the company: there were settlements and the need to involve union representatives of family farming. This approach was somewhat difficult, and some issues deserved further analysis to obtain a consensus. The company wanted a long-term contract and union representatives wanted a short-term contract. The period of economic performance of the crop is 25 to 30 years, after which the technical recommendation is to cut it, because after this the trees would lose their productivity and would become very tall, hindering the collection of bunches, an operation done with cutting equipment. The contract term was set to 25 years. Since this was a settlement where there was a risk of farmers abandoning the area, it was agreed that if this occurred the company would manage the area until a new settler was installed by INCRA and had undergone training in crop management. INCRA helped rebuilding the roads, easily destroyed by intense and frequent rains. The price per tonne of fresh bunch was set at 10 percent of the price of palm oil in the stock exchange of Chi- cago. The farmer would collect bunches and transport them using donkeys to a central location where could then use the company trucks. Payment was done monthly through the farmer’s BASA account. The farmer received only the net amount while the equivalent value of the benefits of the PRONAF loan was retained. The company collected the monthly equivalent of the advance of supplies made at time of planting. This whole financial operation was jointly developed and endorsed by the Federation of Agricultural Workers. Negotiations were made with farmers’ associations, and contracts were jointly signed by all members. The purchases and payments, however, were made to the individual farmer. In 2006-2007, although there was a demand of at least 100 local farmers, the land plots were not fully regularized by the INCRA, which caused discomfort to the company who declined to take the risk to sign contracts with farmers in this situation. 66 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Chart 1 (continued)

Later there were 182 farmers involved in a total area of 1 692 ha. The income generated was very significant: there was more than R$ 18 000 per year for farmers who obtained very low incomes, or with no history of income as it happens with the settlers. The report of a leader of the settlements draws attention to this matter: “We have conducted the calculations and found that it was worth it. We have set up the association and each farmer has planted 960 feet of oil-palm. In 2009, agriculture occupied 50 percent of farms on the average, and we expect to receive between R$ 900 and R$ 1 200 per hectare in our first harvest”, said the farmer, who has used PRONAF resources. The experience of Agropalma shows an interest among institutions for socio-economic inclusion of farmers. The level of response of the cultivation of oil-palm on the income of farmers draws attention as a means of enabling the settlements in Brazil. The need to combine various factors such as availability of financial agents; state government support; a solid company with economic power, able to finance part of the agricultural inputs; and the mobilization of trade unions, show a need for strategic planning.

highlight the peculiar characteristics of biodiesel sible to allocate structural actions to improve from castor oil8: it improves the lubricity of diesel productivity and expand the area of produc- and the specifications of soy biodiesel according tion of castor seed through family farming. to European standards, when employed at a ratio of 30 percent. Thus, the production of biodiesel The volume of biodiesel to be produced under these from castor oil produced by family farmers in the conditions could be increased progressively, so as to Northeast could be stimulated by granting compa- encourage increased production and productivity nies with the Seal through the auction mechanism, in the Northeast. In this way, part of the national but with differentiated prices that could generate biodiesel could meet European specifications. To profits for farmers and the industry. assess whether or not the mechanism should be Under this hypothesis, some situations may be mandatory, it is essential to study the costs of addi- envisaged: tives in diesel fuel, the level at which the castor seed 1. Biodiesel companies in the Northeast no biodiesel could replace those products, and estab- longer would have to compete on equal terms lish an export plan for biofuels. with those from the Mid-South, since bio- This thesis considers the following market diesel would have different prices regionally. issues: a) most of the diesel (approximately 93 2. Companies in the Mid-South could compete percent) is produced in PETROBRAS refineries, with those from the Northeast in the auc- hence their responsibility for it is additive; and tions, provided they were holders of the b) PETROBRAS has three biodiesel production Social Fuel Seal, met the criteria of origin of plants in the semiarid, with total installed capacity raw materials and biodiesel were produced of 144 million litres per year, which with the five with 30 percent castor oil. units of Brazil Ecodiesel and Comanche9, totals 3. Family farmers could be hired with more bal- 744 million litres per year. Therefore, the industrial anced pricing, which could help maintain the facilities have conditions to stimulate production of viability of agribusinesses and agro-industries. biodiesel from castor seed, and PETROBRAS may 4. There is a need to establish contracts for play a decisive role in the induction of this market. medium and long term relationships with From the foregoing, it may be concluded that farmers, in such a way that it becomes pos- the biodiesel program has strengthened a more consolidated family farming segment, which is linked to soybean cooperatives organized in the 8 Rezende & Avila (2008), from Fiat, showed that biodiesel from castor seed lowers (improves) the point of clog- South of Brazil. The cost benefit of the program to ging of cold filter in blends (50%) with other oilseeds; encourage family farming in the Northeast showed while its viscosity is reduced by the action the second instead to be below expectation. Reassessment of biodiesel in the blend. They also showed that B20 from castor seed meets the standards of ANP. Oliveira et al. (2008) showed that B50 from castor seed (ethyl) meets 9 A company producer of renewable fuels in Brazil aimed the standards of the ANP. at domestic consumption and export Chapter 6 – The Social Fuel Seal Program: Assuring the participation of small-scale producers... 67

these weaknesses is warranted for planning and implementing a consistent plan for social inclusion of family farmers in the Northeast, and for a strategy for replication of successful experiences.

Final Considerations The Social Fuel Seal was very well accepted by entre- preneurs. The policy of auctions has become the main mechanism to support the Seal program. The companies, however, considered the tax incentives insufficient to cover the costs of promoting their linkages with family farmers. Organizations representing family farmers consider it a breakthrough, but that requires further improvement. The analysis of Sachs (2009), that the Seal itself does not replace the set of integrated public policies to support family farming, is evidenced in this short experience of the Seal, overwhelmingly in the Northeast. Although there has been a clear diagnosis of the hardships faced by the local family farms despite the efforts of MDA in the formation of productive arrangements linked to this market10, the fact was that the northeastern farmers who worked with biodiesel had no access to PRONAF credit, nor were they given a solution to the problems associated with low soil quality. The performance of companies in the region has proved to be insufficient to improve the economic conditions of farmers. The Seal is likely to become a state policy rather than a government policy. However, much still needs to be done. There is a need for more effective involvement of all trade unions and social movements related to family agriculture both in building relationships in the supply chain and in the demand of measures by the Government. The effort to build a social biodiesel, however, shows that it is possible to develop important productive chains and encourage social development.

10 MDA has developed the so-called “production centers”. These are local linkage structures to act in oil-producing regions with the family farms. The action of these con- nectors depends largely on the organizational level of the farmers involved and the mode of action of the institutions that work directly or indirectly with these farmers. The working groups involved have varied composition, which has at least the participation of representatives of family farmers, leaders or officers of their cooperatives or associations of trade unions that represent farmers. Articulation occurs also at the state level, either by join- ing pre-existing technical chambers, or by supporting the formation of working groups at the state level. These groups could include the participation of state and federal agencies, agro-industries with the Seal, non-governmental organizations and associations that represent family farmers. Therefore, the aim is to focus on actions that promote farmer access to public policies to which they are entitled. This page intentionally left blank. 69

Chapter 7 Agricultural Technology: The importance of integrated fuel and food chains

Luiz Antônio dos Santos Dias; Marcelo Dias Müller; Elizabeth Nogueira Fernandes; Denise Cunha Fernandes dos Santos Dias

Agro-energy as part seriously without preaching terror and chaos. of the energy solution Ramalho et al. (2009) have carefully discussed Energy security has received special attention from problems that are expected, especially those associ- countries all over the world that face the uncertain- ated with temperature increases and water stress. ties regarding the supply of petroleum, and also These authors suggest that plant breeding has the challenges that have arisen, such as population much to contribute to mitigating these problems growth, increased demand for food and energy and assure that investment in obtaining new culti- and global climate change. Those challenges tend vars selected under conditions of stress is certainly to worsen if not addressed. Recently, the depend- the best strategy to deal with problems in agricul- ence of energy on petroleum has become a subject ture due to climate change. of national security; it determines which countries It was in this volatile scenario where climate will develop and which will stagnate. Among the tends to be hostile to life forms, particularly for first type of countries, there are those that have their humans, that the planet has quadrupled its popula- own sources of energy and the capability to exploit tion in the twentieth century. This has resulted in them. Among the second type of countries, there are increased demand for food and energy. More people those that depend on imported petroleum. On the are eating more and better, and using vast amounts other hand, until early twentieth century, agriculture of energy because of the economic growth in many used to provide food, textiles and wood. Now, it has countries. Proof of this is that the world’s food stood out as a provider of biomass energy as well, stocks have been below normal levels, representing also called agro-energy. Agro-energy opens a new a risk to the survival of humanity (Dias et al. 2009). door of opportunity for a huge sector. Based on these To free itself from the dependence on petroleum considerations, by Dias et al. (2009), it appears that and products made from it, many countries are agro-energy is one of the pieces of the energy puzzle. seeking alternative forms of energy. Agro-energy Food, energy and climate issues are closely offers greater competitive advantages because it is related to each other, and as such should be dealt clean, safe, renewable, socially available,, acceptable with jointly. The holistic view of FAO requires and self-sustaining. On one hand, planting energy that countries and economic blocks have the right means reducing regional economic asymmetries, understanding of this new reality before making sequestering carbon, reducing emissions, and help- decisions that could affect access to food of mil- ing mitigate the effects of global warming. On the lions of people (FAO, 2008c). It is not difficult to other hand, for many countries it means to compete understand the connection between food, energy with food production, land and inputs. and climate. It is known that climate is changing A comparative analysis between the United towards heating. We have scenarios where temper- States and Brazil, the two largest producers of etha- ature increases, and this may cause intensification nol in the world (about 88 percent), proves that proof droughts and floods (IPCC, 2007), resulting in duction of ethanol in the United States is a complex losses in agriculture. Most likely, anthropogenic strategic issue, as shown by Dias et al. (2009). This emissions of greenhouse gases are causing global ethanol is produced from corn, which is one of the warming, notably carbon dioxide and methane. most important food crops for humans and animals. Fossil fuel combustion accounts for 80 percent of Brazilian ethanol is produced from sugarcane with emissions (Quadrelli and Peterson, 2007). Indus- high energy efficiency. Over the past 30 years the try, agriculture, and deforestation also emit green- area planted with grains in Brazil grew 27 percent house gases. The consequences of climate change while productivity increased 124 percent. This for agribusinesses are beginning to be discussed significant increase in productivity, the result of 70 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

technology, was parallel to the increase of ethanol deposits in Brazil, estimated at 75 billion barrels. production in the same period, which clearly dem- Despite being a reassuring fact for the country, onstrates that the production of biofuel was not its exploitation takes time. The operating costs of competing with the production of food. The pro- exploiting this type of deposit are high and the duction of cake in the processing of biodiesel tends technology is still to be fully developed. It was to contribute to the increase the supply of meal for estimated that at least US$ 600 billion would be poultry, swine, and cattle feeding (Dias et al., 2009). needed. These findings could affect the search and Accordingly, Brazil has considerable advan- consolidation of alternative energy sources such tages for agro-energy. Dias (2009) argues that this as agro-energy. A second fact that made it risky to country is holding the best agricultural technol- move on to a cleaner and renewable world energy ogy of the tropical world, and the largest open matrix was the fluctuation in petroleum prices. agricultural area, about 350 million hectares, thus Lower price of petroleum is an obvious incentive allowing the preservation of native forests. Addi- to increase its consumption. Another circumstance tionally, requirements for plant cultivation condi- that could also affect the search for alternative ener- tions are perfectly met by Brazil, since the country gy is the recent cycle of financial crisis. With the has water and sunlight in abundance. Finally, Dias subsequent downturn of world economies caused argues that Brazil has a large supply of manpower by the crisis, countries were less likely to expend to boost production in the field; is rich in diversity efforts in the area of biofuels: This was a consid- of plant species, of which bioethanol, biodiesel erable and plausible risk. However, the search of and bio-jet fuels can be extracted; and it tradition- clean and renewable alternative sources of energy ally generates clean energy. All these conditions which will possibly help mitigate global environ- together have put Brazil at the forefront of global mental change, has matured in society to the point production of agro-energy, especially of liquid that hardly any country would make its investment agrofuels, namely ethanol and biodiesel. plans in the energy industry go slower. This seems Brazil is aware of this growing market for to be a one way route for the good of humanity. agrofuels and is tending to expand and adjust its In terms of opportunities, Dias et al. (2009) domestic production to comply with the inter- speculated that the success of the Brazilian Pro- national market in order to qualify for exporting gram of Alcohol (Proálcool) could not keep being the surplus. Petrobras Biofuel, for example, in its successful in the near future, because there was a 2009 to 2013 business plan, sought to invest about massive investment from developed countries in 2.8 billion dollars in this sector (Kardec, 2009). similar programs, adjusted to their realities. The With the 2012 Protocol in Copenhagen, replacing country should invest heavily in research to make the Kyoto Protocol, Annex I countries would be second-generation ethanol feasible, working with accompanied by non-Annex I countries. The bill the lignocellulosic hydrolysis of sugarcane straw for mitigating global climate change will be paid by and bagasse (2/3 of the sugar cane biomass), and all countries, not only by the developed countries. agro-industrial residues, in order to maintain its The European Union, for example, announced its leadership in the world of agro-fuels. Another energy policy 20-20-20 and intends to reduce its research path according to Dias et al. (2009) is the emissions of greenhouse gases by 20 percent and improvement of electric energy cogeneration with include 20 percent renewable energy in its matrix more efficient boilers. In addition, Brazil will need before 2020. To achieve these objectives the Euro- to take better care of its technology, by developing pean Union would have to import ethanol and ethanol chemistry, zoning sugarcane cultivation to biodiesel, because it would not be able to convert prevent it from destroying forests and wetlands, its areas of grain production without impacting and nurturing the social aspects. heavily on domestic and even international prices Regarding international issues Dias et al. of food. Therefore, in this and other cases involv- (2009) sustain that the creation of standards and ing several countries, there will be an open door of clear rules that will allow the consolidation of the opportunities for agro-energy business, and Brazil ethanol international market is timely. If properly will have great participation. regulated, this market could have high potential. When analyzing the risks and opportunities for Japan, for example, consumes 60 billion gallons of biofuels in Brazil, Dias et al. (2009) argued that gasoline every year, and has the goal of replacing 5 certain events may change the scenario regarding percent of it with ethanol. In 2008, Japan imported advances of alternative energy sources. The first four billion gallons of ethanol from Brazil. These event is the discovery of large pre-salt petroleum numbers depict the dimension of this growing Chapter 7 – Agricultural Technology: The importance of integrated fuel and food chains 71

market. The idea that ethanol reduces carbon Midwest region, soybeans (Glycine max), cotton- dioxide emissions could be emphasized. Accord- seed, and jatropha are prominent. To the south, the ing to Goldemberg (2007) if the Brazilian sugar options are soybean, sunflower, cottonseed, and cane area reached 100 000 km2 in 2022 (it was 29 tung (Aleurites fordii). This wealth of raw materi- 000 km2 in 2006), it would result in 79.5 billion als is the major advantage of the Brazilian biodiesel liters of ethanol, which, along with the American program and should receive close attention from production, would meet the international market the national policy on agrofuels. Brazil consumes demands and reduce annual carbon dioxide emis- 35 billion gallons of diesel a year; 9 percent of it is sions by 56 million tons. imported, and every 1 percent replacement of die- Brazil has taken good advantage of ethanol pro- sel with biodiesel, with the participation of family duction and there are many opportunities for fam- farming, causes the creation of 45 000 direct jobs ily farmers. It seems that policies do not include in the field and 135 000 in the cities (MAPA, 2005). alternative plant species that can make the produc- The question that remains unanswered is: is it tion of ethanol feasible through family farmers, possible to integrate agro-industrial production like sweet potatoes and cassava. The former is a and family farming? The answer is yes. Whether crop that has the potential to produce 160 litres of by guessing or through feasibility studies, albeit ethanol per tonne of tuber. Regional or local pro- tentative, it is possible and advisable to stimulate grams to encourage ethanol production could be the production of agrofuels also through family put into practice in order to involve farmers in the farming. The smart way to do this is by interrelat- cooperative regime. It would certainly be a pow- ing food with agro-energy crops, valuing family erful instrument for reducing regional economic farming production, employment, income, and disparities and poverty, as well as for expanding ensuring food for society. employment and income (Dias et al. 2009). The National Program of Biodiesel Production Agrosilviculture as strategy and Use (PNPB) follows the successful path of the for the interactive production Alcohol Program, with the advantage of having of food and biofuels been designed to include family farms in its sup- Agrosilviculture is the science of agrosilvipastoral ply chain. Brazil is the fourth largest producer of systems, which are characterized by the integration biodiesel in the world, and that is due to the PNPB of trees and shrubs, agricultural crops, forages, and according to Dias et al. (2009). Soy may be the grazing animals, either simultaneously or alternated key to the success of the PNPB. However, these over time. Thus, it is possible to combine different authors claim that its contribution must be kept activities in the same area with the objective of gen- within 64-68 percent instead of 92 percent as it cur- erating output in a complementary way, through rently occurs. To reduce the contribution of soy- the interaction of its components. bean implies to enlarge the contribution of other Agrosilvipastoral systems have gained special raw materials that can be produced by family farm- attention as an alternative to sustainable land use, ers, such as jatropha (Jatropha curcas L.), macaúba since they provide a range of benefits that include: (Acrocomia aculeata), and other oil crops that are i) protection against soil erosion, water conserva- perennial species being validated by research. tion, maintenance of soil hydrological cycle and Like ethanol, biodiesel requires universal stand- improvement of the physical and chemical charac- ardization in order to facilitate international trade. teristics of soil (Young, 1997; Macedo, 2000; Xavi- It is worth noting that while the German biodiesel er et al., 2003, Alvim et al., 2004); ii) increases in is produced exclusively from rapeseed (Brassica the nutritional value of forage (Castro et al. 1999; napus L.), the Brazilian biodiesel can be produced and Paciullo et al., 2007, personal communica- by more than a dozen oilseed species respecting tions), and animal thermal comfort (Paes Leme et the needs of each region. Thus, for example, oil- al., personal communication, 2005; Pires & Grum- palm (Elais oleifera) is the best suited crop for the mer, 2008); iii) improvements in the performance northern region of Brazil. In the Northeast region, of cattle raised on pasture (Paciullo et al., 2004); babassu (Orbignya phalerata), castor seed (Rici- and iv) socio-economic benefits, such as diversifi- nus communis L,) and jatropha stand out. In the cation of production and income, and reduction of Southeast of Brazil, macaw palm, jatropha, cot- demand seasonality for labor in the field (Macedo, tonseed (Gossypium hirsutum L.), peanut (Arachis 2000), which makes the regional cattle industry hypogaea L.) and sunflower (Helianthus annus) more sustainable and profitable (Franco, personal could be the most appropriate. In the Brazilian communication, 2000). 72 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

According to Nair (1993), agroforestry systems consists of oilseed species is a promising option. can be put into three categories based on their Besides helping to prevent the degradation of pas- structural and functional aspects: silvi-agriculture tures making animal production feasible, it will systems (or agrosilviculture), silvipastoral systems, provide concurrent raw materials for the vegetable and agrosilvipastoral systems (Figure 1). oil industry, with particular interest in the produc- Thus, agrosilvicultural systems consist on the tion of agrofuels (Dias et al. 2007a). integration of agricultural and forest crops. Sil- vipastoral systems consist of the combination of State of the art of using oilseeds trees and shrubs with forage species and grazing in interacting systems for the animals. Agrosilvipastoral systems represent the biodiesel industry most complex form of integration, where forest Jatropha (Jatropha curcas L.) (trees and shrubs), animals, agricultural and forage Jatropha curcas has been introduced in several crops are integrated in the same area. regions of Brazil, as a promising species for the A balance between the components of those sys- production of vegetable oil for biodiesel in various tems must be kept, coupled with the large number of cropping systems, from single to interacting sys- possible interactions between these factors and the tems. Drummond et al. (1984) suggested a spacing climate and soil. Therefore, there is a greater need of 3 x 3 m or 3 x 2 m in areas with low fertility, for for rigorous planning, as far as market, products, planting a single crop. Ratree (2004) observed an species, arrangement, and management is concerned, increase in seed production when there was greater as well as preparing for difficulties when conduct- spacing between and within rows of crops, for ing the activity. Currently, the biggest obstacle to spacing greater than 2 x 2 m. Saturnino et al. (2005) the exploitation of sustainable agroforestry systems indicated a spacing of 4 x 3 m between plants for the is the lack of appropriate technical information to conditions of the Janaúba region in northern part of assist both in planning and management. Minas Gerais, where soils are poorer. In the same A fundamental requirement for the success of region, besides this spacing, they have also been sustainable agroforestry systems is choosing the using 8 x 2 m spacing. Dias et al. (2007b) suggest a right species for the system. Regarding forage spe- spacing of 4 x 2 m for interacting yearly cultures, 3 cies, besides being tolerant to shade, they should x 3 and 3 x 2 m for single crops, and 6 x 1.5 or 6 x 2 also have good productive potential, should adapt x 2 m for crops mixed with pasture. to management practices and be acclimated to Considering that the agronomic knowledge the ecological conditions of the planting region regarding this species is still recent, studies in (Andrade et al. 2003). interacting systems are also scarce and basic. The possibility of introducing agrosilvipastoral Accordingly, it is worth noting some studies for systems in which the tree and shrub component the analysis of interacting systems.

figure 1 Agroforestry systems according to their structural and functional characteristics

AGROFORESTRY SYSTEMS

Agriculture Silviculture Animal herd

Trees + Crops Trees + Crops + Animal herd Trees + Animal herd

Agrosilvicuture System Agrosilvipastoral System Silvipastoral System

Source: Adapted from Nair (1990). Chapter 7 – Agricultural Technology: The importance of integrated fuel and food chains 73

Table 1 Avelar et al. (2007) studied the development of Macronutrients from green fertilizer, common beans intercropped with jatropha, and organic and mineral sources observed satisfactory development of beans in two Macronutrients from Nutrients from organic consecutive years. Heiffig et al. (2008) have studied green fertilizer and mineral sources the interaction of jatropha with sunflower. In their (kg/ha) (kg/ha) work they observed that the intercropped cultiva- N 38.93 90.72 tion with sunflower provided an increase of leaf P 1.36 54.85 area in both plants. Castro et al. (2008) have evaluated accessions of jatropha in interacting organic K 17.1 45.51 systems with annual crops (sunflower and corn), Ca 4.88 65.90 and simultaneous green manure (jack-bean and Mg 2.38 32.60 Calopogonium spp.). In their studies, the researchers obtained the first year average productivity of S 2.09 7.67 16 kg grains/ha (ranging from zero to 127 grains/ Source: Castro et al. (2008). plant). Infestation by insect pests occurred with stink bug, green leafhopper and mites. Diseases were mostly anthracnose and powdery mildew, for the interaction of jatropha with cotton and where some jatropha plants presented drying. for jatropha with sesame. Another interesting fact Sunflower opened 19 cm diameter capitula and 70 that the researchers observed was that the lines gram mass for a thousand seeds; however the attack of jatropha did not significantly interfere in the of birds limited the measuring of the output. The production of those crops, except for the cotton corn produced proved marketable yield of 3 150 crop, which had far superior results when it was in kg/ha of green ears (13 835 ears/ha). The input of interaction than when in sole cultivation. fresh biomass and dry jack bean were 2.36 and 0.61 Muller et al. (2009a, 2009b and 2009c) conduct- tonne/ha respectively, and overcame the Calopogo- ed studies to assess different spatial arrangements nium sp. (2.03 and 0.46 tonne/ha). The contribution for the cultivation of jatropha in interaction with of green fertilizer is reported in Table 1. Brachiaria spp. pastures in crop-livestock-forest In the northern region of Minas Gerais, the integrated systems (agrosilvipastoral systems). Pre- work of Machado et al. (personal communica- liminary results of these studies showed that in less tion, 2009) can be highlighted. They assessed the dense spacing the development of jatropha plants interaction of jatropha with food and fiber crops. was affected by major occupation of the area by Their study concluded that the sole cultivation of Brachiaria spp. However, it is noteworthy that it jatropha showed the worst results from an eco- is not possible to infer on the best arrangements, nomic standpoint. The best results were obtained since these data were preliminary (Figure 2).

figure 2 Crop, livestock and jatropha integrated system

Left picture: corn and Brachiaria spp. between the lines of jatropha. Right picture: after the corn harvest. Source: Embrapa Gado de Leite, personal communication. 74 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

figure 3 System 1 (Figure 3) was located in Santa Vitória, Interaction of jatropha with cattle in Santa Vitoria, Minas Gerais, in a land of 2.5 hectares. The spac- Triangulo Mineiro region ing was 3 x 2.5 m, with a density of 1 333 jatropha plants per hectare. The plantation was about four years old, and the animals were introduced one year after planting had started. The area of cultivation of jatropha was contiguous to a pasture area, so it was not possible to determine the capacity of the interacting system, as animals used both sites simultaneously. The animals were dairy cows and heifers under continuous grazing. There were no significant damages from breaching neither from animal browsing. This system is considered as possible. System 2 was located in the city of Rio Novo, Minas Gerais, in three hectares of land. The spacing was 3 x 3 m, with a density of 1 111 jatropha plants per hectare. Milking cows were taken to the Source: Adãonete Aquino Cooperativa Agropecuária Vale da plantation about a year after planting had started. Alimentação, personal communication. Just as in the previous situation, the area where the interaction was practiced was contiguous to a pasture where animals move freely for grazing. On the other hand, Muller et al. (2009b) con- Considering the total and average area, the capac- ducted a prospective study gathering data in some ity in the land was 0.6 animal units/ha. There were livestock production interacting systems from pri- no significant damages from breaching or from vate farms. The researchers identified six different animal browsing. This system was also classified interacting systems, as described below. as possible.

figure 4 Interaction of jatropha, corn and Brachiaria spp. in Conceição da Barra de Minas Gerais

Source: Embrapa Gado de Leite, personal communication. Chapter 7 – Agricultural Technology: The importance of integrated fuel and food chains 75

System 3 was located in the city of Conceição damage caused by animal trampling. This system da Barra de Minas, Minas Gerais, in a lot of 17 hec- was classified as real. tares. The spacing used was 6 x 1.5 m, with a den- System 5 (Figure 5) was located in Santa Hele- sity of 1 111 jatropha plants per hectare, in order na, Goiás, in a lot of one hectare. The spacing to enable the interaction with the production of used was 6 x (3 x 2 m), that is, rows with double grains and dairy cattle. Jatropha was introduced in lines totaling 1 111 jatropha plants per hectare, February 2008 along with corn applied in the crop in order to interact with beef cattle. The system lines. The grains were harvested in June and July of was deployed in December 2007 and the animals that same year. The animals were taken there 6 to were brought there after one year of planting. No 7 months after the jatropha had been planted, soon damage to plants was observed. This system was after the corn harvest. Dairy cows were used with classified as real. stocking rate of 0.6 to 0.7 animal units/ha under System 6 was located in the city of Bananal, São continuous grazing. In the harvest season (January Paulo in two lots of approximately 20 hectares 2009) corn was once again planted in between the each. The spacing used was 6 x 4 m, totaling 416 rows of jatropha, and harvesting occurred in May. jatropha plants per hectare, in order to promote There were no significant damages from breaching interaction with dairy cattle. Dairy cows were or animal browsing. This system was classified as brought to one of the areas a week after the plant- real. See Figure 4, for 6 x 1.5 m spacing. ing, with a stocking rate of 0.75 animal units/ha. System 4, was located in the city of Panama, In this case there was serious damage caused by Goiás, was established in a sector of eight hectares. the browsing of seedlings (affected about 80 per- The spacing used was 6 x 4 m, totaling 416 jatropha cent of the seedlings). Heifers were brought to the plants per hectare, in order to have an interaction other lot, with stocking rate of 1.5 animal units/ with dairy cattle. The planting was carried out in ha, one week after planting. Most damage was February 2009, and the animals were brought to caused by the breaching of plants, because the the lot five months after the planting. In this case, heifers seek the clean part of the land (isolation of it was necessary to protect the seedlings to avoid the seedlings) to lie down. This system was clas-

figure 5 Interaction of jatropha with dairy cattle in Santa Helena de Goiás

Source: Douglas Magrini, Caramuru company, personal communication. 76 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

sified as real, because it was designed to have the The possibility of jatropha for biodiesel pro- interactions of livestock production with oilseed duction and its interaction with dairy cattle reveals production. a potentially new opportunity for technological Interacting jatropha with cattle is a relatively development directed to agribusiness. The devel- recent type of activity, but there are some ini- opment of this technology would not only meet tiatives of producers in Minas Gerais (Triângulo the needs of farmers, eager for extra revenue in Mineiro, Zona da Mata and Vale do Jequitinhon- their enterprises and for the sustainability of ani- ha), to work with dairy and beef cattle (Figures 2 mal production systems, but would also benefit and 3), and São Paulo (Vale do Paraíba), in interac- society, fearful that “energy crops “ could replace tion with sheep (Figure 6). the areas used for food production. Additionally, Given that the leaves of jatropha are not this new production approach would provide the browsed by cattle, there is no need for additional creation of new jobs in rural areas, helping to protection of the seedlings when they are intro- maintain people in the countryside. The approach duced into production systems that integrate with would cause great social impact and, simultane- animal production. Therefore, jatropha qualifies ously, help reduce the importation of diesel, caus- for silvipastoral systems. ing great economic changes in Brazil. The increased interest in the cultivation of this type of Euphorbiaceae to produce biodiesel and African Oil-Palm (Elaeis guineensis) the urgent establishment of a new supply chain Veiga et al. (2000) have studied silvipastoral sys- will generate a significant supply of byproducts tems in eastern Amazon, and they described that from the process used to obtain oil, especially usually the planting of African oil-palm takes place bran and cake, the latter of particular interest for in existing Amazonian kikuyu grass (Brachiaria ruminant feed and as a fertilizer. Though consid- humidicola), ginger grass (Paspalum maritimum) ered unsuitable for animal feed supplementation and “grass-blade” (Rhynchospora exaltata Kunth), (Heller, 1996) due to the presence of antinutri- with spacing of 9 x 9 m. To reduce competition tional factors and toxic compounds (Makkar with herbaceous species the area around the tree is et al. 1997a and 1997b; Martinez-Herrera et al. periodically cleaned out. Because this silvipastoral 2006), some studies have shown the feasibility of system represents only a small part of the forage its use for that purpose, because of its high crude resources of the property, grazing is generally spo- protein content, about 25 percent (Van Cleef et al. radic but heavy, contributing to the degradation of 2007). These authors also recommend the need for the pasture. Livestock used is generally beef cattle. improved treatments and techniques to eliminate The shape of the African oil-palms makes it easy those undesirable compounds. for animals to reach their leaves. Thus, when cattle are brought to the site before three years of planting have been completed, there can be damage to the

figure 6 Interaction of jatropha with sheep in Redenção da Serra, São Paulo figure 7 Interaction of African oil-palm with pineappleo

Source: Carlos de Arruda Camargo, PROVALE, personal Source: Raimundo Nonato Carvalho Rocha, Embrapa Amazônia communication. Ocidental, personal communication, 2007. Chapter 7 – Agricultural Technology: The importance of integrated fuel and food chains 77

lower leaves of the palms, hindering their growth. it a sporadic and illegal activity. Thus, although these However, the producer hardly ever waits for the are resources that represent an important source of right time to bring the animals, so it is common to income, they are not enough to improve the socio- observe a considerable consumption of basal leaves. economic conditions of communities. Short cycle culture planting in the early years is a Novaes (1952) recommends a spacing of 10 x good economic alternative to take advantage of the 10 m between plants (100 trees/hectare), or even area before the pasture is established. Also in this sil- denser spacing, allowing for a density of 150 to vipastoral system, the availability of additional for- 200 plants per hectare, depending on the desired age for livestock through “buffer” pastures becomes yields. In a research in Mato Grosso, Lorenzi necessary to prevent overgrazing in the understory. (2006) found that farmers were already assessing Rocha (2007) studied alternatives for the devel- the feasibility of crops considering 200 plants/ha opment and improvement of farming systems. The and in interaction with other species such as the author studied the cultivation of African oil-palm, maritime or cluster pine (Pinus pinaster), which aiming to increase productivity as well as to use produces fruit a year after planting or even in altered or degraded Amazonian areas as a viable agropastoral systems. This author also points out alternative (ecologically, economically and social- that for growing coyol palm for the production ly). The study was conducted in an experimental of biodiesel, it would need to have density greater area of Embrapa Amazônia Ocidental, Manaus, than 500-600 plants per hectare. Amazônia, where four cropping systems were Some experiences with grazing animals in areas examined: African oil-palm with banana; African with coyol palm have been reported, but there are oil-palm with cassava; African oil-palm with pine- no scientific data proving the viability of its inter- apple; and African oil-palm in sole cultivation. The action with animals. It is known that coyol palm study concluded that among the examined systems, thorns may hurt the animals, as indicated by the the interaction with pineapple (Figure 7) showed absence or low concentration of animals grazing to have the best performance, providing 100 per- near native coyol palms. cent amortization of implementation costs and maintaining the system within three years. Systems Final Considerations with cassava and banana amortized 86.7 percent There are great opportunities for the implemen- and 64.5 percent, respectively. Moreover, Rocha tation of the oilseed with dairy cattle production (2007) concluded that, in general, those crops have schedule, or even oilseed with beef cattle, because significantly contributed to the improvement of it would increase the income and help create jobs soil fertility and growth of African oil-palm. for people in the cattle industry. However, society must invest in applied research in order to make Coyol Palm (Acrocomia aculeata) it feasible. Only well-organized research activities According to Lorenzi (2006), production and mar- will help provide the basis needed for the economic keting of coyol palm fruits depends exclusively on exploitation of such integrating activity. It is worth extraction activities, because it is unknown or not for- mentioning the possibility of combining, in a more mally recognized by the public organizations and the daring way, pasture with two large potential energy agricultural sector. The extraction activities require sources simultaneously, such as interacting pasture environmental permits for its regulation. How- with jatropha and with coyol palm. In this case, the ever, in virtually all cases, the activity is practiced by energy densification would be near its maximum unstructured and unregistered workers, which makes and should provide more income to the farmers. This page intentionally left blank. 79

Chapter 8 Oilseed intercropping: making biodiesel production feasible

Ramon Barrozo de Jesus; Aziz Galvão da Silva Jr; Ronaldo Perez

Introduction According to data from the agricultural census The National Program for Production and Use of of IBGE (personal communication, 2006), fam- Biodiesel (PNPB) has as one of its main principles ily farming accounted for about 16 percent of the economic and social participation, specifically with domestic production of soybeans and approxi- the inclusion of family farming. Through policies mately 58 percent of all production in Rio Grande that were adjusted for the program, family farm- do Sul. Out of all agricultural establishments, ers were encouraged to produce oilseeds that met 90 percent was family farming, accounting for the requirements of oil extraction and biodiesel 27 percent of the state gross domestic product. production industries. However, for the most part Furthermore, in 82 percent of farms over 50 per- of it, family farms failed to produce at competitive cent of the area was reserved for the cultivation of levels as much as large farms do, due to their typi- oilseeds. In some farms, crops reach 80 percent of cal characteristics (small properties with reduced the total area of the property. labor). This made it necessary for farmers to seek In Rio Grande do Sul, the family farmer used better ways to make bigger gains for the area used. the same technology as the major producer. Family In this chapter we deal with intercropping farmers work with a system of outsourcing trac- and crop rotation systems, which are interest- tors to plant and harvest in a modern manner, as ing options for the farmers to use their available a way to increase productivity. Still, some studies cultivation land in a better way. Some examples have pointed to a decline in economic viability of of experiments are presented, focusing on the soybean production in small units facing a situ- production of soybeans and castor seed, chosen ation of high prices of inputs and low payments because soybean is used as raw material for 80 per- received by producers (Fenner, personal communi- cent of oil destined to the production of biodiesel cation, 2006). Data show that most family farmers in the country; and castor seed because it is con- which are producers of soybean in southern Brazil sidered a key culture for the development of the continue with the cultivation of oilseed primarily PNPB in semiarid regions of Brazil, where there is for three reasons: ease of marketing, even at often social inequality and low use of appropriate agri- unsatisfactory prices; more accessible credit for the cultural technologies. cultivation of soybeans through the PRONAF; and lack of knowledge of more feasible cultures. In Soybean (Glycine max (L.) Merrill) this case, many growers do not practice an effec- Participation in the PNPB tive cost control; consequently, they do not know Despite the important participation of soybean in exactly how profitable the production of the com- Brazil’s agribusiness, the level of competitiveness modity is in their properties. achieved by its supply chain is largely due to the Despite the difficulties of the current soybean agricultural technology developed in recent decades, family farming situation, the producers of soy- from seeds to efficient machines. This technology is beans from Rio Grande do Sul are one of the main focused on large scale production in large leveled elements that support the PNPB, since they make areas and the reduction of labor. Hence, the situa- access to the Social Fuel Seal easier for several tion of small producers and family farmers becomes companies. increasingly more difficult in the cultivation of oilseeds. The numbers concerning the creation and Characteristics of cultivation and crop elimination of jobs indicate that, generally, the level rotation systems with other crops of employment decreases as the activity expands Soybean cultures demand considerable quantities and prevents other activities from occurring. of water (about 90 percent of the plant’s weight 80 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

consists of water), so it is important that water is root systems are recommended for the recovery of made available, especially at the stages of germina- degraded soils (EMBRAPA Soja, 2008). tion, emergence, flowering and grain filling. The The crop rotation choice increases the level total requirement of water by the soybean crop, of complexity in the farm and requires that basic to obtain the maximum yield, varies between 450 principles are applied, considering the suitability mm/season and 800 mm/season, depending on of each agricultural plot of land. The system should weather, crop management and duration of the be gradually introduced so as not to cause organi- cycle. Soybean is well suited to air temperatures zational or economic disruptions to the producer, between 20 °C and 30 °C; the ideal temperature since it requires a certain level of medium and long for its growth and development is around 30 °C term planning. The area for the deployment of the (EMBRAPA Soja, 2008). rotation systems should be divided into as many There are technical recommendations that plots as the number of years of rotation. After this soybean planting should not be conducted when has been established, one must also establish the soil temperature is below 20 °C, since it can affect implementation process, year after year in the pre- the germination-emergence stage of the plant. viously determined plots. The suitable soil temperature for planting ranges There are several factors that interact and influ- from 20 °C to 30 °C, and the ideal temperature ence the growth and development of plants. This for a rapid and uniform emergence is 25 °C. The complicates the establishment of the rotation adaptation of different cultivars to certain regions system and sequences of more favorable crops in depends, besides hydro and thermal requirements, terms of productivity and yield stability. It is diffi- on their photoperiodic needs. Cultivars have dif- cult to establish that a particular sequence of crops ferent sensitivity to day length1; soybean is con- will be superior to another, because this is related sidered to be a short-day plant. The adaptability to the management of the crops and to external range of each cultivar varies as latitude changes factors that act on the system (rain, temperature, north or south. However, cultivars that have the solar radiation, and geographical location). How- “long juvenile” characteristic have wider adapt- ever, there are notable benefits in well-conducted ability, allowing its use in wider ranges of latitudes rotation systems (that is, those which use crop (sites) and sowing dates (EMBRAPA Soja, 2008). sequences that provide good disease control, Soybean cultivation must be isolated; in other good straw production, prevent from undesirable words, there is no intercropping with other plants. allelopathic effects, and help in weed control), that However, crop rotation2 is highly advised, and contribute to improved production stability, and soybean is recommended to preferably rotate with also help avoid problems related to erosion and grasses such as corn, pasture, and others. More environmental degradation. traditional forms involve the cultivation of soybean in rotation with wheat and second-crop corn Castor seed (Ricinus communis L.) (safrinha); however, the subsequent practice of Characteristics of cultivation both systems tend to cause physical, chemical, and and intercropping systems biological degradation of soil and declining crop Castor seed crops need regular rains during their yields. It also provides more favorable conditions growing season and dry periods in their fruit matu- for the development of diseases, pests and weeds. ration phase (Gonçalves, 1981). Rainfall between Plants with different root systems, growth 600 mm and 700 mm provide yields above 1 500 behavior, and nutritional requirements can be kg/ha (Beltrão and Silva 1999). It is economically effective in interrupting the cycle of pests and feasible to produce it in areas where minimum rain- diseases, reducing costs and increasing the yield fall, until the beginning of flowering, is between 400 of the main crop (in this case, soybean). The main and 500 mm. Castor seed planting should prefer- options are maize, sorghum, millet (main species ably be conducted in altitudes from 300 to 1 500 m grown in succession or as a second crop) and, to above sea level. The ideal temperature range for its a lesser extent, sunflower. Species that produce development and production of commercial value large amounts of green mass and have extensive should be 20 °C to 35 °C. Castor seed is considered a long-day plant,

1 although it adapts well to short-day areas, provided Each cultivar has its critical photoperiod above which that they are of not less than 9 hours. It develops flowering is delayed. 2 Crop rotation is the practice of switching plant species better in areas with good sunshine, with at least 12 over time within the same agricultural area. hours of sunlight per day (Azevedo and Lima 2001). Chapter 8 – Oilseed intercropping: making biodiesel production feasible 81

figure 1 distance required to grow another culture. It can be Examples of colors, sizes and types of castor seeds up to 4 m, if the intention is to prioritize intercropping production. Castor seed is usually intercropped with food crops. It is most commonly intercropped with beans (Phaseolus vulgaris L.), which is a fast- cycle plant that competes little with castor seed. Peanut (Arachis hypogeae L.) is also very promising when in interaction with castor seed, because it contributes to enriching the soil with nitrogen and competes little with castor seed (EMBRAPA Algodão, personal communication, 2009). When opting for intercropping systems one must consider some important hints: Intercropping planting should be conducted at least 15 days after the castor seed planting, Source: EMBRAPA Algodão, personal communication, 2010. because the germination and early growth of castor seeds are very slow; so if they are planted together, it could be very harmful. The 100-seed weight ranges from 10 to 100 g (Belt- The row of castor seed and the other crop rão and Silva 1999). The oil content varies on aver- must be at least 1 m apart from each other, age from 42 percent to 49 percent, depending on to avoid excessive shading and competition. the variety. The average production cycle is about Crops that grow more than castor seed should 250 days, and the expected average productivity is be avoided for intercropping, corn or sesame around 1 500 kg/ha (Azevedo and Lima 2001). for instance, because the shading of these According to experts from EMBRAPA, the plants can seriously harm the production of decision for the desired plant population3 in both castor seed. Undergrowth or small size crops, single culture and in interacting systems should be like beans and peanuts, should be preferable. made carefully as an inexpensive step, but with great Beans should be upright; climbing plants effects on the productivity of the plantation. The should be avoided, because they could climb population is established according to the spacing the stem of the castor seed and harm its between rows, and the distance of plants within a productivity. row, called density. In medium size cultivars, spac- The intercropping culture must have the ing of 1 x 1 m between plants is generally recom- shortest possible cycle, to reduce competi- mended, ranging between 2 and 4 m between rows, tion with castor seed. which will depend on the soil fertility, expected amount of rain and the use of intercropping. Besides the systems mentioned here, there are Water availability is a fundamental factor when records of castor seed/eucalyptus (Eucalyptus uro- defining the space that will be used, because in phylla) and castor seed/grain (or grass) sorghum very dry sites there should be a greater distance (Sorghum bicolor (L.) Moench.). Castor seed was between plants to reduce water competition, while also found to be intercropped with sesame (Sesa- in places with more rain, or with good irrigation mum indicum L.) and with corn. However, large systems, the spacing can be narrower. In very plants that can grow more than castor seed may fertile or well fertilized soils plants tend to grow cause too much shading. faster, and under this condition narrow spacing The simultaneous cultivation of different spe- may cause the etiolation4 of plants (EMBRAPA cies in one area may contribute to balancing the Algodão, personal communication, 2009). diet and the economy of the producer. Among In the case of mechanized planting, spacing is other benefits, intercropping can increase the often defined by the machines used for planting efficiency in land use, make better use of the abi- other crops as well, or at distances that allow the otic factors, and reduce the risk of yield reduction work of a harvester. For intercropping, spacing of at (Bezerra Neto and Robichaux, 1996). least 3 m between rows is needed in order to have the Castor seed and common beans intercropping is the most practiced by castor seed farmers in Bra- 3 Number of seedlings to be deployed in the field. zil; there are records of this type of intercropping 4 Plant growth in total or partial absence of light. in all areas that produce castor seed. EMBRAPA 82 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

figure 2 The 100-seed weight was influenced by cul- Castor seed in interaction with black beans tivars, by the planting system, and by the origin of the clusters. The Northeast cultivar had larger seeds than the cultivar from Paraguaçu. Second- ary clusters had larger seeds than primary clusters, which had smaller seeds than tertiary clusters in both cultivars, regardless of the planting system. In the Northeast cultivar there were no differences between control and intercropping with cowpea, but the Paraguaçu cultivar benefited from the presence of cowpea, with a slight increase in seed size when compared to sole cultivation. Castor seed yield (kg/ha) did not differ in the cultivars, regardless of the planting system employed. Paraguaçu and Northeast cultivars produced 1021.7 and 899 kg/ha respectively in

Source: EMBRAPA Algodão, personal communication, 2010. sole cultivation. When intercropped with cowpea, small reductions in the yield of both cultivars were found (Corrêa et al., 2006). technicians found good results in productivity for Azevedo et al. (personal communication, 1991) this system in the semiarid region of northeastern studied castor seed in intercropping system with Brazil, especially when using a density of 2 000 different crops (peanut, cowpea, sorghum, sesame) plants/ha. Rigo et al. (2006) found that castor seed and in sole cultivation in India for four years. and beans intercropping in the region of Irecê, They concluded that, when intercropped with State of Bahia, could increase the family farmer peanuts, castor seed presented better yields, with income in approximately R$ 760 per family. 162 percent in sole culture, while cowpea and sor- In some regions, particularly in the Northeast, ghum presented only 95 percent and 74 percent cowpea (Vigna unguiculata L.), known in Brazil as respectively. feijão-de-corda (“string bean”), is widely used. In EMBRAPA technicians conducted a castor the city of Teresina, Piauí State, EMBRAPA tech- seed/peanut intercropping experiment from June nicians evaluated nine genotypes of castor seed to December 2003 in an experimental farm of the regarding seed yield and other agronomic traits. Federal University of Paraíba in the city of Areia, The equivalent yield of castor seed obtained in the PB. For intercropping they used the BRS North- intercropping system was greater than 1 500 kg/ eastern variety of castor seed and the BR1 variety of ha for all genotypes, indicating that the intercrop- peanut. The experiment was conducted in six treat- ping was more advantageous than sole cultivation ments with varying times of planting peanuts com- and should be encouraged, especially among small pared to castor seed, with the following conditions: farmers. Genotypes with higher seed yield were 1. Castor seed only, in spacing 3 x 1 m, one those that had a greater number of racemes5 per plant per pit. plant and lower 100-seed weight (EMBRAPA 2. Peanut only, in spacing 0.5 x 0.2 m, one plant Algodão, personal communication, 2009). in every 0.20 m. Another study was conducted in Quixadá, 3. Castor seed and peanut planted in the same Ceara State, where the BRS 149 (Northeast) and day. BRS 188 (Paraguaçu) cultivars were assessed in 4. Castor seed and peanut, planted 7 days after intercropping system with cowpea and in sole cul- castor seed. tivation. Results showed that the number of fruits 5. Castor seed and peanut, planted 15 days per cluster was not affected by the planting system after castor seed. or by the studied cultivars, since the tertiary clus- 6. Castor seed and peanut, planted 22 days ters in both cultivars, regardless of planting system, after castor seed. showed fewer fruits than the primary and second- ary clusters that did not differ from each other. Results showed an average yield of castor seed with values between 550 and 1 500 kg of seed/ha for intercropping systems, which fits well within the 5 Inflorescence. average of 1 200 kg/ha found for castor seed. It was Chapter 8 – Oilseed intercropping: making biodiesel production feasible 83

figure 3 Castor seed in interaction with black beans planted at different times

Left picture: Legumes planted 21 days after castor seed. Right picture: Legumes and castor seed planted simultaneously. Source: EMBRAPA (2010). also observed that when planted together, peanut becomes the intercropping element. The system becomes more competitive greatly reducing castor was assessed by the Federal University of Lavras, seed productivity. in Minas Gerais, to evaluate the commercial pro- The importance of the deployment period was duction of a Eucalyptus urophylla clones in agrosil- also noted with the cultures. Castor seed showed vicultural system. According to Macedo et al. better results in productivity when the planting (2006), agroforestry systems with eucalyptus have of peanuts took place at least 20 days after castor high potential to be used in fomenting and train- seed. Researchers also assessed the amount of oil ing programs of the so-called “green savings” by obtained in sole culture and in intercropped sys- smaller producers, because they will have revenue tems, and the “Efficiency of Land Use” ratio (or for the marketing of agricultural produce (short land equivalent ratio). The intercropping system cycle) and capitalization by the forest product. showed the best results, especially when peanut The experiment took place in a flat area of 40 planting was conducted after the planting of castor ha. Castor seed of the Guarany variety was select- seed. This is due mainly to the increased competi- ed to intercrop with Eucalyptus urophylla clones. tion characteristics of the legume towards Euphor- Three spacing were tested for eucalyptus planting: bia spp. Results are shown in the following table. 10 x 2 m, 10 x 3 m and 10 x 4 m. Sole eucalyptus In the eucalyptus and castor seed intercropping was planted in these three spacing as main crop. system, castor seed is no longer the main crop and The spacing used for castor seed was 1.6 x 0.5 m,

Table 1 Amount of oil and efficiency in land use

Peanut Oil Castor Seed Oil Total Oil Efficiency T reatment (kg/ha) (kg/ha) (kg/ha) in land use

1- Castor seed alone 777.37 777.37

2- Peanut alone 863.08 863.08

3- Castor seed + Peanut simultaneously 864.42 268.39 1 132.61 1.36

4- Castor seed + Peanut 7th day 694.57 436.59 1 130.66 1.37

5- Castor seed + Peanut 15th day 594.09 528.78 1 156.73 1.42

6- Castor seed + Peanut 22nd day 591.46 646.54 1 294.81 1.56

Source: EMBRAPA, personal communication, 2003. 84 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Table 2 Average values of individual volume for eucalyptus intercropped with castor seed in Minas Gerais (m3/ha)

21 months

Culture / Spacing 10 x 2 10 x 3 10 x 4

Sole Eucalyptus 23.48 17.32 16.07

Eucalyptus + castor seed 24.99 20.95 13.82

Source: Federal University of Lavras, personal communication. with pruning to increase the spacing to 1.6 x 1.0 m. Yellow varieties of Irecê were chosen for cas- The volume of wood obtained per hectare of euca- tor seed and IPA1011 for sorghum. Planting was lyptus after 21 months was assessed. The averages conducted simultaneously in the first year, and are presented in Table 2. the spacing between the rows of castor was 4.5 m, Eucalyptus intercropped with castor seed with the following variations in rows: M1, 2.2 m; did not yield better wood volume per hectare M2, 1.1 m; and M3, 0.75 m. The arrangement in when the spacing used was 10 x 4 m. The values the intercropping system was of two rows of sor- obtained for the spacing of 10 x 2 m and 10 x 3 m ghum between two rows of castor seed (2:2). Since were significantly higher than those obtained for the cycle of this variety of castor seed is biannual, sole cultivation, especially in the latter. However, in the second year only sorghum was planted in the volumetric production per hectare decreased the same spacing and density. with the increase in spacing used, and the small- The yield of castor seeds was significantly lower est spacing used in the rows of eucalyptus (2 m) in the first year in all planting systems, compared caused the smallest volume per plant. This was with the second year. This difference was due to probably related to interspecific competition for the characteristics of the castor seed variety, with factors of production. higher production in the second year. The varia- Castor seed/sorghum intercropping, although tion in plant population did not significantly affect less commonly practiced than with beans, is com- the production of castor seeds in the intercrop- monly recommended for family farmers. This is ping system in the first year, although there was especially true for those farmers in the semiarid tendency to increase with adding of plants when northeast region, because they will obtain the intercropped with sorghum. In the second year, total production of castor seed and will be able to the increase of castor seed plant population from count on the additional production of sorghum 1 000 plants/ha to 2 000 plants/ha increased seed grain. Depending on the demand they could raise production in intercropping system; unlike what the profitability of their property. EMBRAPA happened in the first year, intercropping did not researchers carried out studies aiming to investi- affect the production of castor seed, becoming gate the response of castor seed to different plant slightly larger than the cultivation alone. Moreo- populations in plantations intercropped with ver, the average yield for the three populations in sorghum in two consecutive years (EMBRAPA intercropping with sorghum was slightly higher Algodão, personal communication, 2009). when compared with cultivation alone. The study was conducted under rainfed condi- The variation in castor seed plant population tions at the Experimental Station of Caatinga, of did not affect the production of sorghum in the Semiarid EMBRAPA, located in Petrolina. The first year. However, in the second year, the pro- treatments consisted of three populations of castor duction of sorghum was lower in larger popula- seed (M1, 1 000 plants/ha; M2, 2 000 plants/ha; and tions of castor seed plants. When analyzing the M3, 3 000 plants/ha) intercropped with a constant sum of grain yield in both years, it was observed population of sorghum (50 000 plants/ha). Two that there was a gradual tendency of sorghum pro- treatments were included with the cultures of cas- duction to decrease as castor seed plant population tor seed alone (M2, 2 000 plants/ha) and sorghum increased. alone (100 000 plants/ha) for comparing the performance of intercropping in relation to sole cultivation. The population of sorghum in intercropping was constant and amounted to 50 000 plants. 85

Chapter 9 Vegetable oil extraction for the production of biodiesel

Marco Túlio Coelho Silva; Marina Barbosa Passos

Introduction Given the aforementioned definitions, it would BOX 1 appear that almost any oil or fat can be used to Definitions produce biodiesel. Oilseeds like peanut (groundnut), sunflower seed, castor seed, jatropha, and Vegetable oil is a liquid lipid at room tempera- other raw materials are cited for the production of ture, insoluble in water, which consists primar- biodiesel in Brazil. The ones that were most used ily of triglyceride molecules, found in plant for the production of 2 718 954 m3 of biodiesel in seeds, pulp, and kernels. Triglycerides are esters 2012, were soybean oil (75.2 percent), cattle fat (17.2 formed by the esterification of three fatty acid percent) and cottonseed oil (4.5 percent). Palm oil, molecules with a glycerol molecule (Sonntag, castor seed oil, peanut oil and even spent frying oils 1979a). account for less than 3.0 percent of the total raw material (ANP, personal communication, 2013). I – Biodiesel – B100 – fuel consisting of alkyl of Europe uses mainly rapeseed oil. long chain fatty acids derived from vegetable oils or animal fats, according to the specifica- Obtention of vegetable tions in the Technical Regulation No. 4 / 2004, oils and fats1,2 part of this Resolution (ANP, 2004). Oils and fats can be obtained from animal or vegetable sources. The most primitive way to obtain these products is through heating and hydrating the raw material, either in steam or water, to cause the fat to the technology used and process objectives, the oil melt, and to denature protein and hydrolyze carbo- may be subjected to a series of refining operations. hydrates. This causes precipitation and aqueous solu- For some raw materials, especially those with tion, thus isolating oils or melted fats, which rise to higher content of oil, both pressing and extraction the surface. The process, also called rendering, is still processes are used. Some of the oil is extracted by being used in small-scale production in small compressing and the rest of it through solvent extrac- munities for the extraction of animal oils and fats. tion. By repeating the extraction process, or com- Another process is used to obtain the oil bining it with pressing, residual oil content in the through pressing the raw material in order to expel cake or meal can be as low as 0.5 percent. and separate the oil or fat. Usually, pressing is used Vegetable oils can be extracted from oilseeds, for the extraction of materials with high lipid levels fruits or other oily raw materials. In general, the or with high moisture content. process for the extraction of lipids is the same for Solvent extraction is the most frequently used all raw materials. The differences in the prepara- process. The material to be extracted is ground and tion of material for extraction are due to the shape, put into contact with a solvent. The oil dissolves in size, texture, moisture, lipid contents and structure the solvent, and the oil and solvent mixture is sepa- of the different sources. rated from the residue, usually called cake. At the end of the process, the mixture of solvent and oil is Receiving and storing raw materials3 distilled to separate the oil and recover the solvent, Due to its high moisture content, fruit (olive, palm), which is reused for new extractions. Depending on is processed for extraction immediately after har-

1 Wan, 1991; Hoffman, 1989; Norris, 1982a. 2 Norris, 1982b. 3 Norris, 1979. 86 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

figure 1 Oilseed reception and storage for the extraction of vegetable oils

Oilseed from the ﬁeld

Air + light foreign matter

Air Sieving

Heavy foreign matter

Clean oilseed

Hot air Drying Hot air + water

Clean, dry oilseed

Dry cold air Storage in silo Water and heat

Source: Norris, 1982a, 1982b. vesting. Coconut nuts are dried (copra) for trans- After being sorted out, the seeds are conveyed to port and storage. In general, properly dried seeds the cleaning and drying equipment. Cleaning is can be stored in the harvest season to be processed conducted in sieve systems, which let heavier impu- during the year. rities through, and with ventilation systems, which Seeds such as soybean, sunflower seed and rape- drag impurities that are lighter than the seeds. seed are transported by trucks or rail cars from the Oilseeds usually come to the processing plant field to the oil extraction plants or to storage silos. with higher moisture content than the recommended Cottonseed needs to be delinted before storage to level for storage. Humid seeds have more plasticity separate the fibers of cotton from the seeds. Linter and are less subject to breakage during mechanical is the short residual fiber that clings to cotton- harvesting; however, if stored under those condi- seeds after the first ginning of long fibers. Figure tions, they may allow fungal growth and enzyme 1 shows the general steps of grain reception and activity that cause oil deterioration. Therefore, oil- storage previous to the extraction of vegetable oils. seed moisture should be reduced below the so-called At oilseed processing plants, before they receive “critical level of moisture”4 in order to be stored. and accept the incoming oilseeds, these are ana- This critical level is the moisture content of the lyzed for classification. Payment to producers is seed in equilibrium with air at 70 percent relative made accordingly. The factors of the analysis are: humidity, at 25 °C. This moisture content accounts Defects and impurities: green, broken, or to approximately 16 percent of moisture for the moldy grains; foreign matter such as dirt, non-oleaginous part of the seed. stones and sticks; and odd seeds. These mate- The seeds pass through a stream of heated air rials may impair the quality of the extracted for the drying operation. Precautions must be oil and are discarded as process loss. taken to prevent overheating and burning of the Moisture content of oilseeds is probably the seeds. The clean and dry seeds are stored in silos most important quality factor when receiving equipped with ventilation systems with cold and them. dry air to control moisture and temperature. Content and quality of oil: oil quality is

assessed with the Index of Peroxides and the 4 determination of Free Fatty Acids content. As an example, if soybean has 20 percent oil, it will have 80 percent of non-fatty matter; its critical moisture will Total lipids content is determined as a per- be 16 percent out of the 80 percent, which is approxi- centage of the dry matter of the oilseed. mately 13 percent of the whole seed. Chapter 9 – Vegetable oil extraction for the production of biodiesel 87

Preparation for extraction5 are abrasive and cause wear of the extraction Figure 2 shows the operations for preparing the equipment; seeds for extraction. The first step results in further have high fiber content and thus reduce the cleaning. The hulls must be removed, because they: protein content of the extraction residue. contain small amounts of oil and hinder extraction, because they adsorb some of the For dehulling, oilseeds undergo rapid hot air dry- oil extracted; ing, followed by cooling and a tempering period to are covered with waxes, affecting the quality redistribute and equilibrate moisture by diffusion. of the extracted oil; During this period, the cotyledons shrink, leav-

figure 2 Pre-extraction operations for oilseeds

Oilseed storage silo

Air + light foreign matter Cleaning Air and sieving Heavy foreign matter Clean seeds

Hot air Tempering Hot air + water

Tempered seeds

Cracking

Broken seeds + hulls

Air Separation, sieving Air + hulls -

Broken cotyledons

Direct or indirect steam Conditioning Hot air + water (if direct steam)

Conditioned beans

Flaking, roller mill

Flakes Flakes If more than 30% oil If less than 30% oil To pressing To solvent extraction

Source: Tandy, 1991.

5 Tandy, 1991. 88 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

ing the skin or hull loose. The tempered grains go Solvent extraction of materials with more than through several milling stages, or cracking, where 30 percent oil content implies very small particle they are broken into smaller pieces, and then they size material that may cause blockages in the sol- are subjected to a series of cleaning operations, vent pumps. Materials with more than 25 percent through a system of sieves and fans that separate oil content go through a phase of gentle pressing, the hulls from the pieces of seed and foreign matter. reducing oil content to 15-20 percent. The remain- The removal of the hulls could be partial and ing oil is extracted by solvent. sometimes even optional for soybean, because this oilseed contains about 6 percent of hulls based on Extraction by pressing total seed weight. However, for oilseeds such as Before the pressing operation itself, laminated grains sunflower seed or cottonseed, the hulls represent go through a stage of preparation. This includes even 35 percent of the weight and therefore must cleaning, dehulling, flaking, cooking and drying. be removed. Rapeseeds and sesame seeds some- The purpose of cooking is to bring about a complete times are not decorticated because of mechanical disruption of cells that contain oil, and promote problems related to grain size. precipitation of proteins and hydrolysis of carbo- In the seed, oil is stored in cells that are dis- hydrates to release oil for extraction. Moreover, heat tributed in the cotyledons, embedded in a matrix treatment inactivates or decreases the action of some of carbohydrates, proteins, and fibers. The seeds toxic or allergenic substances from the seeds. are conditioned, in order to increase the plasticity Cooking equipment consists of a series of of the bean pieces, in preparation for flaking. The heated vessels provided with stirring blades, and pieces of seeds are heated to 65-70 °C and their placed over each other, so that the material can moisture is brought to 11-15 percent, usually with pass from the upper to the lower pan by gravity. direct or indirect steam. The number of vessels varies with the size of the The flaking or lamination operation consists equipment and extraction objectives, but in gen- of passing the crushed cotyledons through plain eral the process has three steps: counter-rotating roller mills. Typical flake thick- Heating: with direct steam injection into the nesses are in the range of 0.1 to 0.2 mm. In addi- material and indirect heating with steam in tion to breaking the cell walls that keep the oil, the jacket of the vessels. The temperature of flaking increases the contact surface between the the material rises to 110-120 °C and moisture solvent and the lipids and decreases the route to increases to 14-18 percent. the surface, making extraction easier. Cooking: fifteen to thirty minutes, at the Although the pressing process is the most tra- indicated temperature and moisture. ditional and can be used for any raw materials, Drying: reducing the moisture of the material typically, materials with less than 30 percent of to 2-4 percent. oil (soybean, for example) are forwarded to sol- The presses are devices used to expel oil from the vent extraction. Raw materials with 30 percent or seeds. The simplest equipment consists of a per- more of oil (sunflower seeds, for example) head to forated basket where the material to be extracted extraction by pressing. Cottonseed, which after is placed, usually wrapped in a cloth which helps the stages of preparation contains approximately retain the non-oily part. The material is compressed 30 percent oil, can be extracted by either process. by a piston and the oil expelled through the mesh In practice, part of the oil may be extracted by of the fabric, escaping through the perforations pressing and part through solvent extraction). of the basket walls. The residue takes the form of The choice of process according to the oil con- a cake when removed from the press, hence the tent relates to technical and practical reasons. On name “cake” still used nowadays for the residue of one hand, equipment and processes for extraction extraction by pressing. by pressing are simpler and cheaper than equip- This type of equipment is still being used in the ment and processes for solvent extraction. On the production of extra virgin or virgin olive oil after other hand, the processes for extraction by press- the crushing of olives in special mills. It is also ing cannot fully extract the oil from the seeds. used in the small-scale processes of oil extraction Even the best equipment still leaves 5-6 percent in rural regions or where there is cheap labor. The residual oil in the spent seeds or cake, in addi- yield is low and the cakes contain 10-15 percent of tion to problems such as elevated consumption of residual oil, depending on the raw material, prepa- energy, excessive heating of the seeds, and reduced ration, and equipment used. Figure 3 illustrates the processing capability. batch pressing process. Chapter 9 – Vegetable oil extraction for the production of biodiesel 89

In modern continuous expellers, the piston has depending on the residual oil content. The spent been replaced by a screw (also called worm) rotat- cake is crushed and used in the preparation of ani- ing inside a cylindrical barrel. The screw propels mal feed or human food, depending on the sani- the material through the cylinder in a direction tary condition of the facilities, the application of parallel to the axis, compressing it as it moves good manufacturing practices and the economic forward. As the screw shaft is tapered, the annular condition of the producers, or the region where it space decreases from the beginning to the end of is produced. The oil-rich cake is ground and goes the cylinder. Thus, the material that enters through to solvent extraction. Crude oil and oil produced one end is compressed and pressed against the cyl- by solvent extraction are forwarded to the refin- inder wall and towards the other end, releasing the ing plant. oil, which flows out of the press through openings Figure 4 shows a continuous expeller with in the barrel. The extraction residue comes out cooker-dryer; and a partially disassembled expel- from the end of the cylinder. ler, showing the auger and the steel bar cylinder. The resulting products from pressing are This press is able to process up to 500 kg of seeds crude oil and cake. Cake can be oil-rich or spent, per hour.

figure 3 Vegetable oil extraction by batch pressing

Flakes 30% oil

Cooking - ﬁrst stage Heating humidiﬁcation Steam Steam and condensate

Cooking - Second stage Steam 115 ºC - 20 Minutes Condensate

Indirect steam Air and water Cooking - Third stage Drying (3-6%)

Steam Condensate

Cooked oilseed

Batch pressing

Oil-rich cake Crude oil Spent cake

Milling Milli ng

Oil-rich meal (15% oil) Spent meal (7% oil) to solvent extraction to the feed mill

Source: Wan, 1991; Hoffman, 1989; Norris, 1982a. 90 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

figure 4 Continuous press, cooking vessels, auger and cylinder

Source: provided by the authors.

Extraction of palm oil (African oil-palm) The resulting solid material from pressing, con- and palm kernel sisting of kernels and fibres, is taken to a shred- Due to the characteristics of oil-palm, its preparation der, designed to release the seeds by removing for extraction is somewhat different from that for the fibres, which can be used as fuel feeding them oilseeds. Immediately after harvesting, preparation of to the boilers. The remaining fibres are removed palm bunches should begin. This includes the stages from the nuts using a polisher. The clean nuts must of sterilization, threshing, digestion and pressing. pass through a drier and a cracker-peeler system In the first operation, the weighed clusters are to separate them from their shells. Shells and other subjected to steam at 130 °C under pressure in an fibres could be used to feed the boilers. The peeled autoclave for about 50 minutes, to loosen the fruit kernels are then crushed and subjected to pressing, from the stalks. This also helps soften the pulp which results in crude palm kernel oil and cake and facilitate the separation of endocarp shells. (EMBRAPA, 2009). Besides, it aids to eliminate fungi and inactivate enzymes that cause fermentation and triglyceride Solvent extraction6 hydrolysis in the fruit, yielding free fatty acids. Many solvents have been tested for the extraction The sterilized bunches advance to a thresher to of oils and fats from vegetable sources. Hexane was separate the fruit from the stalks and should be car- chosen to be used industrially because of its availabil- ried out within two hours after sterilization. Empty ity, price, good solubility of the oil, poor solubility bunches (waste from threshing) are used as organic of non-oil components, high volatility, low viscosity fertilizer and to feed the boiler. Losses of fruit dur- ease of distillation and low toxicity. Hexane consists ing threshing should be less than 6 percent. mainly of six-carbon alkanes, isomers of n-hexane, The fruits are taken to a digester, where they are petroleum fraction boiling in the range of 60-63 ºC. moistened, kneaded, and heated to 95 °C and 3 bar, The quality parameters usually include boiling point to separate the pulp from the nut, expand internal range, maximum non-volatile residue, flash point, tissues and soften inner walls of the fruit increas- maximum sulphur, maximum cyclic hydrocarbons, ing permeability. This transforms the material into colour and specific gravity (FAO, 1992b). a uniform mass of mesocarp and nuts. This mass During the oil crisis of the 1980s, ethanol was is subjected to pressing, to obtain crude palm oil contemplated as a solvent in Europe and Brazil. and cake with the seeds still attached to the fibers In the United States, isopropanol was tested. The (EMBRAPA, 2009; Leiras, 2006). The factors affecting extraction efficiency are press design, pressure, temperature, time and ratio of fibers to kernels. 6 Erickson, 1980. Chapter 9 – Vegetable oil extraction for the production of biodiesel 91

solvents produced oil and meal of good quality, cess is continuous and countercurrent. The flakes but the fall in oil prices prevented their full devel- or oil-bearing material is conveyed in the direc- opment and use in oil extraction processes. Thus, tion opposite to the pure solvent. The extracted extraction with light hydrocarbons still is the most meal leaves at one end and the micelle at the practical and feasible alternative for solvent extrac- other. In moving basket extractors the material tion of oil from vegetable raw materials. to be extracted is filled into a set of baskets with In solid-liquid extraction the material to be perforated bottoms. While the baskets move in extracted is put in contact with an organic solvent the direction opposite to the solvent, this or the (usually hexane). The oil dissolves in the solvent solvent-oil micelle, is sprayed on the flakes, perco- and the oil and solvent mixture, called micelle, is lates through them thus extracting the oil. In the separated from the spent residue. The transfer of oil last basket, the material that has already been sub- from the solid to the solvent has three stages: diffu- jected to extraction receives pure solvent in order sion of the solvent into the solid (that is why particle to increase driving force to extract more oil. The size is crucial); dissolution of the oil droplets in the oil-rich fluid extract, or micelle, is used to extract solvent; and diffusion of the oil and solvent solution more oil from the material entering the extractor to the surrounding liquid, which at the beginning is at the first basket. In the end, there will be rich or just solvent but as extraction progresses is micelle full micelle with 30-35 percent oil at one side of of varying concentration (FAO, 1992b). the extractor equipment. At the other side, we will There could be different arrangements in the obtain defatted mea or spent cake, wet with solvent equipment so that almost all the oil is extracted (35-40 percent) and approximately 0.5 to 1 percent from the material. In modern equipment the proof residual oil (FAO, 1992b; Erickson, 1980).

figure 5 Solvent extraction of vegetable oils

Milled Cake (15% oil) Flakes (Less than 30% oil)

Extrusion (120 °C) Steam Vapor

Extruded Material (60°C 6% Moisture)

Solvent Extraction

Micelle Spent Cake or meal (35% oil) (40% solvent)

Steam Distillation Desolventizer Toaster Steam

Solvent recycled back to the extractor

Crude oil Toasted Meal (500 ppm solvent) (0.50% oil, 500 ppm solvent)

Source: Erickson, 1980. 92 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

The post-extraction operations have the objec- assessed, where the addition of water to the ground tive of removing and recovering the solvent both seeds caused hydration of proteins and carbohy- from the micelle and from the spent cake. This is drates that “rejected” and expelled oil from the called desolventizing, a vital operations that deter- mass formed. The process was tested at a pilot scale mines not only the economic success of the process in Brazil in the 1980s, but the extraction yield was but also the quality of the products. The micelle is low and the conservation of the cake was hampered distilled in a series of stills and stripping columns by the absorption of water. (could be flash evaporators, vacuum stills and Methods of extraction in aqueous phase, in steam strippers) for solvent and crude oil recovery. which the raw material is mixed with water and The solvent is condensed for reuse (FAO, 1992b). oil separated by centrifugation, are used in special The resulting crude oil is cooled and filtered; it cases such as in the extraction of avocado oil. In fact contains up to 500 ppm of residual solvent, which these methods are an improvement of the primitive is removed during the refining process. The cake or methods, where decanting was replaced by cen- extracted meal is desolventized through the opera- trifugation. The use of proteolytic and glycolytic tion of desolventizing-toasting. The desolventizer- enzymes improves the performance of processes, toaster is usually cylindrical equipment heated by but the yield is low and the cost of enzymes is high. steam. Additional equipment could dry and cool The use of supercritical extraction with liquid the meal, which is ready to be used for animal carbon dioxide under high pressure was consid- feed processing. For soybeans, which do not pass ered as a high technology alternative for the extrac- through the stage of cooking during preparation, tion of oils and fats, yet the process is expensive to during the desolventizing-toasting of the cake be used in the preparation of low-priced products undergo an intense heat treatment which results in (FAO, 1992b). the inactivation of antinutritional factors. In many plants, solvent extraction is preceded Oil refining7 by an extra operation for preparation, either pel- Crude oils and fats are mixtures of lipids and con- leting or extrusion. A pellet is a compact agglom- tain various substances considered to be impurities, erate of the material with little tendency to form which must be removed in order to obtain refined particles that could clog the pumps and pipes in oil or fat. Specifically, crude oil may contain free the extraction system. Extrusion of flakes results fatty acids, water, resins, gums, and waxes (high in a material with greater mechanical strength and molecular weight esters that solidify at low temper- porosity than flakes and pellets. atures). Crude oil may be cloudy and dark-colored, The extruder is a device that is similar to the con- have strong flavor and may deteriorate rapidly. tinuous press, but its cylinder is not perforated on its The refining process produces oil that is bland, walls. While it is being pushed forward, the material light in color and free of odors, odd flavors or paris heated by direct steam injection and by friction ticles in dispersion or suspension. Table 1 shows against the cylinder walls, increasing temperature the typical composition of soybean oil before and and pressure. When the material comes out from the after refining. other end, it passes from a high-pressure area (last The refining process consists of several opera- stages of the auger) to a low pressure area (exterior tions: degumming, neutralizing, bleaching and deo- of the equipment). This causes abrupt vaporization dorizing. The process may include other operations of water, and the expansion of the vapor form cells such as hydrogenation or winterization, depending with denaturation of protein and gelatinization of on the market objective. In degumming part of starch. The result is a sturdy material, yet porous, the phosphatides is eliminated and metals or metal which facilitates penetration of the solvent. salts are dissolved in oil. In neutralization free fatty The defatted meal is used to prepare animal acids are removed, besides phosphatides and met- feed. Crude oil may be subjected to a filtration als. In the bleaching operation, colored compounds, operation to remove any particles still remaining, peroxides, phosphatides, residual soaps and metals prior to send it to the refining process. from the previous steps are all eliminated. Deodor- izing is almost always the last operation in the oil Alternative processes refining process, and aims at the removal of all sub- Some alternative procedures have been assessed for stances that produce off –flavours and off-odours. the extraction of oil in special situations. In Rus- sia, for example, a “selective absorption” process to extract oil from sunflower seeds and peanut was 7 Wan, 1991; Hoffman, 1989; Norris, 1982b. Chapter 9 – Vegetable oil extraction for the production of biodiesel 93

Degumming agitation, hydrated phosphatides are separated Table 2 shows the average phosphatide content of from the oil through centrifugation. Along with some oils and fats. Phosphatides absorb moisture phosphatides, some sugars, proteins, metals and from the air and form insoluble precipitates, which salts are precipitated. after being hydrated in the degumming operation The process removes only hydratable phos- are deposited in storage tanks or trucks for trans- phatides, such as phosphatidylcholine, phos- port to the refinery. Moreover, phosphatides are phatidylethanolamine, and phosphatidylinositol. emulsifiers that can harm the separation of impu- Other phosphatides (about 10-15 percent of total) rities in the subsequent refining stages, increasing such as calcium salts of phosphatidic acid are not losses in the process. For soybeans, degumming hydrated and remain in the oil. These phospha- allows the recovery of the phospholipid lecithin tides can be separated from the oil and hydrated (phosphatidylcholine), a major product due to its through other procedures that treat the crude oil applications in the food and feed industries, in cos- with acids or enzymes. metics and in the plastics and paints industries. There are several methods for the degumming Neutralizing of oils. The simplest and most common is the Neutralizing is performed to reduce free fatty acids direct degumming with water (Figure 6). In this from oils or fats to below 0.05 percent. There are method, a mixture of oil with water is heated to several processes for the removal of fatty acids. The 65-70 ºC. After a few minutes in a tank with slow traditional process (Figure 7) is the alkali method, based on oil heating with a concentrated solution of sodium hydroxide (caustic soda). The fatty acids Table 1 react with the base, forming water-soluble salts Composition of soybean oil before and after refining (soaps) which are separated by gravity settling or Component Crude oil Refined oil by centrifugation. The process can be applied to raw or degummed Triglycerides 95 – 97% 99% oils. Initially, the oil is treated with phosphoric Phosphatides 1 - 3.5% 0.05% acid to rehydrate the phosphatides remaining Free Fatty Acids 0.5 - 1.5% 0.05% from degumming. Subsequently, the oil is mixed with a concentrat- Phytosterols 0.3% 0.1% ed solution (12-13 percent) of sodium hydroxide. Tocopherols 0.2% 0.1% The amount of sodium hydroxide must be enough Hydrocarbons 0.02% 0.01% to neutralize the phosphoric acid and react with free fatty acids, but should not be in such a large Iron 4 ppm 0.1 ppm amount as to cause reaction with triglycerides. The Copper 0.05 ppm 0.02 ppm NaOH solution must be concentrated to avoid the Calcium 150 ppm 10 ppm

Magnesium 100 ppm 20 ppm

Source: Erickson, 1980. figure 6 Oil degumming with water

Table 2 Crude oil Average phosphatide content of some oils and fats

Oil Phosphatides (%) Blender Water Vacuum Pump Soybean 3.5 Heater Cottonseed 2.5

Corn 2.0 Centrifuge Sunflower seed 1.0

Rapeseed 0.5 Lecithin Degummed Oil Palm 0.1

Source: Erickson, 1980. Source: Erickson, 1980. 94 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

figure 7 Free fatty acid neutralizing

Degummed Oil

Phosphoric Acid Agitateted Tank

Water + Residual soap Agitated tank

Centrifugal Washer Soap

Hot water Agitated tank

Centrifugal Water + Residual soap Washer

Vacuum Dryer

Neutralized oil

Source: Erickson, 1980; Norris, 1982b. formation of emulsions. Soaps formed by reaction For some oils such as palm oil, the physical of free fatty acid saponification are separated from refining process replaces the neutralization process the neutralized oil through centrifugation. when removing fatty acids. The physical refining The neutralized oil is then mixed with hot process is the separation of fatty acids by distilla- water and centrifuged to remove traces of remain- tion, and it only works well for oils with low phos- ing soap in the oil after the first centrifugation. In phatide levels. Palm oil has very low levels of phos- some cases, instead of water a solution of citric phatides (Table 2), and they are removed during the acid is used. It helps remove remaining metals, bleaching stage, which replaces the degumming. besides removing the residual soap. Free fatty acids are originated from triglyc- Bleaching8 eride hydrolysis, so their content in oils and fats The bleaching operation (Figure 8) consists of depends on the quality of raw material and on the treating the oil with bleaching earth or a mixture conditions of the extraction process. Good quality of bleaching earth and activated carbon, to adsorb crude soybean oil has up to 1 percent of free fatty colouring pigments dissolved in the oil. The acids. Palm and rice oils, subject to the action of removed substances may include carotenoids and very active lipases, can get 5 percent of free fatty chlorophyll, as well as residual soaps, phosphatides acids. The refining of oils with over 10 percent of oxidation products and metals. free fatty acids is unfeasible, due to the high content of diglycerides that result from triglyceride hydrolysis. 8 Hastert, 1991. Chapter 9 – Vegetable oil extraction for the production of biodiesel 95

figure 8 Oil bleaching

Neutralized oil

Bleaching earth - Heated Blender Vacuum Pump Activatedcarbon

Filters

Bleaching earth/carbon + Bleached oil adsorbed substances

Source: Erickson, 1980; Norris, 1982b.

Bleaching earth is mixed with oil in a stirred tank vents, as well as more skilled workforce (Pighinel- and the mixture is heated to 90-110 °C under vac- li, 2007). The equipment used in press extraction uum for an hour. Steam may be sparged to ensure and the process itself are simpler and cheaper than efficient contact between the oil and the earth. Sub- those of solvent extraction. The pressing method sequently, the mixture is filtered in different stages, is less efficient and is unfeasible for large capacity to recover the bleached oil and spent cake. plants because it generates losses of large amounts The refining of edible vegetable oils also of oil retained in the cake (Tandy, 1991). requires deodorization. However, vegetable oils destined for biodiesel production do not need Small-scale press extraction such procedure. Oil extraction by pressing is the most used method for small-scale production of oil. The reasons are Small-Scale extraction that the mechanical process is simpler, requires less of vegetable oil9 investment, and it is safer than solvent processes One of the principles of the biofuel program in Bra- (Nowatzki et al., 2007). zil is the inclusion of family farming in the biodiesel For small farms, the low capacity mechanical production chain. The program promotes social press is the most feasible equipment. However, its inclusion through higher income and employment inefficiency is considered disadvantageous because opportunities. Besides the production of raw mate- the residual oil in the cake is around 8 to 14 per- rials, several programs were launched for the small- cent. In order to circumvent the low yield of oil, scale production of oil or even biodiesel. the main variables involved in the process must be The choice for the oil extraction technology adjusted (applied pressure, temperature, moisture depends on the processing capacity of the extrac- content of the raw material) (Singh & Bargale, tion plant and on the oil content of the raw materi- 2000). Moreover, the press frame and the prepara- al. Table 3 shows some recommendations accord- tion of raw material are parameters that also affect ing to raw material and process scale. the efficiency of extraction and therefore should be Although solvent extraction is more efficient adjusted (Pighinelli, 2007; Nowatzki et al., 2007). than extraction by pressing, the latter is usually Prior to pressing, the oilseed should be subject- the most common method used by small-scale ed to dehulling and breaking. Conditioning and oil producers, because it is simpler, less expensive lamination are not generally employed in small- and safer (Nowatzki et al., 2007). Moreover, safety scale systems. Sometimes, the dehulled seeds may equipment is required, as well as safe operating pass through a heating operation to coagulate pro- procedures, to prevent fires in plants that use sol- teins, plasticizing the seeds to increase oil extracted. Heating also reduces the energy required for oil extraction (Souza et al., 2009). Figure 9 shows a 9 FAO, 1992a. castor seeds dehuller and a small pot cooker. 96 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Table 3 Recommendations on the type of process for oil extraction

Extraction technology Recommended situations Typical raw materials

Pressing Small and medium capacity, usually below 200 tonne/day Castor seed of oilseeds with oil content above 25% Peanut Canola (rapeseed) Sunflower seed Babassu Oil-palm*

Solvent Large capacity, above 300 tonne/ day of oilseeds with oil Soybean extraction content equal or less than 25%

Combined Medium and large capacity above 200 tonne/day of oilseeds Cottonseed technology with oil content above 25% Castor seed Peanut Sunflower seed

* Less than 25% oil Source: Based on Parente (2003).

There are different types of presses for small- the yield is around 180 kg oil/tonne of seed, with scale extraction of vegetable oils, ranging from 20 the press extraction the yield is 150 kg oil/ tonne to 200 kg/h. Figure 10 shows a continuous press of seed. For small-scale processing the yield is with a capacity of 50 kg/h. even lower, around 90 kg oil/tonne of seed (Nor- ris, 1982a). Small-scale soybean oil extraction In Brazil, soybean is the main oilseed used for by pressing biodiesel production. In recent years, there has Solvent extraction is the traditional process used been growth in production and consumption of to extract soybean oil. Although no longer used soybean and its derivatives. The production of and its yield is lower, it is possible to extract soy- biodiesel from soybean oil appears to be one of bean oil by pressing. While with solvent extraction the factors for the diversification and increase in

figure 9 Castor seed dehuller and firewood cooker

Source: provided by the authors. Chapter 9 – Vegetable oil extraction for the production of biodiesel 97

figure 10 Small-scale continuous press for oil extraction (50 kg oilseeds/h)

Source: provided by the authors. the use of soybean. Through agribusiness activi- made by cooking in water, due to the inability to ties it is possible to encourage economic and social generate steam for the process. Moreover, cluster development of rural communities, and thus there threshing can be made before cooking but steam is is research and investment in new ventures. not used for digestion of the fruit, because of high The Ministry of Agrarian Development devel- equipment and maintenance costs (FAO, 2002). oped agro-industrial profiles in which information is available on equipment, processes, and Small-scale solvent extraction technical and economic feasibility of various ven- Only for agro-industries that process more than tures. For instance, there is the feasibility study 200 tonne/day, plants for solvent extraction are “Soybean in Family Production” for soybean provided and considered profitable (Amaral et al., agro-industrialization as an alternative agribusi- 2006). One way to solve the problem would be to ness for small and medium producers to encour- use non-flammable solvents, or less flammable sol- age agro-industrial production of soybean meal vents than the traditional hexane solvent. Ethanol is and also open alternative markets for crude soy- a natural solvent, it is renewable and has been used bean oil (Amaral et al., 2006). in the extraction of vegetable oils, including soy- This proposal includes an extruder as the main bean (Silva and Turatti, 1991). Ethanol is much less equipment. Although there are equipment sup- flammable than hexane; its production in the form pliers in Brazil and other countries, this type of of rum is common in small properties. Solubility process is seldom used, mainly due to storage and of the oil and operating conditions are key factors quality problems of soybean cake. to consider.

Small-scale palm oil extraction Small-scale refining of oil Palm oil extraction in processing plants with a 2 for biodiesel production10 tonne/h capacity of fresh fruit clusters is generally Crude oil consists primarily of triglycerides; in its considered as small-scale. This plant size is very composition there are also free fatty acids, phos- common in West Africa and in Bahia, Brazil. pholipids, resins, gums, sterols, water, and impu- Processing of the raw material comprises virtu- rities. These components define some of its char- ally all steps involved in the large-scale process. acteristics such as high viscosity, color and acidity The difference is the level of mechanization of (Meher et al., 2006). each step and whether the system will be a continuous or batch system. Among these differences, for instance, is that sterilization of the clusters is 10 FAO, 1992a. 98 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

The box below shows the characteristics of oil during the cleaning operation, with the removal of for biodiesel production. impurities in the filter. Small-scale refining of crude oil should be the The second stage of the refining process same as large-scale. However, equipment should includes degumming and neutralization. These be suited for small-scale processing. two steps aim at eliminating the non-glyceride In the first stage of refining, crude oil must be fraction (phosphatides, proteins and colloidal subjected to decantation, for separation of impuri- substances) and free fatty acids of oil (Zagonel, ties by gravity. The process can be conducted in a 2005). In small-scale processes, degumming and tank provided with a steam coil, designed to receive neutralization are carried out in a single step, by oil from the press. The clarified oil then heads to adding sodium hydroxide. Gums and soaps may filtration, which takes place in a filter press, for be removed by successive washes of oil with hot the separation of suspended solids (Moretto and water (Amaral et al., 2006). Fett, 1989). Centrifugation of the oil could be per- The processing of sunflower seed does not formed instead of filtration. However, centrifuga- require degumming, due to the low content of tion is only feasible for large quantities of oil, as phosphatides in crude oil (SBRT, 2007). For soy- investment and maintenance costs are very high. bean, rapeseed and cottonseed oils, with phospha- Figure 11 shows a filter press being assembled and tides levels around 3 percent, it becomes necessary to perform the degumming operation. After these operations most of the gums and other undesirable oil components will have been BOX 2 removed. Still, bleaching is necessary to elimi- Raw material for biodiesel production nate colouring substances. The operation is done through the use of bleaching earth, which can The oils used for biodiesel production should adsorb these compounds. During the process the have the following characteristics (DIFERMAC, neutralized oil is also dried, as it generally has 2009): high moisture content (Mandarino and Roess- Free Triglycerides: 98% ing, 2001). Drying is required because very small Acidity less than 0.5% amounts of remaining gums may be hydrated Phosphatides below 30 ppm even by low amounts of water such as 0.4 percent Total sulfates below 0.02% (Dorsa, 2000). Low peroxide index The refined oil is transported to tanks. During No waxes or other insoluble compounds storage, there may be oxidation of unsaturated No water. oils, which is accelerated by the action of heat, oxygen, or traces of heavy metals, often present in

figure 11 Filter press assembly and cleaning

Source: provided by the authors. Chapter 9 – Vegetable oil extraction for the production of biodiesel 99

materials used to manufacture storage tanks. One product, degumming appears as a major challenge way around this problem is through the addition for the deployment of small-scale oil production of inhibitors which prevent the action of such units (Sartori, 2007). Another challenge of small- compounds (SBRT, 2008). scale production is related to the physicochemi- The tanks must be kept constantly warm cal properties of the oil produced, because the (50 °C) in order to prevent the solidification of refining operations at smaller scale are not always high melting point components (FAO, 2002; appropriate (FAO, 2002). EMBRAPA, 2009). Therefore, the right path is to choose a technology which ensures the production of oil that A dvantages, disadvantages reaches the quality criteria required for the stor- and challenges of small-scale age, transportation and marketing (Nowatzki et processing al., 2007). One way to structure an efficient system Compared to large-scale solvent extraction, the for refining crude oil from small-scale extraction technology employed in small-scale processing units is through a centralized, large-scale system has the following advantages: it is simpler and thus that serves several small oil extraction units. To does not require highly qualified workforce; may minimize chemical changes that lead to alteration be adaptable (through mechanical adjustments) for in quality (moisture, acidity, free fatty acids), the processing various types of oilseed; and is accom- oil should be constantly collected but this implies plished quickly and securely, allowing its installa- an increase in costs. tion in small farms (Singh and Bargale, 2000). How- As an alternative to overcome the loss of oil ever, when analyzing the energy consumption of quality without incurring in cost increases, struc- the extraction in relation to the amount of oil pro- tured solutions could be implemented based on duced, it is observed that the small scale extraction coordinated sets of presses, ant the utilization of requires more energy than plants of medium and an oil collection tankers. The refining (neutraliz- large scale, because in the latter, the complexity of ing, degumming and bleaching) occur in the cen- processes is compensated by the greater efficiency tralized unit, where the biodiesel plant is located. of oil extraction (Bernesson, 2004). Several schemes have been developed to Taking into account the costs of production, facilitate the connection between pressing units investment, quality and sale price of the final and biodiesel production plants. Among these

figure 12 Location of decentralized pressing units

Castor seed oil extraction unit with capacity for 7.5 tons of feedstock per day

11 km radius catchment area for castor seed

Transesteriﬁcation unit

150 km

Source: Sartori, 2007. 100 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

figure 13 Model routes to collect vegetable oil

Route 4.1 Route 4.2

Route 3.1 Route 4.3 Route 3.2

Route 2.1

Route 2.4

Route 3.3 PLANT Route 1.3

Route 1.4 Route 1.1

Route 1.2

Biodiesel plant

Oil storage tanks

Source: Magalhães, 2009. schemes, there is the model suggested by Sartori and the transesterification plant would be used (2007), depicted in Figure 12, which proposes a to calculate the cost of oil transportation (Sartori, complex of 18 units of decentralized oilseed press- 2007). However, the appropriate distance for a cen- ing, each equipped with systems for receiving and tralized refining system would be a 40 km radius. preparation of oilseeds, extraction pressing and The uptake of vegetable oil could be imple- degumming. The processing capacity of the com- mented based on a structure similar to that used plex would be 135 tonnes of feedstock per day, in milk collection. The model presented in Figure and production would be 54 tonnes of degummed 13 suggests the existence of 18 tanks to supply oil oil per day (Sartori, 2007). to the centralized refining unit and biodiesel plant For this model, the distance from each unit to and a tanker with 8 000 liters capacity to collect the oilseed plantation would be an average radius the material at the storage points. There are four of capture of 11 km. This would be used to estab- proposed routes to be followed by the truck, so lish the transportation costs and be influenced by that the vehicle would go through them in two the distance between plantations and industries as days, collecting at all the stations every two days, well as the difficulty of access to collection units. totaling a route of 266 km. The tanks have a capac- An average distance of 150 km between the units ity ranging between 2 000 and 6 000 liters, and Chapter 9 – Vegetable oil extraction for the production of biodiesel 101 I 5 S II 5 +/- +/- 16 52 180 190 nsaturated U 0.2 19 13 40 14 9 105 125 atty acids F aturated S /g oil) 2 ------0.2 4 12 - 2 4 6 - - 4 - 0.5 - - - - 0.1 - 0.2 60 24 - - - 22 - - 19 52 10 7 118 130 190 190 ------1 13 - 15 4 4 2 - 2 - - - - - 0.5 1 29 45 - - - - 54 36 - - 115 104 190 188 ------0.1 - 1 14 - 48 2 11 0.2 4 6 - 0.1 0.5 - - 0.8 - 2 0.4 0.5 1 64 29 40 ------16 52 - 9 - - 84 135 52 190 190 200 ------3 - 1 24 0.5 29 18 6 4 - 5 - - 2 - - 3 - 3 1 2 42 0.2 24 - 61 - - - - - 9 40 22 1 - - 58 104 92 196 198 192 -- 1- 0.5- 4 - 6 5 - 4 - 50 - 45 - 16 - 17 - 8 9 - - 2 3 3 0.5 26 0.5 26 36 - - 17 - - 1 - 0.5 - 0.5 - 10 - 13 - - 0.3 - 6 38 - - 43 - 1 3 - - - - - 3 18 15 4 - 250 - 247 36 38 195 196 - 0.5 7 8 46 16 10 2 0.2 - - 0.5 7 - - - - 10 255 3 1 1 1 3 4 29 11 - - - - 25 - - 2 - 10 250 4:0 6:0 8:0 10:0 12:0 14:0 16:0 18:0 20:0 22:0 24:0 16:1 18:1 20:1 22:1 18:2 18:3 at F 4 e l il or b ard SI: Saponification index (mg KOH/g oil) Industrial Oil and Fat Products; see Sonntag, 1979a 1970b. Source : Bailey’s II: Iodine Index (centigrams I verage fatty acid composition, saponification and iodine indexes of oils fats Canola Soybean Flaxseed (linseed) Corn Rice Rapeseed Olive oil-palm Sunflower seed L Cottonseed Peanut Palmiste Babassu Cocoa Tallow Milk Coconut O Ta A 102 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

could be community-owned, so that small pro- Vegetable oils differ in their composition of ducers would associate with the goal of increasing fatty acids. Therefore, some considerations must the volume of production (Magalhães, 2009). be made in selecting them for the biodiesel indus- The deployment of small oil extraction units try. Oils with high content of saturated fatty acids would allow social inclusion through employment have a greater potential to generate energy when generation and income increase in rural areas, used as fuel. Saturated oils have higher melting which would promote consequently the economic points than unsaturated oils, and higher viscosity development of the regions involved (Sartori, at room temperature. The composition of some 2007). Small-scale oil producers could benefit vegetable oils can be seen in Table 4 (Leite et al., from the sale and use of co-products generated in 2005). the extraction process (FAO, 2002). Lipids which liquefy at high temperatures will need heating for storage, transport and biodiesel Characteristics of vegetable oils production. Furthermore, the use of biodiesel from The quality of vegetable oil is very important, oils with this behavior is not feasible in countries whether it is destined to produce biodiesel or for with low temperatures (all in the northern hemi- food. The evaluation of oil quality can be done sphere) because the biofuel will have the melting using parameters such as acidity, peroxide, iodine point characteristics of the origin vegetable oil. and saponification indexes. Chemical and phys- Viscosity also complicates the process of bio- icochemical analyses are important to determine diesel production and mainly its use, due to tech- free fatty acids, degree of unsaturation of fatty nological aspects of diesel engines. acids, presence of oils with high proportion of low In financial terms, the rarest oils are more molecular weight fatty acids and oxidation in the expensive, which could derail their use as feed- presence of oxygen. These parameters are related to stock for biodiesel, given their high prices (Leite the characteristics of the oils which are capable of et al., 2005). interfering with the quality of biodiesel produced (Akintayo, 2004). 103

Chapter 10 Use of oil extraction by-products as feed

André Soares de Oliveira

Introduction graph 1 The economic feasibility of using biodiesel Participation in the world demand for protein, 2011 depends, among other factors, on the optimum utilization of by-products generated in the pro- 3% 2% 3% 5% duction chain. 6% The main co-products obtained after the extraction of oil from oilseeds are cake and meal; and glycerin as a result of the process of 13% converting oil into biodiesel. These co-products represent over 50 percent of the initial mass of 68% seeds used in the agribusiness chain. Thus, it is necessary to develop ways of taking advantage of these products to boost income to the biodiesel production chain and reduce their environmental liabilities. Using such by-products in animal feeding Soybean Rapeseed Cottonseed Sunflower Palm kernel is one of the options to economically harness Peanut Others small-scale production and large-scale produc- Source: American Soybean Association, 2009. tion as well. This chapter is intended to provide information about the protein market in animal feeding; the main factors that affect the nutritional (Table 1). Cottonseed meal is significant only for value of by-products from oil extraction; and pro- beef cattle feed, accounting for 21.1 percent of the vide recommendations regarding the use of oilseed demand for protein sources (second main source). cakes and meals to feed animals that are considered The main factors affecting the demand for pro- to be of economic interest. tein sources in animal feeding are availability, price and nutritional value. With the increased supply Market of proteins of other oil crops for the production of biodiesel in animal feeding (canola, crambe, sunflower, macaw palm [Acro- Oilseed meal and cake represent the main protein comia aculeate], castor seed, oil-palm, sunflower source in the diets for animals of economic interest seed, jatropha and others), it is expected that Bra- in the World. According to the American Soybean zil will be less dependent on using soybean meal Association, soybean meal accounted for 68 percent in animal feed, helping reduce competition with of world consumption of protein meals in 2011, fol- human food and increase the range of feeding lowed by the meals of canola (13 percent), cottonseed options for animal nutrition. (6 percent) and sunflower seed (5 percent) (Graph 1). Canola meal is especially important for Europe and Factors affecting the nutritional Canada. In the United States, cottonseed meal is the value of by-products of oil second most important source of protein in animal extraction from oilseeds feeds (American Soybean Association, 2009). The nutritive value of by-products of oil extraction In Brazil, corn meal is also an important pro- from oilseeds depends largely on the extraction tein source used for animals of economic inter- method, on the degree of decortication of the seed, est, with 66.7 percent share, followed by soybean on the processing of the resulting product and on meal (21.7 percent) and meat meal (8.7 percent) the properties of the oilseed is being processed. 104 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Table 1 Participation in the total demand of protein sources for commercial feeds, percentage, 2012

Poultry Cattle

Material Meat Layers Hogs Beef Milk Other Total

Soybean meal 24.2 22.6 20.1 20.3 22.1 5.6 21.7

Meat meal 9.7 5.6 7.7 0.0 0.0 13.3 8.7

Corn gluten bran 0.7 0.06 0.0 3.6 4.4 1.8 1.0

Cottonseed bran 0.0 0.0 0.0 21.1 9.8 0.6 1.4

Corn 65.4 71.7 72.2 52.2 62.4 39.7 66.7

Urea 0.0 0.0 0.0 2.7 1.2 2.0 0.4

Total demand (103 tonne) 29 155 4 519 13 634 1 826 3 953 6 169 56 981

Source: Adapted from Sindirações, personal communication, 2013.

Oil extraction process levels and high indigestible fiber levels (Arija et al., Cake is the common name given to the by-product 1998; Oliveira, 2008). This is due to the high contents that results from mechanical extraction; and meal to of lignin and cutin (especially in castor seed). In addi- the by-product of solvent extraction. Cake obtained tion to being an indigestible component (like cutin), from hydraulic press extraction has higher oil con- lignin hinders cellulose and hemicellulose digestion tent and therefore lower protein content, besides by rumen microorganisms (Van Soest, 1994). greater variability, if compared to that obtained Table 3 shows the effect of the decortication from the expeller press extraction. Because the meal level (measured through hull level) in cottonseed is obtained from a more efficient oil extraction pro- meal. Increased decortication (lower hull levels) cess, it contains less lipids or ether extract (soluble reduced the fraction of insoluble nitrogen in neutral fraction in petroleum ether) and, consequently, and acid media (slowly degradable and non-degra- higher crude protein content (Table 2). dable in the rumen) and the levels of fibre in neutral The use of oilseed cakes in animal feeds has as detergent and lignin, on the other hand, increased major disadvantages, when compared to meals, the crude protein levels and the rates of rumen deg- a higher risk of rancidity and other restrictions. radation of dry matter and crude protein. When ether extract levels are above 6 percent in Further studies on the economic feasibility the diet (solids base) these lipids jeopardize fiber and operational trials on decortication of oilseeds digestibility, nutrient intake and performance should be conducted. of ruminants (NRC, 2001). On the other hand, when ether extract is at appropriate levels, the oils Oilseed species can provide benefits to livestock production in Meals and cakes from different species of oilseeds relation to reproductive performance of females differ in chemical composition, amino acid profile, (Pires & Grummer, 2008) and to the composition digestibility, rumen degradability of nitrogenous of conjugated linoleic acids in milk, which are and fibrous components, energy content, toxic known to be beneficial to human health (Bauman substances and antinutritional factors. Thus, the et al., 2006). maximum level to be added to feeds depends on the Regarding the needs of storage, transportation type of animal, the level of production and oilseed and amounts demanded by feed companies, by- characteristics. products from oil extraction are made available on Table 4 shows the main nutritional characteris- the market mainly as meal and not as cake. tics of oilseed meal and cake and how they should be used in diets for swine, poultry and ruminants. Degree of decortication The maximum adding level is recommended for For same species, the degree of decortication (peeling animals fed properly balanced diets, according to or dehulling) of the seed is the main factor that regu- the nutritional requirements established by Bra- lates the nutritional value of oilseed cakes and meals. zilian systems (Rostagno, 2005; Valadares Filho Seed hulls of most important oilseeds (cottonseed, et al., 2006a and 2006b) or United States systems sunflower seed, jatropha, etc.) have low crude protein (NRC, 1994, 1998, 2000 and 2001). Chapter 10 – Use of oil extraction by-products as feed 105

Table 2 Ether extract and crude protein in castor seed by-products from different oil extraction technologies

Oil extraction method

Component* Hydraulic press Expeller Solvent

Crude protein (% DM) 28.5 – 30.5 33.7 – 35 37.3 – 40

Ether extract (% DM) 13.4 – 23.1 8 3.1

*DM: Dry matter Source: Evangelista et al., 2004; Oliveira, 2008.

Table 3 Chemical composition and dry matter digestibility of cottonseed meal with different degrees of decortication

Presence of hulls

Parameter High Intermediate Low

Crude protein (percentage of DM1) 30.39 38.35 45.46

Neutral detergent insoluble nitrogen (percentage of TN2) 6.56 5.05 4.93

Acid detergent insoluble nitrogen (percentage of TN2) 2.08 1.41 1.47

Neutral detergent fiber (percentage of DM1) 29.16 18.95 15.12

Lignin (percentage of DM1) 5.6 2.8 -

Ruminal degradation rate of DM (1/h) 0.068 0.064 0.086

Ruminal degradation rate of CP3 (1/h-) 0.042 0.044 0.057

1 DM: dry matter. 2 TN: total nitrogen; 3 CP: crude protein. Source: Adapted from Valadares Filho, 2006a; Marcondes et al., 2009.

Table 4 Nutritional characteristics and recommendations for using oilseed cake and meal in animal feeding*

Recommendations of use Product Main characteristics and restrictions (percentage based on dry matter)

Soybean meal (SM) Main source of protein used in animal »» Swine and poultry: no restrictions as long as it (Glycine max) feed is subjected to heat treatment for the inhibition of antinutritional factors (trypsin inhibitors, Usually sold with dehulled allergenic proteins) CP content ranges between 47 to 53% »» Ruminants: no restrictions depending on presence of hulls »» Swine and poultry: good source of essential digestible amino acids (low in methionine) »» Ruminants: ruminal degradability from 60 to 70% of CP and intestinal digestibility of RUP between 84 and 93% Energetic value: 2 486 Mcal/kg (poultry), 3 154 Mcal/kg (swine), 80 to 82% of total digestible nutrients (cattle) 106 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Table 4 (continued) Nutritional characteristics and recommendations for using oilseed cake and meal in animal feeding*

Recommendations of use Product Main characteristics and restrictions (percentage based on dry matter)

Cottonseed meal (CM) Crude protein content, fiber content, and »» Swine and poultry: (Gossypium hirsutum) energy value varies according to presence -- Inactivate free gossypol with ferrous sulfate of hulls (1 g of ferrous sulfate for every 1 g of free Usually found with 30%, 40% and 48% CP gossypol) (DM basis) -- Must correct deficiencies in essential amino acids (especially lysine) »» Swine and poultry: -- High fiber content poses a restriction »» Swine: -- Lower energy value compared to Initial: up to 4% (CM 30% CP) and 5% SM (70 to 87% of the metabolizable in the diet (CM 40% CP) energy of SM for poultry, 63 to 70% Growth: up to 7% (CM 30% CP) and of the metabolizable energy of SM 8% in the diet (CM 40%) for swine) Finishing: up to 8% (CM 30% CP) and -- Low availability of essential amino 10% in the diet (CM 40% CP) acids Pregnancy: up to 8% (CM 30% CP) and -- Low in lysine development 10% in the diet (CM 40% CP)

Stages of animal { -- Presence of free gossypol (0.13%) Lactation: up to 6% (CM 30% de CP) reduces the viability of erythrocytes; and 8% in the diet (CM 40% CP) reduces oocyte fertilization, »» Poultry: jeopardizes embryonic development; reduces fertility of breeders; and Initial broiler: up to 4% (CM 30% CP) changes the color of yolk and egg and 7% in the diet (CM 40% CP) white (greenish brown color) Growing broiler: up to 5% (CM 30% -- The presence of cyclopropane fatty CP) and 8% in the diet (CM 40% CP) acids in oil is associated with the Layers: Inactivate gossypol with 4 g of production of egg white and yolk of ferrous sulfate for every 1 g of free development { gossypol, up to 5% (CM 30% CP) and pink color Stages of animal 8% in the diet (CM 40% CP) »» Ruminants: »» Ruminants: -- Lower rumen degradability (50 to 60% CP) than intestinal digestibility with milk production below 20 kg/day: of SM (55 to 92% of RUP) up to 100% replacement of SM -- Energy value between 80 and 85% with milk production above 20 kg/day: of SM up to 50% SM replacement (CB with 30 or 40% CP); up to 100% replacement -- Presence of free gossypol (0.13%) is a Dairy cows { of SM (Cm with 48 % CP) problem for breeders (reduces sperm production and quality, puberty and libido) and for young ruminants as Growing and finishing cattle: up to 100% well (reduces viability of erythrocytes) replacement of SM Calves: not recommended Breeders: up to 100% replacement of SM if supplemented with 4 000 IU of vitamin E/animal / day (CM with 0.13% of free gossypol)

Rapeseed meal Presence of goitrogenic compounds Not recommended for ruminants or non-ruminants (Brassica ssp.) (glucosinolates) that inhibit the metabolism of the thyroid gland, reduce food intake, body growth, and reproductive performance of females and males; affect the production of eggs and milk Presence of erucic acid a toxic compound Presence of sinapine, an alkaloid considered an antinutritional factor; its accumulation in the eggs may cause unpleasant taste Chapter 10 – Use of oil extraction by-products as feed 107

Table 4 (continued) Nutritional characteristics and recommendations for using oilseed cake and meal in animal feeding* Recommendations of use Product Main characteristics and restrictions (percentage based on dry matter)

Canola meal Canola is a cultivar of rapeseed genetically »» Swine and poultry: Must correct deficiencies in (Brassica spp.) improved by Canadian researchers to have essential amino acids (especially lysine) low levels of glucosinolates (<30 mg/kg »» Swine: (dehulled meal): DM) and erucic acid Initial: up to 4% in the diet Mean CP content of 40% (DM basis) Growth: up to 8% in the diet »» Swine and poultry: Finishing: up to 15% in the diet

-- High in fiber (if not properly dehulled) Stages Pregnancy: up to 20% in the diet of animal Lactation: up to 10% in the diet -- Lower energy value as compared to development { SM (75 to 90% of the metabolizable »» Poultry: (dehulled meal): energy of SM for poultry and 83 to Initial broiler: up to 3% in the diet 93% of the metabolizable energy of Growing broiler: up to 5% in the diet SM for pigs),

Stages Layers: up to 4% in the diet

develop. { -- Lower digestibility of CP in relation of animal »» Ruminants: to SM (80% SM for poultry and 75% for swine) Dairy cows of low or high output: up to 100% -- Lower levels of lysine than SM replacement of SM Growing and finishing cattle: up to 100% -- Presence of sinapine, an antinutritional factor. replacement of SM »» Ruminants: -- Increased ruminal degradability of CP (65 to 75% CP) and lower intestinal digestibility of RUP (75% of RUP) than SM Energy value 88% of SM

Sunflower seed CP, fiber content, and energy value varies »» Swine and poultry: Must correct deficiencies in meal (SM) according to degree of dehulling essential amino acids (especially lysine), (Helianthus annus) CP content of 28% (with shells) and 40% Growing and finishing swine: up to (no hullls) 15% in the diet Broiler and layers: up to 15% in the »» Swine and poultry: diet -- High in fiber (not dehulled) »» Ruminants: -- SM with shells shows 70% and 63% of SM energetic value for poultry and with production below 20 kg/day: up swine. Without hulls the energetic to 100% replacement of SM value for poultry is the same as SM with production above 20 kg/day: up and 90% for swine to 67 % replacement of SM

Dairy cows { -- Lower levels of lysine and greater levels of methionine than SM »» Ruminants (SM with hulls): Growing and finishing cattle: up to 100% -- Increased ruminal degradability of CP replacement of SM (68 to 80% CP) and lower intestinal digestibility of RUP (90% of RUP) equivalent to SM -- High level of indigestible fiber (presence of lignified hulls) Energy value 75% of SM

Peanut meal Crude protein content between Maximum level of aflatoxins at 50 ng/g of meal (Arachis hypogoae) 50 and 58% Swine and poultry: must correct deficiencies in essential Highly contaminated by Aspergillus amino acids (especially lysine) flavus, which produces aflatoxins »» Swine: »» Swine and poultry: Initial: up to 7% in the diet -- Energetic value equivalent to SM Growth: up to 10% in the diet -- Low digestibility protein Finishing: up to 10% in the diet -- Deficient in essential amino acids (especially lysine) Stages Pregnancy: up to 10% in the diet of animal

development { Lactation: up to 10% in the diet »» Ruminants: -- Energetic value equivalent to SM »» Poultry: -- Less palatable than SM Initial broiler: up to 7% in the diet -- Increased ruminal degradability of CP Growing broiler: up to 10% in the diet

(80 to 90% CP) and lower intestinal Stages Layers: up to 10% in the diet

develop. { digestibility of RUP (50% of RUP) in of animal relation to SM »» Ruminants: Dairy cows: up to 50% replacement of SM Growing and finishing cattle: up to 100% replacement of SM 108 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Table 4 (continued) Nutritional characteristics and recommendations for using oilseed cake and meal in animal feeding*

Recommendations of use Product Main characteristics and restrictions (percentage based on dry matter)

African oil-palm meal CP content between 15 and 18% »» Swine and poultry: non-hulled meal not recommended (Elaeis guineensis) »» Swine and poultry: Undefined use for dehulled meal -- High in fiber -- Low digestibility protein »» Ruminants: -- Deficient in essential amino acids Dairy cows that produce up to 30 kg/day, growing (especially lysine) and finishing cattle: up to 15% of the diet (DM basis) »» Ruminants: Energy value 75% of SM

Castor seed meal Crude protein content between 35 and Use detoxified castor meal only (Ricinus Communis L.) 40% (non-dehulled) Detoxification process (alkali treatment with 60 g of Deficient in several essential amino acids, calcium oxide free of dioxin/kg bran) Calcium oxide especially lysine must be dissolved in water (1:9) and mixed with meal. Leave the material at rest in the shade for 12 hours. High content of indigestible fiber After this period, drying is optional (only for storage) (presence of cutin and lignin) in the non- dehulled meal inhibits the use for non- ruminants Non-hulled castor seed meal Swine and poultry: not recommended Presence of inhibiting toxin called ricin synthesis of ribosomes (levels between 350 to 1 000 mg ricin/kg DM meal) »» Ruminants: »» Ruminants (non-decorticated): Dairy cows: up to 33% replacement of SM (8% of total diet) -- Adult animals are tolerant to Finishing beef cattle: up to 100% replacement of SB moderate levels of non-detoxified meal (up to 10% in the diet based (9% in the MD of diet) on DM, Growing young dairy cattle: up to 67% replacement of SM (9% in the MD of diet) -- 60% of SM energetic value Dehulled castor seed meal: undefined levels for -- Lower ruminal degradability of CP swine, poultry and ruminants (50% CP) and intestinal digestibility of RUP (65% of RUP) in relation to SM

Crambe meal Presence of goitrogenic compounds »» Swine and poultry: undefined (glucosinolates) with potential effects (Crambe abyssinica) »» Ruminants: similar to those described for the rapeseed bran Beef cattle: up to 10% in the diet (DM basis) Finishing beef cattle: up to 100% replacement of SM Contains 30% CP (non-dehulled) to 50% (15% in the total diet) CP (dehulled) Reproduction beef cattle: up to 10% in the total diet »» Ruminants: Dairy cows: undefined 85% of SM energetic value for ruminants Increased ruminal degradability of CP (85% CP) and equivalent intestinal digestibility to SM

Babassu meal (Orbignya Crude protein content of 17% »» Swine: undefined phalerata, Mar) Low digestibility fiber »» Poultry: broiler - up to 6% in the diet »» Swine and poultry: »» Ruminants: -- High in fiber Growing and finishing cattle: up to 10% in the total -- Low digestibility protein diet -- Deficient in essential amino acids Dairy cows: undefined (especially lysine) »» Ruminants: -- Lower ruminal degradability of CP (40 to 50% CP) and intestinal digestibility of RUP (63% of RUP) in relation to SM -- Energy value of 60% of SM

Jatropha meal Protein content between 28% (non- Fully effective detoxification methods not yet defined (Jatropha curcas L.) dehulled) and 63% (dehulled) Undefined recommendations for swine, poultry and Presence of antinutritional factors, trypsin ruminants inhibitors and phytates Presence of toxic factors such as curcine and phorbol esters

Note: chemical composition based on dry matter. 1 Mcal = 1 000 kcal CP: Crude protein. RUP: Rumen undigested protein. DM: Dry matter Sources: Anderson et al. (1993), NRC (1994), NRC (1998), Anderson et al. (2000), Furlan et al. (2001), NRC (2001), Valadares Filho et al. (2002), Anandan et al. (2005), Rostagno (2005), Silva et al. (2005), Carvalho et al. (2006), Pina et al. (2006), Valadares Filho et al. (2006a, 2006b), Brito and Broderick (2007), Oliveira (2008), Carneiro et al. (2009), Tavernari et al. (2009) Chapter 10 – Use of oil extraction by-products as feed 109

Final Considerations By-products of oil extraction from oilseeds are the main source of protein for animals. The maximum level to be added of conventional meal or cake such as those from soybean, cottonseed, sunflower seed, canola and peanut, without causing any effects on animal performance, are well known based on many research studies. The use of detoxified castor seed meal and cakes (heat or alkali treatment), non-decorticated African oil-palm meal, or crambe (Brassicaceae spp.) meal, is restricted to ruminants. Using them in feeds for non-ruminants depends mainly on the process of seed decortication chosen. Regarding other non-conventional and toxic oilseeds, such as jatropha, the information available is not enough to establish safe methods of detoxification, or the amounts that should be added to animal diets. This page intentionally left blank. 111

Chapter 11 Promoting investment in biodiesel agro-industrial chains: Methods of analysis and BiodieselFAO

Moacir Chagas Borges; Ronaldo Perez; Aziz Galvão da Silva Jr; Marcos Marinho Teixeira

Introduction in regards to obtaining and processing raw materi- Before starting the process of improving agricul- als, which reinforces the importance of developing tural production of oilseeds, just as in any other consistent projects. agro-industrial activity, it is necessary to evaluate if Income gains that farmers receive in swine, the process is economically, technically, socially, and poultry and tobacco activities in Brazil have his- environmentally feasible. The strengths and weak- torically been greater than the revenue obtained nesses that can affect the production process must from oil plant production, with the exception of be analyzed, and the various risks and uncertainties soybeans. Therefore, oilseed production tends in the production system must be assessed. not to generate comparatively attractive gains for Therefore, a variety of information, ranging farmers, this being one of the factors that limit the from technological, financial and organizational success of the social aspects of the National Pro- concerns to setting up marketing strategies should gram for Biodiesel Production and Use (PNPB). be considered. The combination of this diverse PNPB has led the discussions on linkages information is used in the evaluation of agribusi- between industrial processing and primary pro- ness projects and in business planning. These are duction of feedstock for biodiesel, redirecting widely used tools among executives to assess the the operations of the respective agro-industrial viability of initiatives and communicate to stake- production chains. The structure of this Brazilian holders (partners, investing agents and the govern- program not only induced industrial investors to ment) the intention of corporations or companies assess the economic and financial viability of their to invest. projects, but also made them consider the attrac- The first step prospective investors take is to tiveness of family farming for oilseed production: develop their project as consistently as possible. in this way biodiesel is traded through institutional Thus, feasibility analysis considers a number of marketing, with added tax-related gains when organized and consistent types of information using the Social Fuel Seal. that allow the characterization and evaluation of The context of the biodiesel market in Brazil the intent of investment such as: market analysis, shows that there is a need to examine the eco- dimension and location of the project, and tech- nomic and financial viability of investments in the nology to be used. Consequently, this helps inves- agro-industrial production of biodiesel integrated tors to find out how much capital will be spent, to with family farming projects to produce oil plant forecast revenues, and estimate investment needs. raw materials, including oilseeds. Marketing of the These studies should define the technical and eco- product is made through auctions, where 80 percent nomic feasibility of the proposed venture. of the auctioned product goes exclusively to compa- After demonstrating the feasibility, the evalu- nies that have the Social Fuel Seal and the remaining ation should also provide detailed information 20 percent is earmarked for open bidding. regarding management, composition, organiza- Thus, investors cannot be solely concerned with tion, and marketing plans, in order to negotiate the viability of the processing plant, given that if partnerships and resources for the implementation integration is not appealing to family farms, the of the project. development goals of PNPB will have limited suc- Unlike other industries, for which the raw cess. If oil plant sourcing causes strong impact on materials have characteristics that are generally the raw material component of biodiesel produc- well defined, raw materials for agro-industries are tion costs, it will also be necessary to assess the fea- not uniform and are often seasonal. Therefore, sibility of agricultural production integrated with agribusiness activities are somewhat more complex biodiesel production. 112 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

The BiodieselFAO system is a software tool that This software has a user-friendly interface pro- can help users to answer questions related to the grammed in Delphi, in which economic assessment agro-industrial integration process. The rational worksheets are constructed, consisting of project use of this Decision Support System (DSS) can configuration, cost estimates, investments, and indicate how to balance the gains in the two key revenues. Based on these worksheets cash flows on links of the biodiesel chain within the PNPB, that both links of the biodiesel chain can be estimated. is, family farming of oil plants and agro-industrial Through mathematical and financial calculations, production of biodiesel. the analysis provides several social and financial The BiodieselFAO system was developed to indicators of the agricultural and agro-industrial reciprocally evaluate the feasibility of biodiesel production activities, to evaluate their viabil- agro-industrial production with oil plant family- ity. This software also allows the development of farm production; in other words, the viability of sensitivity analysis and scenario building for the each link is independent, but the DSS tools relates comparison of more than one investment project farm revenue with manufacturing costs through and the visualization of the impact of some vari- the oil plant raw material. ables on these indicators, thus allowing the nego- This software can help answer questions tiation and adjustments on these variables, which regarding the economic and financial scope of the can bring more satisfactory results for the parties biodiesel production chain, such as: involved in the negotiation. How much investment do farmers and indus- Different types of assessment can be worked trial producers need? with BiodieselFAO in order to jointly or indi- How much the family farmer needs to get paid vidually analyze the agricultural and agro-indus- in order to guarantee his income and adequate trial sectors: For instance, the financial and social financial revenue for the agro-industry? impacts of utilizing agro-industrial by-products What region or oil plant raw material allow can be assessed in the agricultural module. Also, for more competitive production costs and the potential inclusion of various oil plants in the selling prices? same agro-industrial project may be evaluated, as How much more competitive is a project that well as the best technological alternative for the has the Social Fuel Seal than one without it? deployment of the agro-industrial plant. The initial interface of the software (Figure 1) clearly shows About the BiodieselFAO System the icons for the separate insertion of agricultural The BiodieselFAO system was developed in 2009 (left) and agro-industrial (right) information. through an agreement signed between the Regional Office for Latin America and the Caribbean of BiodieselFAO System Decision-Tree the Food and Agriculture Organization of the Once BiodieselFAO performs the viability analy- United Nations (FAO), located in Santiago, Chile, sis of biodiesel agro-industrial production (or and UFV (Universidade Federal de Viçosa), from vegetable oil production only) in integration with Brazil. The system is characterized as a Decision agricultural production, the support provided by Support System because it provides a range of the system to decision making leads to the possible economic, financial, and social information for the project options, that is, it is either a feasible project assessment of projects for the production of bio- or an unfeasible project (Figure 2). diesel or vegetable oil. This system is an improved An agro-industrial project is only viable if version of the Biosoft System, which was developed the agricultural production link is as profitable by the Ministry of Agrarian Development in part- for farmers as much as the agro-industrial activ- nership with UFV in 2006. The new proposition ity is attractive to investors. Therefore, the raw was to unite the economic and financial viability materials for the agro-industry (income source of of agricultural production with the agro-industrial farmers) will be the main focus of agro-industrial activity. The linkage between these two economic integration project analysis, which means that the activities is attained through selling oil plants to decision analysis will focus on defining the vari- the agro-industry, thus meeting some or all of the ables that have any impact on raw materials. agro-industrial demand of raw materials for the It is clear that out of the six possibilities of production of oil or biodiesel. In this fashion, oil- the decision tree (sequence of events from the seeds and other oil plants make up the bulk of the trunk which is project design –up to branches composition of agricultural income and most of the and leaves– the decision to approve or reject the costs of agro-industrial production. project), three possibilities are the approval of the Chapter 11 – Promoting investment in biodiesel agro-industrial chains: Methods of analysis and BiodieselFAO 113

project, while the other three possibilities are the the bottlenecks of the project. Some possibilities rejection of the project, that is, no investment is in this respect are: made to the project. When only the agro-industrial link is viable In the process of analyzing an investment pro- and there is room to pay more for raw materi- ject, the first step is to assess whether it is viable als from the agricultural link of the project, to or not. This decision is represented by the node a price that can turn the viability of the agricul- “agro-industrial viability” followed by “yes”, if it tural link to at least a minimum (for example, is a viable agro-industrial project; or “no”, that is, NPV [net present value]> 0; IRR [internal rate if it is not a feasible project, which would eventu- of return]> MARR (minimum attractive rate ally result in rejection of the project idea. In the of return), minimum income for the crop). case of the project being rejected, the decision- When only the agricultural link is viable and maker could reconfigure its business plan, by there is room to reduce prices of raw materi- making loops in the decision tree trying to arrive als to a point where at least the minimum at a feasible project set up, or exhaust the possibili- viability of the agro-industrial link is reached ties of settings until it is found that none is viable. (NPV, IRR). However, in the case of projects with integrated evaluation of the viability of two consecutive links Therefore, the decision tree of the projects assessed of the production chain, such as those analysed by by BiodieselFAO shows the following possibilities: BiodieselFAO (production of oilseed raw mate- If the indicators do show viability for both rial, along with its transformation into vegetable the agricultural link and the agro-industrial oil and then into biodiesel), if the project proves link, then from an economic and financial to be unfeasible to one of its links, then the vari- standpoint the project is approved. ables and financial results which determine such Otherwise, if the indicators show that both impracticability must be assessed. In that way it links are unfeasible, then the project should is possible to redefine the variables or determine be rejected.

figure 1 BiodieselFAO presentation screen

Source: BiodieselFAO System. 114 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

figure 2 Decision-tree of agro-industrial projects in BiodieselFAO

 YES Investment Agricultural  viability? YES Investment NO ∆ Raise YES prices NO x No Agro- industrial viability?  YES Investment NO Agricultural

YES viability ∇ Lower NO x No prices?

NO x No

Source: Created by the authors.

figure 3 BiodieselFAO system screen for price, internal rate of return and farmer’s profit

Source: BiodieselFAO System. Chapter 11 – Promoting investment in biodiesel agro-industrial chains: Methods of analysis and BiodieselFAO 115

If the indicators show that only one of the of castor seed. Because it is a region with a low links is feasible, the analyst returns to the pro- Human Development Index, farmers still suffer ject and reconfigures the oilseed prices, raising with the lack of infrastructure, technical assistance them if the agricultural link is the one showing and technology, which limits their power to nego- to be unfeasible, or reducing them otherwise. tiate prices and to have better quality in production. See Figure 4. Such decisions for acceptance, rejection or reconfig- The North-Central region has cities such as uration can be conducted from the BiodieselFAO Morro do Chapéu, Irecê, and Jacobina, which pro- system. One of the system-screens that support this duce approximately 79 000 tons of castor seed, which decision is shown in Figure 3, from where it is pos- is 83 percent of the production in the state of Bahia, sible to assess profitability of both the agricultural and 65 percent of the total production in Brazil. and agro-industrial links based on the IRR and The production of castor seed, along with the profit per hectare, and on the price of oilseeds. growing demand of oil in the domestic market from family farms, in addition to government invest- Applications of BiodieselFAO ments, has brought the Family Farming Product Because it works with both economic and social Trading and Production Cooperative (COOPAF) indicators, the application of BiodieselFAO is into focus: It is one of the few examples of a coop- adequate for less developed regions where family erative of oilseed producers that has the potential farming prevails, for instance in Morro do Chapéu, of deploying a vegetable oil extraction plant under in the state of Bahia, which is the subject of the PNPB rules and provisions. This condition made example below. it possible for them to have the support of the Sec- With about 35 000 inhabitants, Morro do Cha- retary of Agriculture of Bahia State, the Ministry péu is located in the north-central region of Bahia, of Agrarian Development, CONTAG (National at 384 km from Salvador, the state capital’s. The Confederation of Farmers Agricultural Workers) town’s economy is based on subsistence farming. and even partnerships with Petrobras and Brasil The region has a large number of family farm- Ecodiesel, which are influential companies in the ers whose main source of income is the cultivation Brazilian biodiesel market.

figure 4 North-central region of Bahia and the city of Morro do Chapéu

Bahia – (BA) Bahia – (BA) State Mesoregions Municipalities in the North-Central Bahian Mesoregion

Source: Brazil Channel, personal communication. 116 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

At first, COOPAF tried to take advantage of ated the technical and economic viability of imple- the favorable market conditions to organize the menting a processing plant with new equipment or production chain of castor seed and provide added make use of an idle plant in the region. value and income to family farming. To get to this After the initial survey and assessment, they point, COOPAF associated the farmers, enabling decided to revitalize an extraction unit that had them to strengthen their collective actions and stopped working due to the lack of working develop projects of technical assistance, improving capital. Since the unit was already installed, they access to bags, seeds, equipment, and other inputs. decided to assess the economic and financial fea- Thus the COOPAF reduced the influence of mid- sibility of operating the plant, and to establish dlemen in the market and agricultural product which could be its socioeconomic impact in that prices rose, benefiting farmers. region. The BiodieselFAO system was utilized to UFV, MDA and CONTAG led actions and assist in the assessment. analysed whether or not the availability of castor The plant that was assessed was a midsize seed was enough to supply a plant for extraction mechanical extraction unit, located in the city of of vegetable oil. In this second stage, they noted Piritiba, 80 km from Morro do Chapéu (COOPAF the existence of buyers interested in both vegeta- headquarters). Table 1 shows the initial informa- ble oil and cake. They also discussed which avail- tion about the assessed unit, and data generated by able structures could be used to help fully meet the BiodieselFAO System. the requirements of an extraction plant. Based on In order to provide new alternative income for the information gathered, these institutions evalu- farmers, the potential return from the deployment

Table 1 General configuration of the castor seed project

Capacity 20 tonne/day MP

Castor oil production 1 770 787 L/year

Castor cake production 3 010 338 kg/year

Sunflower oil production 413 213 L/year

Sunflower cake production 802 046 kg/year

Agro-industrial production capacity 7 280 L oil/day

Operating days per year 300 days/year

Operating months per year 12 months/year

Work shifts 3 shifts/day

Price of castor seed 1.02 R$/kg

Price of castor oil 4.00 R$/L

Price of castor cake 0.35 R$/kg

Price of sunflower oil 2.30 R$/L

Price of sunflower cake 0.45 R$/kg

Source: BiodieselFAO System.

Table 2 Results for agricultural production

Castor seed production revenue 8 136 767 R$

Sunflower production revenue 1 311 310 R$

Castor seed profit per hectare 351 R$/ha

Sunflower profit per hectare 130 R$/ha

Source: BiodieselFAO System. Chapter 11 – Promoting investment in biodiesel agro-industrial chains: Methods of analysis and BiodieselFAO 117

of sunflower in the region was also evaluated. The Calculation of agro-industrial costs and rev- integrated cultivation of sunflower with castor enues permits the calculation of the profitability of seed would enable the provision of sunflower oil the extraction unit. This leads to the evaluation of destined to the biodiesel market. the economic sustainability of the extraction unit With both crops registered in the BiodieselFAO (Table 3). system, it was possible to calculate the costs of Figure 5 shows that raw material purchasing is agricultural production, revenue, and income per the most relevant expense for the agro-industry. hectare (Table 2). The screen in the figure above shows the agro- In the first assessment, COOPAF was able to industrial cost breakdown, in which about 61 per- ascertain whether castor bean and sunflower inte- cent is comprised by the purchase of raw materials. grated cropping was profitable, and also whether Because there is volatility in the prices of cas- there were disadvantages or not when compared tor seed and sunflower seed and of cakes and oils to other crops in that region, such as beans and as well, there are fluctuations in the profitability corn. Also, in this first assessment, they were able of farming and of the extraction plant. To try to to study the sustainability in the supply of raw mitigate risks associated with these variations, the materials to the oil extraction unit. BiodieselFAO system allows the user to assess the

Table 3 Results for agro-industrial production

Castor oil cost 3.69 R$/L

Sunflower oil cost 0.98 R$/L

IRR (Agro-industry) 23.08 Percentage

NPV (Agro-industry) 1 173 887 R$

Source: BiodieselFAO System.

figure 5 BiodieselFAO System screen for costs breakdown

Source: BiodieselFAO System. 118 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

sensitivity of the agribusiness project under study the maximum value, the minimum that may be to the fluctuation of prices. The most relevant achieved during negotiations and the most likely feasibility indicators are shown in Figure 6, which outcome according to the project characteristics depicts the sensitivity to the variation of castor and region of location. seed price (raw material). Thus, BiodieselFAO results can measure profit- The figure above shows that for an IRR of 23.08 ability taking into account business risks for both percent for the agro-industry, the corresponding the agricultural and agro-industrial links. Figure 6 price of castor seed should be R$ 1.02/kg. When also helps improve the negotiation process, since it using this chart, negotiations can be carried out allows a direct visualization of the price variation more clearly, since the effects of any variation effect. Several comparisons could be represented can be observed directly on the sensitivity graph. graphically, for instance, the relation between the Thus, reaching an agreement that is acceptable is cost of oil production and the profitability of the easier for all parties involved. agro-industry; or the selling price of oil and cake Both the sensitivity analysis tool through indi- with the IRR of the agro-industry, which are also cators and the scenario analysis tool may be used relevant factors regarding the viability of the extrac- to assess these fluctuations. These tools enable tion plant. Concerning the risks of implementing users to analyze positive and negative returns, or small farmer cooperatives, the analysis of scenarios even those values below the ideal values for the was used, as shown in Figure 7, to simulate labor sustainability of the production chain, but which costs, oilseed sale prices and cost of raw materials. could be changed in the analysis. The “Results” Thus, price fluctuations could be interpreted and screen (Figure 6) shows the variations in price, the constraints could be established in order to

figure 6 BiodieselFAO system screen for sensitivity analysis

Source: BiodieselFAO System. Chapter 11 – Promoting investment in biodiesel agro-industrial chains: Methods of analysis and BiodieselFAO 119

make the project feasible. In summary, the effects and study how this will impact the project, so that of various factors on the viability of the agro- the investor may take preventive measures. industry were assessed. Variations in profitability In conclusion, the use of tools such as the Bio- can be observed in the four scenarios presented. dieselFAO system is extremely important for the This study intended to show to government analysis of feasibility of a project for the installa- organizations and to farmers the risks, benefits, tion or maintenance of an oil extraction plant. Pre- and profitability of implementing an oil extraction dictions can be made and decisions can be taken plant for COOPAF. based on the information the tool provides to the The screens in the figures above show how use- user. In the Morro do Chapéu example, it was ful the BiodieselFAO software can be; and how observed that installing the plant was considered much it can assist its users for decision making. viable, but that fluctuations in the price of castor This is a tool that is not limited to analyzing only seed can affect both farmers and the agro-industry. one of the parties involved, which is greatly impor- Therefore, constant monitoring would be required tant because the agribusiness chain is made of both in such a way that control of prices is kept under the agricultural and the agro-industrial links. With close scrutiny, so that management can keep the respect to scenario analysis, by using the tool it is project feasible. possible to have a future projection of the market

figure 7 BiodieselFAO system screen for scenarios

Source: BiodieselFAO System. This page intentionally left blank. 121

Chapter 12 Family Farming Product Trading and Production Cooperative, Bahia State

Luiz Bacelar Barata; Joélcio Cosme Carvalho Ervilha; Ronaldo Perez; Aziz Galvão da Silva Jr

Introduction throughout the whole season, also providing bags, The Family Farming Product Trading and Produc- castor and sunflower seeds, thresher, and other tion Cooperative, COOPAF, was one of the few inputs such as boron (in the case of sunflower). cases of effective family farming participation in At that time, COOPAF’s managerial and opera- the Brazilian biodiesel program. It is a cooperative tional structures included an administrative board in the state of Bahia established in 2005 in the city (seven members); the executive board (three mem- of Morro do Chapéu as a revamped version of an bers); the planning and developing management earlier organization from 1999 the “Association of office (two members); the agricultural project Small Farmers from Chapada”. coordination; the administrative, operational and This cooperative promoted important regional regional supervisors; and a number of technicians developments; it had as its main purpose the devel- that assisted farmers. opment of small farming through actions that After this partnership was arranged, COOPAF intended to encourage a sustainable local production started covering virtually the entire region of pro- chain. From 2005, with the creation of the Brazilian duction of castor seed in Bahia. Figure 1 shows the Program of Biodiesel Production and Use (PNPB), geographical location of the cities where COOPAF the focus has been to act in the oilseed production worked. and trade chain, especially for castor seed; thus, the With such a large area, it became necessary Family Farming Product Trading and Production for COOPAF to organize regional management Cooperative of Bahia State was created to connect units (in blue) which brought together technical biodiesel producers with family farmers. assistance and acquisitions of oil crop production, The opening of a biodiesel plant (Brasil Ecodies- so that it was possible for the technical assistance el) in the North-Central region of Bahia made it personnel to carry out periodic visits to registered possible to formalize a partnership and promote properties, to assess planting and recommend cor- oilseed supply contracts between COOPAF and rections in cases of inadequate treatments. the new agro-industrial plant. In addition to the higher price of COOPAF In 2006 COOPAF confirmed this partnership when buying oil crops - on average 40 percent and expanded its range of operations, registering higher than the prices offered in the market the more than 3 000 farmers and acquiring about 5 000 other factor that helped the cooperative to obtain tonnes of castor seed in the first months. This part- great success with castor seed in Bahia in 2006 was nership also made the COOPAF case become well the technical assistance provided to farmers. known in Brazil. The cooperative was considered a pioneer in assisting oil crop family farmers in the The impacts of COOPAF in the State of Bahia. development of PNPB in Bahia In this partnership, COOPAF was responsible The technical assistance staff encountered a castor for purchasing and funding the production of oil seed production region previously established with crops, having deployed 5 field technicians and outdated farming techniques. The traditional cul- 30 agronomists that conducted the registration tivation of castor seed and common beans caused of interested farmers in 80 different cities. These phytosanitary problems and productivity losses. farmers committed themselves to deliver an agreed Another aspect was that farmers used little or no amount of oil crop product to the cooperative. The fertilizer at all. price had also been previously established in the Due to this type of crop management, the aver- agreement. In return, COOPAF and the biodiesel age productivity was lower than the potential plant provided technical assistance to farmers yield. The mean 2008-2009 crop yield was 588 kg/ 122 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

ha, while the potential yield in rainfed conditions stocked with large amounts of castor seed. When was 800 to 1000 kg/ha. Low productivity reduced COOPAF started to buy castor seed as well, with the volume of oil crop products offered, which prices above the market as seen in Graph 2, these implied a reduction of credit to finance produc- intermediaries took advantage of this condition tion, hampering regional development. and resold their stock for biodiesel production This situation led to a reduction in total pro- thus increasing their capital. duction and caused delays in repayments of loans, The initial success in the purchases of castor seed preventing access to inputs for the cultivation of made Brasil Ecodiesel and COOPAF renew and castor seed. These issues also affected the quality expand their partnership, aiming to make improve- of castor seed, which together with the low vol- ments in the conditions of local production in 2007. ume offered influenced the stability of the price In order to do so, COOPAF started investing to paid to producers. As shown in Graph 1, the price improve soil conditions, and financed the purchase of castor seed was highly unstable. of 50 tractors for plowing and subsoiling family Before the COOPAF – Brazil Ecodiesel part- farmers’ properties. The agreements with farmers nership started, castor seed were traded with mid- were renewed following the same principles used dlemen that represented major companies. These previously; in the new agreements, prices were estab- intermediaries were highly organized and well lished to remain similar to those previously paid.

figure 1 Area where COOPAF was working, 2006

COOPAF Headquarters Local management Cooperative cities

Source: COOPAF Primary Data – Biodiesel Project UFV. Chapter 12 – Family Farming Product Trading and Production Cooperative, Bahia State 123

However, the intermediaries felt threatened the price per bag of castor seed, in order to prevent by such partnerships, and given that they had COOPAF’s production from being successful increased capital at the time they decided to raise again, as shown in Graph 2.

graph 1 Price of a 60-kg bag of castor seed, Irecê, 2005 to 2007

R$ 40.0

R$ 36.0

R$ 32.0

R$ 28.0

R$ 24.0 Before After

R$ 20.0

jul-05 oct-05 jan-06 jun-06 jul-06 oct-06 jan-07 aug-05 sep-05 nov-05 dec-05 feb-06 mar-06 apr-06 may-06 aug-06 sep-06 nov-06 dec-06

Price of castor seed bag Price per bag paid by middlemen

Source: SEAGRI Primary Data; COOPAF, 2009; created by the authors.

graph 2 Price of a 60-kg bag of castor seed, Irecê, 2006 to 2007

R$ 90.0

R$ 80.0

R$ 70.0

R$ 60.0

R$ 50.0

R$ 40.0

R$ 30.0

R$ 20.0

jan-06 jun-06 jul-06 oct-06 jan-07 jun-07 jul-07 oct-07 feb-06mar-06apr-06may-06 aug-06sep-06 nov-06dec-06 feb-07mar-07apr-07may-07 aug-07sep-07 nov-07dec-07

Price of castor seed sack Price of COOPAF x

Source: SEAGRI Primary Data; COOPAF, 2009; created by the authors. 124 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

Graph 2 shows that, unlike what happened in order to do that, the cooperative had to go through 2006, COOPAF did not have competitive prices in structural and financial changes, which caused the the agreements. That was due to the strong manip- reduction of its working area to 60 municipalities ulation of castor seed prices by the intermediaries. (Figure 2). In addition, most of the farmers who had The diversification of activities got its start by signed contracts with the cooperative broke their the establishment of a field of production for cas- agreements by selling their products to these mid- tor seeds in 2007, located in Bom Jesus da Lapa, dlemen, because they paid better prices. Thus, in an area of 85 ha, where the registered variety there was a deficit in the uptake of production by “BRS Paraguaçu” seeds were planted, to be traded the cooperative, which was expecting the associ- in several states of Brazil. ated revenues to repay their loans. The shortfall in The municipality of Bom Jesus da Lapa was product deliveries thus resulted in serious financial chosen for the planting of these seeds because of problems for COOPAF. In addition, the biodiesel its isolation from the traditional producing region, agro-industry struggled to keep its Social Fuel which was extremely important to avoid seed con- Seal, because the production purchase contract tamination. with small farmers had to be canceled. The option of replicating castor seeds made it After Brasil Ecodiesel was out of the market, the possible for COOPAF to maintain its activities. price of the bag of castor seed raised because marked The successful results led to the expansion of its demand was strong. However, prices quickly working area in 2009, with the replication of other moved down due to increased production, to a level common bean seeds in the same county, in an area between R$ 50 and R$ 60, as shown in Figure 3. of 46 ha. Within this bean production area, pinto beans and string beans were the varieties replicated. COOPAF’s performance Figure 3 shows the production area of castor after the partnership ended seed in Bom Jesus da Lapa. To remain active in the market, Brasil Ecodiesel By mid-2008, seed production was the coop- started to buy oilseeds, mainly soybeans and cot- erative’s main source of income. It was by selling tonseed, from the western region of Bahia and from castor seeds that COOPAF strengthened ties with the Brazilian Midwest region. COOPAF diversified PETROBRAS’ biodiesel unit newly established in its activities in the biodiesel production chain, and the region, in the city of Candeias. PETROBRAS decided to launch a project to reproduce seeds. In sought a partnership with COOPAF to expand

graph 3 Price of a 60-kg bag of castor seed, Irecê, 2006 to 2009

R$ 90.0

R$ 80.0

R$ 70.0

R$ 60.0

R$ 50.0

R$ 40.0

R$ 30.0 End of partnership R$ 20.0

jan-06 jul-06 jan-07 jul-07 jan-08 jul-08 jan-09 jul-09 mar-06may-06 sep-06nov-06 mar-07may-07 sep-07nov-07 mar-08may-08 sep-08nov-08 mar-09may-09 sep-09nov-09

Price per bag Price of COOPAF agreement

Source: SEAGRI Primary Data; COOPAF, 2009; created by the authors. Chapter 12 – Family Farming Product Trading and Production Cooperative, Bahia State 125

figure 2 Area where COOPAF was working, 2009

Source: COOPAF, 2009. Prepared by the authors. their working range, because COOPAF was con- were purchased according to the price prevailing sidered to be an important link between family on the day of delivery to the cooperative, instead farmers and agro-industries. of using a fixed price during the whole harvesting PETROBRAS had already been buying certified seeds from COOPAF. The intention of the new project was to enable a wider dissemination figure 3 Area of castor seed production in Bom Jesus da Lapa of seeds to farmers and cooperatives, and assist local production. In exchange, the company would receive the end production and would thus meet the requirements to obtain the Social Fuel Seal. The agreement between PETROBRAS and COOPAF to develop a project of technical assistance and dissemination of seeds was formalized in December 2008. The project covered 29 cities with 33 agricultural technicians and 3 000 family farmers, in a total area of 10 000 ha for the cultivation of castor seed intercropped with food crops like common beans. In order to avoid side selling as in the previous agreements, COOPAF and the biodiesel companies developed a new methodology of action in the region. Under this new agreement, castor seed Source: COOPAF, 2009. 126 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

season, competing directly with the middlemen was specifically focused on the production of oil operating in the region. Also, there was no encour- plants and food crops, and it was more efficient agement for the intercropped production of other and better organized. oilseeds, given the failure occurred in a previous This model had already shown to be successful. experience with sunflower. This was a new crop In 2009, the PETROBRAS COOPAF partnership in the region that required specific handling, not sold 12 000 tons of castor seed, which, according suitable for the planting methods existing thus far. to CONAB, accounted for approximately 20 In addition, the new technical assistance provided percent of the state’s production, or 13 percent of

figure 4 Warehouse where the processing plant would be installed

Source: COOPAF, 2009.

figure 5 Plan for the castor seed processing plant

Source: COOPAF, 2009. Chapter 12 – Family Farming Product Trading and Production Cooperative, Bahia State 127

the national production of 2008/2009. COOPAF The construction work for this processing unit intended to expand the volume to about 20 000 had been scheduled to start in the beginning of tons of castor seed for 2009/2010. 2009, but due to an expected increase in produc- Another action taken by COOPAF to over- tion and the increased participation of COOPAF come the problems caused by the termination of in partnership with PETROBRAS, which needed its partnership was to seek funding from the fed- additional storage space in the warehouse, the eral and state governments, so as to facilitate new works were postponed. The storage silos would development opportunities for the region. Thus, have a total storage capacity of 1 300 tonnes. COOPAF raised an appeal to the Department of COOPAF worked on organizing the produc- Science and Technology of the state of Bahia to tion of castor seed in the state of Bahia, aiming invest in a castor seed processing plant. The main to promote regional development and to boost purpose of this investment would be to increase the supply chain. Besides all of the actions previ- the quality of the berries offered in the market and ously mentioned, COOPAF also had projected to reduce price volatility. install a castor oil extraction plant, and to expand Figure 4 shows the building where the process- its operations to other productive chains such as ing plant would be installed. This site was used as dairy farming, utilization of oilseed by-products, a warehouse to stock products purchased by the and other traditional activities in the region such cooperative for PETROBRAS. Figure 5 shows the as the production of flour and handmade sweets. drawing plans of the processing plant. This page intentionally left blank. 129

Chapter 13 Biodiesel in the mesoregion of Norte de Minas

Joélcio Cosme Carvalho Ervilha; Ronaldo Perez; Aziz Galvão da Silva Jr

Introduction of the National Program of Biodiesel Production The organization of a production chain is one of (PNPB) in 2005, when production of such crops the main factors for the success of a business. This in Brazil started to be considered from the new case study, conducted in the mesoregion of Norte perspective of energy production. Thus, agricul- de Minas, in the state of Minas Gerais, focuses on tural production in Norte de Minas gained higher one of the most important examples of initiatives prominence within the scope of PNPB, since it taken for structuring the biodiesel production chain mostly came from family farmers. in Brazil. The actions hereby discussed are relevant The important strategic actions of the Brazilian not only in view of their successful commercial Government in Norte de Minas can be depicted results when the chain was still under implementa- with the deployment of a biodiesel unit in the tion, but because they have also caused a positive region by PETROBRAS. This unit was built to impact in terms of social development and genera- encourage local oil crop production, promote tion of income for the stakeholders involved. regional development, and foster social inclusion The mesoregion of Norte de Minas has histori- of family farmers. The processing plant functioned cally been a major producer of oils crops since the in partnership with local stakeholders, coopera- 1960s, when cotton was introduced in the region. tives and public and private companies, promoting Consequently, it became a center of research and local production. development for agricultural technologies. After the 1980s cotton crops were devastated by pests The Region and practically disappeared; also, local production The Norte de Minas mesoregion consists of 89 of oilseeds went through a serious crisis. municipalities distributed in seven micro-regions, In order to diversify local production, sev- in a total area of 128 602 km² with a population of eral regional mobilization efforts that started in the 1 581 867 inhabitants. It has one of the largest ter- 1990s were conducted to encourage the produc- ritorial areas when compared to other mesoregions tion of oilseeds. In addition to planting cotton, this from the State of Minas Gerais (12 mesoregions), mesoregion has traditionally produced castor seed, with distinct geographical characteristics within its mainly through family farmers. Recently the entire own territory. Figure 1 shows the geographic dis- production of castor seed in the state of Minas tribution of micro-regions within Norte de Minas Gerais has been located in this mesoregion. mesoregion. Another important regional oilseed is soy- Given the large geographical area, different bean, grown mainly in the municipalities that are soil and climate characteristics are found in each located near the Noroeste de Minas mesoregion. micro-region. Thus, the current distribution of Despite the short period of time since the crop oil crop production is geographically arranged as was introduced, (if compared to cotton and cas- follows: tor seed), soybean already has an important share West: mainly in the Micro-region of Pirapora; of production in the region, especially in the this territory has the highest production of case of large farmers. Other oil crops that have soybean and cotton. recently been introduced as well in the Norte de North: mainly in the Micro-region of Minas mesoregion with the purpose of produc- Januária, this area has the highest concentra- ing oil for biodiesel are sunflower, jatropha and tion of castor seed and sunflower production. macaw palm. Macaw palm is a native plant which can be The diversity of oil crops that had been brought found in almost all territories located in the to Norte de Minas can be attributed to the creation Norte de Minas mesoregion. 130 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

figure 1 Norte de Minas mesoregion

Microregion of Januária (1) Microregion of Janaúba (2) Microregion of Salinas (3) Microregion of Montes Claros (4) Micro-region of Grão Mogol (5) Micro-region of Pirapora (6) Micro-region of Bocaiúva (7)

Source: Created by the authors.

Production Chains Januária and Janaúba was that these areas had been The opening of the PETROBRAS biodiesel plant traditionally supplying castor seeds to the State of in the municipality of Montes Claros in 2009, Bahia, because there is a castor oil processing plant gave impetus to the oil crops production chain in nearby, in the municipality of Luiú, about 130 km Norte de Minas, creating a new opportunity for from the production areas of northern Minas Ger- local production. The biodiesel plant was dedi- ais state. This castor oil production plant belonged cated to the transesterification process, that is, it to an important regional oil crop buyer, who con- converted vegetable oil into biodiesel. Therefore, trolled virtually all of the market of the southern it required from the region the supply of vegeta- area of the state of Bahia. ble oil as raw material. However, the region was Even before the PETROBRAS biodiesel plant not yet structured to provide the amount of veg- was established in the region, local chain stake- etable oil that PETROBRAS needed, which was holders mobilized to prevent castor seed produc- an obstacle for the development of this biodiesel tion from evading the state of Minas Gerais. One production chain. of the main initial steps was taken in 1996 with For this new demand, PETROBRAS and local the creation of PETROVASF (Green Petroleum chain stakeholders structured local production for from the Vale do São Francisco, Ltd), a private the different oil crops. These actions illustrate the company with the capacity to process 15 tonnes range of successful initiatives and challenges to be of castor seeds per day. Since its construction, faced for organizing the sector. PETROVASF has worked in partnership with Regarding castor seed, which is one of the most family farmers to produce about six tonnes of cas- traditional oil crops for cultivation and produc- tor oil per day. Recently the company was one of tion in this region, the actions concentrated on the main local organizing chain agents, operating the major producing microregions: Januária and in 12 municipalities, where about 80 percent of Janaúba. One of the major reasons for focusing on production is sourced from local family farmers. Chapter 13 – Biodiesel in the mesoregion of Norte de Minas 131

figure 2 PETROVASF municipalities that produce castor seed

ITACARAMBI Petrovasf Cap. 15 000 tonne

JanuÁRIA Janaúba

Montes Claros Petrobás (biodiesel) Cap. 57 000 tonne

Demand for raw material 247 500 tonnes of castor seed 165 000 ha

Source: EMATER, 2010.

Later, PETROVASF signed agreements with EMATER (the state’s technical assistance and PETROBRAS to purchase and store castor seeds rural extension agency) worked to reduce those and sunflower seeds, to extract oil and to work problems. The company was present in about 50 on research and development of technologies for municipalities that produce castor seeds. It pro- the production of macaw palm. The agreements vided technical assistance to local production, and suggested clearly that both PETROVASF and since the opening of the PETROBRAS processing PETROBRAS intended to eventually expand plant worked together to improve the quality of their work to a range of potentially viable oil castor seed in the region. One of the actions was crops. Figure 2 shows the geographic location of to provide certified seeds to increase productivity. the PETROVASF oil extraction plant in relation In 2009, EMATER supplied 64 500 kg of seeds, to the PETROBRAS biodiesel unit. helping to plant 6 500 hectares of castor seed, PETROVASF played an important role as involving 2 895 small farmers. With such a part- an oil crop purchaser in the region, but to fully nership, 62 technicians were hired to provide tech- organize the production chain several problems nical assistance and train local farmers and farm needed to be solved. The region had low castor workers from the region. seed productivity rates, with an average of 1 000 Like EMATER and PETROVASF, there were kg/ha. There were difficulties in management, other stakeholders involved in the biodiesel chain, poor technical support, a small number of planted such as support service cooperatives and private areas, geographical dispersion of plantations, companies that also had contracts for the provi- increasing logistics costs and difficulties of access sion of technical assistance services to 7 500 fami- to rural credit. lies, totaling 15 000 hectares. With these expanded 132 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

support services, it was expected that problems technology. PETROBRAS aimed to just maintain related to lack of technical support would be the soybean-based agro-industrial operations, reduced significantly. because the main raw material was vegetable oil. Only by correcting such technical constraints This was perhaps one of the main problems regard- is that the production chain could be able to reach ing the production of castor seed or any other oil- their goals of assuring the supply of oil crops and, seed in this region, mainly because of competition in the future, of vegetable oil as well. The incor- among different markets. Castor oil was traded poration of vegetable oil as a typical product of with more attractive prices in other markets, pre- family farming could bring many benefits to the venting its use for biodiesel production. The mean region, not only by adding value to local oil crop market price of castor oil in 2010 was R$ 4/L to R$ production, but also because there is a strong 4.50/L; cost of castor oil production was R$ 3/L bond between the production of vegetable oil and to R$ 3.80/L; biodiesel average price at the 17th the production of livestock. auction of 03/02/10 was R$ 2.24/L (PETROVASF The linkage between these apparently distinct and ANP, 2010). chains is the use of co-products from oil extrac- PETROBRAS has worked in partnership with tion as livestock feed). The cake, or meal derived EMATER, PETROVASF and other cooperatives from the extraction of vegetable oil is extremely to obtain castor seed and other oilseeds from fam- beneficial to animals a main feedstock for animal ily farmers, and consequently acquire the Social production (beef and dairy cattle, hogs, chicken, Fuel Seal. Instead of using the oilseeds to produce etc.), given the significant percentage of proteins in biodiesel, PETROBRAS has directed the oils to their composition. more valued markets. With the revenue generated, PETROBRAS, EMATER, and Grande Sertão PETROBRAS bought soybean oil (at a suitable Cooperative worked on the development of cost) for the production of biodiesel. sunflower crops in Norte de Minas, focusing on Soybean oil processed by PETROBRAS for planting in locations where the dairy industry had biodiesel production came mostly from the state already been established. The main objective of of Minas Gerais (Norte, Noroeste, and Triângulo this initiative was to reduce dependency of animal Mineiro mesoregions). The rest was sourced from feeds from distant sources, in a way that as sun- the states of Goiás and Mato Grosso. Soybean was flower production increased, animal production processed in the Norte de Minas mesoregion. Due costs could decrease in the region, benefiting the to the fact that there were no sufficient soybean production chains involved. extraction plants operating in this region, soybean Sunflower was not yet fully consolidated as a was transported as well to extraction companies viable crop in the region and as such did not com- located mainly in the Triângulo Mineiro, where oil pare favorably with castor seed in technical and was extracted and returned to the PETROBRAS economic terms. The municipalities still lacked biodiesel processing plant in Montes Claros. soil and climate zoning for this newly established The residual meal, unlike oil, did not return crop as there was for castor seed. Hence there were directly to the region, which affected its market difficulties to finance local sunflower production. price, since it had added costs for logistics and pro- Another problem was the difference in prices for cessing. Given the characteristics of soybean meal, the competing crops. Although the cost of produc- it is widely used in animal feeds. As it did not return tion and the cultivation management practices for directly to the region its cost was high, which led both crops were similar, castor seed prices were 75 to increased production costs in the livestock chain percent higher and therefore the crop was more across the entire region of Norte de Minas. attractive for farmers than sunflower. Another opportunity created recently in this For sunflower to contribute effectively to the region was to use macaw palm for vegetable oil development of the region, solving the existing extraction. Unlike other oil crops, macaw palm is constraints depended on the availability of finan- a native plant that had not yet been commercially cial resources, since the demand for raw materials cultivated in the country, because only recently for vegetable oil production already existed in the research had shown its potential to be used in the Norte de Minas mesoregion. production of biodiesel. For that reason, in the Soybean was the oilseed with the highest pro- mesoregion of Norte de Minas macaw palm fruits duction rate in this mesoregion. However the larg- have been harvested to be processed to obtain oil. est share of local production was in the hands of An important agent in this chain is UBCM large farmers, who possessed better agricultural (Macaw Palm Fruit Processing Unit), created Chapter 13 – Biodiesel in the mesoregion of Norte de Minas 133

through a partnership between the Institute of Affiliating with trade associations (AMIPA, Development from the North and Northeast Cotton Producer Association of Minas, and regions of Minas (IDENE), within the scope of ABRAPA, Brazilian Association of Cotton the Rural Poverty Fight Program (PCPR), and Producers) the Community Association of Small Rural Pro- Establishing cooperatives (COOPERCAT) ducers of Riacho D’anta and surroundings. Group purchase of inputs, in order to achieve The UBCM factory could produce 17 000 litres larger scale and volumes and as such be able of macaw pulp oil and 6 500 liters of macaw nut to negotiate better prices oil, in addition to 30 tons of coconut shell charcoal. Selling cotton fibre production directly to The main hand-made products manufactured by the textile industry, with substantial increase the community are oil, soap, detergent, shampoo in price and liquid soap. The potential of installing viable Processing local production small-scale macaw palm oil extraction facilities was Participating in trading fairs and public hear- demonstrated through the experience of UBCM. ings in order to promote local production for With regard to cotton in the mesoregion of different markets Norte de Minas, this crop lost its competitiveness, since its price was negatively affected by an unfa- The initiatives to upgrade the cultivation of cotton vorable world market.. In addition, it competed in the Norte de Minas mesoregion produced good directly with the production of cotton coming results. For each harvest season, the number of pro- from the Midwest, the main production center in ducers interested in planting increased, and those Brazil. Due to the increased use of technology and who were already planting became interested in the larger average size of planted area, production expanding their production. Thus, it was noted that in the Midwest had lower production costs and the number of benefited family farmers went from higher profits, thus favorably competing with pro- 5 (2006-2007 crop season) to 63 family farmers in duction from the Norte de Minas mesoregion. the 2008-2009 season; for the 2009-2010 season the Given that cotton was grown largely by small- estimation was the involvement of 160 producers. scale farmers in the Norte de Minas mesoregion, The cultivated area increased from 40 ha (2006-2007 the support of facilitation and promotion agents in crop season) to 340 ha in the 2008-2009 season, and the biodiesel production chain became necessary. the estimation for the 2009-2010 season was 1 000 There was a need for a farmer cooperative to be ha. The number of families assisted increased from created in order to organize local production. 12 (2006-2007 crop season) to 135 families in the The Cooperative of Producers of Catuti 2008-2009 season, growing to an estimate 330 fami- (COOPERCAT) had been working with the pro- lies in the 2009-2010 season. motion of extension approaches such as farmer’s New opportunities emerged in the region, field days, constantly monitoring planting practic- and several mechanisms for organizing produces to improve the conditions for local production. tion have been used. However, when it comes to Farmer’s field days are important for family farm- producing oil crops, especially for family farmers ers, because they have the opportunity to meet and whose production is their only source of income, discuss the technologies that drive productivity the optimization of the profit margin is essential gains and quality improvements such as biotech- to maintain production. If there is another activity nology, soil preparation, pest management, plant that offers greater economic returns, farmers will nutrition, marketing and partnerships. tend to abandon the old activity and start working Moreover, farmers begin to know the poten- on the more profitable ones. tial of genetically modified plants, resistance to All available information showed that the droughts, production cost, and fibre quality. Agri- region was going through a process of change. cultural technicians and researchers assist farmers Only time will tell whether the agents involved, on field work and the use new technologies. jointly working with a large corporation, will suc- The main initiatives taken in the municipality ceed in promoting oil crops and the associated bio- of Catuti with the intent to organize and assist diesel chain in the mesoregion of Norte de Minas. family farmers were: This page intentionally left blank. 135

Chapter 14 Guariba Biodiesel Project

Evandro Luiz Dall’Oglio; Paulo Teixeira de Souza Jr

Introduction figure 1 The Guariba project was created with the inten- Location map of Colniza, Mato Grosso tion of carrying out a socio-economic and cultural survey of the Guariba community in the city of Colniza, in the state Mato Grosso (Figure 1). The objective was to assess the agricultural and extractive potential for the construction of a processing plant for producing vegetable oils, biodiesel and electricity. In addition, the biodiesel production chain was studied, and the feasibility of supplying raw materials and the use of products and by products were assessed (Dall’Oglio et al., 2007).1 The Guariba community is part of the Extrac- tive Reserve (RESEX) Guariba Roosevelt, located along the rivers with same name (Guariba and Roosevelt), in the town of Colniza, in the Amazon rainforest, 1 300 km distant from the state capital Cuiabá. Colniza and Guariba are areas of colonization Source: Created by Project Biodiesel UFV, from data of SEPLAN, MT. since the 1970s under the Program for Coloniza- tion of the Amazon and the Midwest regions, created to open frontiers to the development of extraction of copaiba2 oil. However, access to mar- agriculture, agro-industry and extraction of tim- kets for these products was limited. Prices were ber and minerals. The first people to inhabit the low both because of a declining demand for rub- area were the seringueiros (rubber tappers) and ber and the dependence on middlemen. Moreover, the ribeirinhos (people that lived by rivers) living difficulties to access markets were compounded by by the Guariba and Roosevelt rivers, also called the isolation of the area, which could be reached “beiradeiros”. The beiradeiros were regularized in only by boat or precarious dirt roads. To guarantee the 1980s, when RESEX, with a total area of 49 360 the food for their families many workers submit- ha, was officialized. By 1998 Colniza was consid- ted themselves directly or indirectly to farmers ered a district of the municipality of Aripuana and and loggers in the sale of timber, or held small its first mayor was only elected in 2000. The social plantations of manioc for the production of flour structure of the community was composed of rub- (Dall’Oglio et al., 2007). The settlers’ category was ber tappers, settlers, colonizers and squatters. In the largest one. Its history reflects policies of the the group of “beiradeiros”, the main populations 1970s, inspired by the federal and state govern- were of native Indians and mestizos, thus people ments, when millions of hectares of land were sold from the Amazon forest or migrants. The main in the north of the state to promote settlements economic activities of the rubber tappers were and colonization of the region. The settlers and the extraction of latex, harvest of Brazil nut, and colonizers cleared and planted plots for subsistence production. When there was surplus, there was no 1 Partnership between the Federal University of Mato Grosso (UFMT), UNISELVA Foundation and Electric- 2 (CopaiferaCopaíba spp.) is a tree native to the Amazonia ity Companies of Northern Brazil (ELETRONORTE). forest, from which copaíba oil is extracted. 136 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

figure 2 Location of the deforestation zone in Legal Amazon

on zone stati Defore

Source: Final Report of C & T Program for the rehabilitation of disturbed areas in the Arc of Deforestation in the Amazon, 2006. market. Tropical diseases such as malaria, leprosy of Amazonas and southeastern of the state of Acre and leishmaniasis, and the lack of infrastructure (INPE, 2010). to ensure production, were the major challenges. Coping with these challenges required a great deal Organizational Structure of hard work and persistence from these pioneers. of the Guariba Biodiesel Project The group of squatters or invaders was com- The Guariba Biodiesel Project was created to train posed of people who had generally already settled and help develop the community, encouraging their in other regions, particularly in the neighbouring autonomy to generate energy in the Guariba com- state of Rondonia. Some of them were settled in munity. The project included the implementation the local village or close to it, and they worked of a biodiesel production plant using local raw mainly in agro-industrial activities and services materials and linked with the Pilot Project of the (related to the exploitation of timber). There were Ministry of Mines and Energy, which established the people who acted to have land they occupied a thermoelectrical power station and the electrical to be formally granted to them by government. distribution system. The project had a building area Their strategy included staying in the land plots of 900 m² (Figure 3), where the biodiesel pilot plant and keeping them, making “investments” such as was located with a production capacity of 2 000 L cutting down trees, building fences, planting rice biodiesel/day (Dall’Oglio et al., 2007). and pasture (Dall’Oglio et al., 2007). In the building there is also a unit to break babas- The district of Guariba is part of an area known su and cashew nuts, a peanut dehulling unit, an as the “Arc of Deforestation”, that is, a cumulative oilseed crushing unit (100 kg/h), a quality control area deforested in the Brazilian Legal Amazon, laboratory, a warehouse, a maintenance room, and with about 750 km2 in 2009. The bulk of defor- storage area for raw materials. There was an area of estation was concentrated along the boundaries of 400 m² built with bedrooms, bathrooms, kitchen, the State of Maranhão, north of Tocantins, south dining room, and laundry room. The project was of Pará, north of Mato Grosso, Rondonia, south divided into four technical areas: agronomy, envi- Chapter 14 – Guariba Biodiesel Project 137

figure 3 Guariba Biodiesel Project facilities

Source: Guariba Biodiesel Project. ronment, economics, and technology. The agron- following aspects: soil type, land availability, types omy team assessed more than 3 000 soil samples, of technologies used, occupation of labor, regional conducted over 400 interviews, and identified the climate and soil conditions, time for planting and interest and potential of each small family farmer harvesting, availability of agricultural machinery to join the initiative. They also helped farmers to and equipment, qualification of the workforce and determine which oil crops could be more suitable organization of oils crop production work. As a for planting and harvesting in their properties. The result, it was observed that among the extractive environmental education team worked on projects activities undertaken in Guariba, 59.78 percent with the community, along with students and referred to vegetable extraction, 4.4 percent to trained teachers in the classroom. The chemistry mineral extraction and 36.26 percent to animal team led the technology area, accounting for the extraction. Regarding vegetable extraction, the overall management of the project, the establish- species with better exploitation are Brazil nuts, ment and operation of the plant, quality control, açai, copaiba, babassu, cocoa, pequi, pupunha employee training, and articulating with the com- palm (Bactris spp.) and buriti palm. The interviews munity towards the creation of a cooperative that were structured to identify the management units would be responsible for managing this agribusi- recognized by farmers, that is, the space inside the ness enterprise. The economics team assessed the production unit destined for the execution of any biodiesel production chain for local raw materials activity that was clearly distinct from others con- and calculated the cost of production of biodiesel. ducted by family members. Among those spaces The economics and chemistry teams found several were forest, pasture, plantation, poultry, backyard problems and turned them into integrated, trans- gardens, orchards and vegetable gardens. A sig- versal subprojects to raise resources for health, nificant number of species was cultivated by the education, housing, transport and communication studied family farmers such as rice, corn, oranges, (Dall’Oglio et al., 2007). cassava, peanuts, sesame, coffee, African oil-palm, and cupuaçu. Most of them were grown on small Agronomic Assessment scale, clearly for their own use, and some in lower Through interviews and systematic field visits, the amounts for both consumption and selling. teams sought to understand the farming systems Regarding the agronomic diagnosis, the results of the producers, in order to identify the energy of the analysis of soil fertility were obtained from needs of the productive units, the potentiality of 280 samples, for the assessment of aluminum, cal- producing oil crops raw materials and the possibil- cium and magnesium levels. As a result, 276 sam- ity of inclusion of these new activities by family ples were classified as low fertility. Preliminary farmers in their production systems. The informa- results showed groundnut and sesame as proper tion for the agronomic diagnosis encompassed the crops for the region for the obtention of vegeta- 138 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

ble oil through family farming. According to the The framework sets the “axiological funda- results of soil fertility and productivity, along mentals” about the necessity of thinking, research- with the production capacity of the oil extraction ing, and acting upon the root of the problem of equipment, it was estimated that it would require local socio-environmental degradation and the 480 tonnes of feedstock per year, which means in development of a biodiesel production chain with- agricultural terms 300 ha of groundnut with a yield in a community located in the Amazon rainforest. of 2 tonnes/ha. These data clearly showed the need Thus, the focus moves from economic efficiency for associating extraction and family farming to as a priority to considering as priorities the social obtain the necessary raw material, which would and environmental components, including cultural involve about 400 families in the agricultural and and ethnic aspects, social infrastructure and logis- extractive cycles (Dall’Oglio et al., 2007 and 2009). tics, social inclusion, the provision of basic needs and social training (Sato et al., 2004). Environmental Assessment The fieldwork was conducted during visits to the Economic Assessment region for cartographic studies and also to under- Over three years the framework of costs and rev- stand its social, cultural and economic aspects. enues was structured, within the strategy of assimi- Researchers also conducted iconographic records lation of oil crops production into local agriculture and interviews with the residents to get to know carried out by organized small-scale producers, and their habits and their perceptions about the project. of use of fertilizer produced in the agro-industrial Figure 4 shows the “Sustainability Network”, with link of the same chain. In addition to fertilizer, it the scope in which the Guariba Biodiesel Project was important to add the use of oil cake as animal was inserted. feed in the community, to improve and increase the

figure 4 Guariba Biodiesel Project sustainability network

Global national local Social dimension

Economic Environmental dimension dimension Participation

Environmental protection

Possibilities Social inclusion

Guariba Caring for the area

Infrastructure Logistic Ethic dimension dimension Agrarian dimension

Source: M. Sato, M. Jaber and R. Silva. Chapter 14 – Guariba Biodiesel Project 139

production of animals for both consumption and Oil Production for sale, thus contributing to a greater diversification Three different oilseeds were used in the crush- of agricultural production units. The project con- ing unit to obtain oil: Brazil nut, groundnut and tributed to broaden the spectrum of possibilities for copaiba (Copaifera spp.). Fifteen tonnes of Brazil work and income, and prevent associated producers nut were acquired in the first season (2006) and 22 from being dependent on oil crops production only tonnes in the second season (2007) from the farm- to feed their families, thus assuring the viability of ers of the Guariba Roosevelt reserve to obtain oil their rural production units (Dall’Oglio et al., 2004). (Figure 5). The processing of nuts consisted of the From a preliminary simulation conducted with following operations: breaking in a centrifugal mill, the first production cycle, when everything was pre-selection in sieves, final manual selection, cold still being structured, it was found that the feasi- pressing with subsequent sedimentation and filtra- bility of biodiesel production depended crucially tion in filter press. on an appropriate destination of the outputs. In In order to conduct an oil crop trial, in this case other words, feasibility depended on the final groundnuts, firstly 3 000 kg of seed were acquired, processing or preparation of all by-products from from which 395 kg were distributed to producers the biodiesel chain, or more specifically, from the for them to gain planting experience in 6 ha. From agro-industrial processing activities, as well on such experiment 6 400 kg were collected and 2 000 the conversion into biodiesel and the sale of the kg were pressed (Figure 6), resulting in 1 000 liters byproducts (mainly fertilizer and cake) to local of oil (Dall’Oglio et al., 2009). farmers. Technical difficulties could be overcome For the implementation of copaiba oil extrac- and production costs would probably not go tion, meetings were held between project teams, beyond 15 percent of the final revenues (percent- extraction worker families and UNDP (United age of costs allowed in the simulation compared to Nations Development Program). Some materials the combined value of these byproducts), except to obtain oil were made available such as contain- if there could be an increase in selling prices. The ers, pipes, hoses and augers. Oil extraction is con- combination of simulation results with the final ducted by using 1” augers to drill the trees. The preparation and sale of agro-industrial processing hole is drilled at 1.3 m height from the ground, by-products (cake, glycerin) would, at the time, aiming for the center of the tree. After that, a piece enable the production of biodiesel at R$ 1.67/L, of PVC pipe is inserted in the hole to allow the which would cover all costs and allow a net sur- flow of oil. The pipe is connected to a collecting plus amounting to 5.1 percent of total sales from container by using a hose, and the collection peri- the agro-industrial activity (Dall’Ogio et al., 2009). od is between seven and ten days. After collecting

figure 5 Raw materials to obtain oil

Left: Brazil nut; Right: groundnut. Source: Guariba Biodiesel Project. 140 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

the oil, the pipes were sealed with a PVC cover. Future potential This technique was used to allow a new collection Small-scale production of biodiesel in the Amazon of oil in a future occasion. The oil collected was isolated communities may be feasible if inserted in stored in suitable containers for transportation. a wider context of exploitation of high added-value Studies were carried out using vacuum distillation oils from plants native to the region (copaiba, Bra- to separate the constituents of the oil into two zil nut, cumbaru, etc.). Based on the final results fractions: a light one and a heavy one (Dall’Oglio of the environmental, agronomic, economic, and et al., 2007 and 2009). technological assessments, it was concluded that biodiesel must be produced using oils obtained Biodiesel production as by-products from extraction processes of fine In order to promote training of the community oils (high added-value); and from oils with lower responsible of biodiesel production, 2 000 liters market value, such as babassu oil. Also, to associ- of ethyl biodiesel were produced from peanut oil ate biodiesel with the generation of electricity, the obtained from pressing, and from degummed soy- CCC (Fuel Consumption Account) issue must bean oil (Figure 7). The biodiesel obtained was used be solved. This is a subsidy in diesel consumption as fuel for community machinery, mainly boats and granted to concessionaires of electricity generation, stationary engines (Dall’Oglio et al., 2007 and 2009). which reduces its final cost. Although the high sell-

figure 6 Oil extraction equipment

Source: Guariba Biodiesel Project. Chapter 14 – Guariba Biodiesel Project 141

ing price of biodiesel in this region compensates Brazil nut and copaiba; to use cashew nut cake for the high cost of small-scale production, such to make sweets; to make handmade soap; and to compensation is overridden in the marketing of the use residual oils to produce biodiesel. This would product due to high tax rates and subsidies such as complement of the infrastructure established by the CCC, which should also be extended to bio- the Federal University of Mato Grosso (UFMT) diesel. Thus, the inclusion of biodiesel in Amazo- through the Guariba Biodiesel Project. How- nian communities to be used in electricity genera- ever, the continuity of the project was threatened tion collides with the lack of proper policies in the by the lack of reimbursement for all expenses sector, because companies that hold the monopoly regarding investment resources, staff training and of energy do not accept biodiesel, due to the fact procurement of raw materials. This constraint that they obtain diesel for a lower price based on was expressed in several projects submitted by the CCC (Dall’Oglio et al., 2007 and 2009). the UFMT team to various development institu- A project was approved by the Ministry of tions, ministries, state secretariats, among others Rural Development to build an Oil Chemical (Dall’Oglio et al., 2007). Center, where equipment would be purchased to Through studies by the Guariba Biodiesel Pro- be used by family farmers and extraction work- ject, it was possible to identify that it is possible ers for several purposes: to obtain fine oils from to obtain 60 tonnes of Brazil nut in per year, and

figure 7 Biodiesel production equipment

Source: Guariba Biodiesel Project. 142 Small-scale biodiesel production as an alternative for agro-industrial diversification – The Brazilian experience

about 10 000 litres of copaiba oil. The oil crop spe- Brazil nut, andiroba, cupuasu, buriti and muru- cies are not being exploited in all their potential muru (ABIHPEC, 2010). and the oils could also be used by the food, phar- There were also actions being taken to pro- maceutical and cleaning industries. Opportunities vide resources, especially for funding, through a also existed in the market for cosmetic products. Statement of Cooperation for Decentralization of In fact, most of the variety of oils produced by Credit between the Ministry of Science and Tech- Guariba Biodiesel Project was destined to the cos- nology and UFMT, to build a Guariba Renewable metics, fragrances and personal hygiene industries, Energy and Oleo Chemical Center. This center was and the residual oils could be used for the produc- aimed at training community members to work in tion of biodiesel. This was due to the important the agro-industrial chains for the production of oil growth of this industrial sector 10.5 percent in and products derived from non-timber agroforest- recent years at the time of this study (ABIHPEC, ry materials. These included activities such as han- 2010). This option emerged as an alternative to dling and collecting as well as the agro-industrial changing the direction of the project, due to the processes for obtaining raw materials, volatile and difficulties encountered in the introduction of bio- non-volatile oils, refined and raw oils, cakes, feeds diesel to generate energy (Dall’Oglio et al., 2006, and biodiesel. The project included equipment for 2007 and 2009). the center, such as microcomputers, bibliographic In Brazil, there were ten companies that worked materials and training tools to conduct education with vegetable oils from the Amazon. Those com- and training courses for the community within the panies bought or manufactured oil, resin and fat supply chains of the oils considered to have mar- products made of the following Amazon species: ket potential in the region. There was also funding açai, andiroba (Carapa guianensis Aubl.), babassu, for the implementation of Brazil nut and copaiba breu-branco, buriti, Brazil nut, copaiba, cup- productive chains. The proposal was the third part uasu, murumuru (Astrocaryum murumuru Mart), of a larger project, aimed at developing an agricul- bataua palm, priprioca (Cyperus articulatus L.), tural extraction cycle and the completion of the and ucuúba (Virola cuspidata Warb). The species center (Dall’Oglio et al., 2010). mostly utilized by the surveyed companies were 143

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