**3. Industry and state policies**

370 Soybean Physiology and Biochemistry

With respect to the geographical location, the soybean cultivated area is situated in 15 (fifteen) productive provinces. However, 85% of the cultivated area is concentrated on the traditional "pampeanas" provinces that generates 88% of the national production (Córdoba, Buenos Aires and Santa Fe provide 78% of the total production) whereas 15% of the remaining area corresponds to Northwester and Northeaster provinces. Map 1 shows the

> **Period 3 1990/91-1996/97**

> > 10,08%

70s 80s 90s 2000/2001 -

Decade

13 As mentioned, the shift of the agricultural frontier has generated the substitution of crops (sorghums, corn, cotton among others) and cattle livestock for soybean as well as the spreading of soybean over the

Fig. 3. Argentina Soybean. Average Yields (kg/hectare) and growth rate (%). 70, 80, 90

Map 1. Evolution of the space distribution of the soybean cultivated area (Brieva, 2006).

Considering the yields, Figure 3 shows that they have increased continuously, from 1.4

**Period 4 1997/98-2004/05** 

18,20%

2009/2010


200

700

1200

Kg

1700

2200

2700

<sup>2592</sup> <sup>2193</sup>

shift of the agricultural frontier13.

**Period 1 1966/67-1976/77** 

0%

decades and 2000/01 – 2009/10 period.

10%

20%

30%

Rate

native forest.

40%

50%

60%

**Period 2 1977/78-1989/90** 

tons/ha in the seventies, to 2.6 tons/ha in the first decade of 2000.

1442

Growth rate Average Yield 38,09%

1992

In the stage of first industrialization or milling, the productions of raw oil and meal are technologically associated, and therefore they are produced in the same industrial plants. Most part of the grain production in Argentina is oriented to milling, with a percentage that varies from 76% to 80% of the total production; approximately 18% of soybean beans is exported without processing and the rest is used for direct consumption, as seeds for sowing or for other purposes (bread, cookies, snacks, peanut butter, bird food, etc).

The industrialization process begins with the milling and extraction of oil. After going through drying - to remove humidity – and cleaning processes, the grain is broken and pressed in small sheets, which being transformed into a dough, move on to the extraction process. The remaining dough, after being dried and toasted, forms the protein meal used in the manufacture of animal feed. The gum can be used in the production of soybean lecithin or can be added to the meal in order to obtain different of protein tenors. Through a hydrogenation process, the partially refined oil can be transformed into margarine, mayonnaise and vegetable fats. Some companies integrate vertically these industrial stages.

As other grains with a low oil component, soybean oil is extracted with hexane. The solvent –a petroleum product- impregnated with oil is then separated by evaporation, and goes through a gum elimination system (degummed) to reach the stage of raw oil (Giancola *et al*., 2010). A soybean yields 19% oil, 73% meal, 7% shell and 1% others (ashes, etc.), these values may vary depending on the drying and de-shelling degrees14.

The manufactured products15 are distinguished in two segments: **commodities** (for exportation and domestic market), which include raw and refined oil in bulk and meal for animals, and **speciallities** of higher added value for the final consumption of food and other uses. Some companies are present in both segments. The refined oil, apart from its direct consumption (pure or in blends) has several uses, such as margarine, mayonnaise, non edible intermediate products (candles, cosmetics, soap, paint and fine chemicals, animal food, soybean lecithin), hydrogenated vegetable fats (used in cookies, bread, ice-cream, etc), soybean derivatives for human consumption (Gutman and Lavarello, 2003). Regarding non edible uses and oriented to the chemical industry, oil and vegetable fats have similar characteristics to the petroleum ones and can be used for plastics, adhesives, solvents, lubricants, etc.

Another derived product is biodiesel. Compared to other traditional hydrocarbons, biodiesel has several advantages: it comes from a renewable product and has little environmental impact, but it also has disadvantages, being its high cost the main limitation. Biodiesel installed capacity of production is to 2.43 million tons – reaching 3 million tons by the year 2011. In 2010, 1.9 million biodiesel tons were refined and almost 1.4 tons were exported. The 500,000 remaining tons were used in the domestic market for the diesel cut.

In April 2006, Act 26093 established the rules for the regulation and promotion16 for Production and Sustainable Use of Bio Fuels for a period of 15 years. This Law establishes that the gasoline and diesel commercialized within Argentina shall be mixed in an oil

<sup>14 4</sup> tons of flour are obtained from each ton of oil.

<sup>15</sup> The industrial processing generates byproducts that have more restricted but dynamic markets, many of which are not developed enough in Argentina.

<sup>16</sup> The Law gives encouragement for investment through fiscal incentives.

distillery or refinery with 5 % - as minimum – of bio ethanol and biodiesel, respectively from 01/01/2010 on. For the year 2010, the quantity of biodiesel necessary for the 5 %17 cut was calculated in 625,000 tons, which imply 650,000 tons of oil.

Likewise, the biodiesel industry that is developing in Argentina has a strong orientation towards the foreign market18. In Argentina, there are major incentives for the biodiesel exportation as a result of the way in which export duties of the soybean complex are structured. In this respect, the biodiesel exportation must pay 20 % of export duties whereas soybean oil (its main supply) and soybean pay 32 % and 35 % respectively19. Thus, there is a gain of competitiveness for biodiesel that comes from the efficiency in the previous links of the chain. In addition, biodiesel obtains a reimbursement of 2.5 % upon the export price, with which the competitiveness reached by the export duties structure is reinforced.

Finally, it is worth mentioning that it is currently spreading the building of small extruding facilities in farms that produce soybean. This allows to obtain oil for its use as biodiesel and protein meal for cattle feeding, adding value to thier soybean production through horizontal and vertical integration

#### **3.1 Milling capacity**

Milling is the most important destination of the primary production of soybean. While in the eigthies 71 % of the grain production was assigned to milling, in the 90 decade this percentage increased to 77 % and reached 84 % in the first 2000 decade. In the 2008 and 2009 periods, there was a 20% fall in industrialization (30 million tons average) which can be explained mainly by the decrease in the grain production due to reasons pointed earlier. In the year 2010, the milling reached 34 million tons, similar values to those of the year 2007. This volume represented 98% of the soybean supply.

In the last years, the crushing capacity grew basically in the province of Santa Fe (at an average rate of 14.4 %) while in the provinces of Buenos Aires, Córdoba and Entre Ríos it remained practically constant (CIARA, 2011). In the year 2010, soybean crushing in Argentina reached 36,824,628 tons, which implies 92% of the total milling of the country (39,898,017 tons20. In 1986, the soybean milling share of the total milling was 50%. (CIARA, 2011).

The increasing crushing capacity in Argentina is also reflected in the world market. In the last two decades, the world milling has grown at an annual rate of 4.5 %. In the same way, the soybean world production is destined mainly to milling (98 %) reaching 200 million tons (2009/2010)(USDA, 2010). The main countries processing soybean are also the main grain producers: U.S.A. Brazil, Argentina, China. Currently, this latter country – which specially has the goal to increase the soybean added value – contributes 21 % of the world milling. This is the reason of the strong grain importation from overseas.

<sup>17</sup> The national government established that the cut shall be 7 % since 2011.

<sup>18</sup> Nine plants have been authorized to export (2008), 5 of which come from investments made in the oil sector, the rest come from non agro-industrial sectors. The main refineries are: Renova, Louis Dreyfus, Unitec Bio, Patagonia Bioenergía, Ecofuel, Cargill and Aceitera General Deheza. CARBIO (Argentine Chamber of Biofuels, 2011).

<sup>19</sup> The export duties of grain and byproducts had been applied in previous times, as in the eighties (15 % and 41 % for grain) and nineties (3.5 % for grain).

<sup>20</sup> The crushing capacity in Argentina amounts to more than 57 million tons. (2010)

### **3.2 Oil and meal production**

372 Soybean Physiology and Biochemistry

distillery or refinery with 5 % - as minimum – of bio ethanol and biodiesel, respectively from 01/01/2010 on. For the year 2010, the quantity of biodiesel necessary for the 5 %17 cut was

Likewise, the biodiesel industry that is developing in Argentina has a strong orientation towards the foreign market18. In Argentina, there are major incentives for the biodiesel exportation as a result of the way in which export duties of the soybean complex are structured. In this respect, the biodiesel exportation must pay 20 % of export duties whereas soybean oil (its main supply) and soybean pay 32 % and 35 % respectively19. Thus, there is a gain of competitiveness for biodiesel that comes from the efficiency in the previous links of the chain. In addition, biodiesel obtains a reimbursement of 2.5 % upon the export price, with which the competitiveness reached by the export duties structure is

Finally, it is worth mentioning that it is currently spreading the building of small extruding facilities in farms that produce soybean. This allows to obtain oil for its use as biodiesel and protein meal for cattle feeding, adding value to thier soybean production through horizontal

Milling is the most important destination of the primary production of soybean. While in the eigthies 71 % of the grain production was assigned to milling, in the 90 decade this percentage increased to 77 % and reached 84 % in the first 2000 decade. In the 2008 and 2009 periods, there was a 20% fall in industrialization (30 million tons average) which can be explained mainly by the decrease in the grain production due to reasons pointed earlier. In the year 2010, the milling reached 34 million tons, similar values to those of the year 2007.

In the last years, the crushing capacity grew basically in the province of Santa Fe (at an average rate of 14.4 %) while in the provinces of Buenos Aires, Córdoba and Entre Ríos it remained practically constant (CIARA, 2011). In the year 2010, soybean crushing in Argentina reached 36,824,628 tons, which implies 92% of the total milling of the country (39,898,017 tons20. In 1986, the soybean milling share of the total milling was 50%.

The increasing crushing capacity in Argentina is also reflected in the world market. In the last two decades, the world milling has grown at an annual rate of 4.5 %. In the same way, the soybean world production is destined mainly to milling (98 %) reaching 200 million tons (2009/2010)(USDA, 2010). The main countries processing soybean are also the main grain producers: U.S.A. Brazil, Argentina, China. Currently, this latter country – which specially has the goal to increase the soybean added value – contributes 21 % of the world milling.

<sup>18</sup> Nine plants have been authorized to export (2008), 5 of which come from investments made in the oil sector, the rest come from non agro-industrial sectors. The main refineries are: Renova, Louis Dreyfus, Unitec Bio, Patagonia Bioenergía, Ecofuel, Cargill and Aceitera General Deheza. CARBIO (Argentine

19 The export duties of grain and byproducts had been applied in previous times, as in the eighties (15 %

calculated in 625,000 tons, which imply 650,000 tons of oil.

This volume represented 98% of the soybean supply.

This is the reason of the strong grain importation from overseas.

<sup>17</sup> The national government established that the cut shall be 7 % since 2011.

<sup>20</sup> The crushing capacity in Argentina amounts to more than 57 million tons. (2010)

reinforced.

and vertical integration

**3.1 Milling capacity** 

(CIARA, 2011).

Chamber of Biofuels, 2011).

and 41 % for grain) and nineties (3.5 % for grain).

Soybean oil production reached 41 million tons, being the main producing countries: China, (10,3 million tons), U.S.A, Brazil and Argentina. Argentina produces 7,3 million tons (2009) and participates approximately with 18 % of the world production.

Argentina has 54 oil producing plants which are distributed in 8 provinces. Thirty-nine of these plants process soybean bean with a theoretic capacity of 160,000tons in 24 hours (CIARA, 2011). Fifty-six percent of the plants that concentrate 84 % of the processing theoretic processing capacity, operate in areas close to shipment centers in the Province of Santa Fe, since the production is oriented to exportation. The processing plants are supplied with soybean within a radius smaller than 300 km, which results in low freight cost. This closeness between primary production and transforming industry generates a major competitive advantage.

Analyzing Table 1, we can see that whereas in the 70 decade, the soybean oil production participated in 8.5% of total elaborated oil of the country, in the 2000/2004 period this participation increased to 71.88%. In 2009, soybean oil participation in Argentina reached 5,771,812 tons, thus participating 79% of the total elaborated oil (7,302,493 tons). Considering the geographical location, the province of Santa Fe elaborated more than 90% (2008/09) of soybean oil total production.


Table 1. Argentina. Total Oil and Soybean Oil Production (tons). Soybean Participation (%) in the Oil Total. Periods Selected.

The development of the Argentine oil industry was parallel to the growth of the soybean primary production. According to Obschatko (1997) and Civitaresi and Granato (2003) the main factors were: the increase21 in the international prices of oil and meal, impelled by the increase in the world consumption and the fluent grain supply (raw material) -at an international level-, and the reduction of taxes for the exports of oil and the application of a lien differential for grain and oil –at national level. The latter measure was fundamental for the development of the industry, according to Obschatko (1997)- in order to prevent the industry from having problems for raw material supply, the National State

 21 In the nineties, international prices decreased due to the lower demand by Asian countries and higher presence of other substitute oils. All this took place in a context of strong market distortions due to protectionism mostly inin developed countries.

implemented an effective differential exchange rate for grain, oil and byproducts. Between 1976 and 1990, the differential of export duties between grain and milling products (highly praised) varied between 5.9 and 13.6 %. This measure favored the exportation of oil and meal by reducing the cost of the raw material with respect to the international market prices.

At an industrial level, the investment made in this sector as regards technology was complemented with the availability of technology from developed countries- that is the case of the Dutch enterprise (De Smet), which introduced in Argentina the technology of oil extraction by solvent. Likewise, the companies of the industrial link increased the production scale: they specialized in soybean and sunflower; they re-located in the province of Santa Fe –thus combining the closeness to the exportation ports (Rosario) and the sources of raw material supply. Finally, industry integrated forwards by building dock22 and storage facilities. This process was intensified in the nineties. At a National State level, the tax pressure on the marketing sectors was reduced, the services related to trading activity were deregulated, public ports were privatized and new ports were built. In addition, there were investments for the sweeping and beaconing of the *Paraná* and *Río de la Plata* fluvial corridor23 (Civitaresi and Granato, 2003).

Soybean processing is concentrated in six companies: Bunge, Cargill, Vicentín, Molinos Río de la Plata, Dreyfus, Aceitera General Deheza, which control more than 87 % of the total capacity. These companies have a modern and efficient port infrastructure of their own and an extended supply net spread throughout the entire country24. The oilseeds industry employ 10,000 people. In Table 2, it is identified the number of plants that each of the companies owns as well as the annual processing capacity.


Source: Schvarzer and Tavosnasnka (2007)

Table 2. Argentina. Oil Factories by Company.

<sup>22</sup> In 1977, private companies were allowed to set up fluvial ports.

<sup>23</sup> This corridor is fundamental for the transportation of the grain production from Córdoba and Santa Fe, first and second producing provinces of soybeans.

<sup>24</sup> As regards the production of refined oil, 5 companies have 80 % of the production, 4 companies have 80 % of the margarine production and three companies have 80 % of the mayonnaise production.

At a world level, and according to USDA data, the production of soybean meal was approximately 177 million tons (2009/10), being the main producers: China, (25.7% of the total produced), U.S.A., Argentina (17% of the world production) and Brazil. These four countries concentrate 78% of total production (USDA, 2010).

The soybean meal share of total manufactured meal in Argentina has been higher than oil. Thus, whereas soybean meal was 20.87% of the total output in the seventies, this percentage reached 91.1% in the 2000/04 period (Table 3). In 2009, the soybean meal production was approximately 23 million tons from a total of 25,520,000 tons of manufactured meal. As in the case of oil Santa Fe province produces 93% of total soybean meal (2009).


Source: CIARA (2010)

374 Soybean Physiology and Biochemistry

implemented an effective differential exchange rate for grain, oil and byproducts. Between 1976 and 1990, the differential of export duties between grain and milling products (highly praised) varied between 5.9 and 13.6 %. This measure favored the exportation of oil and meal by reducing the cost of the raw material with respect to the

At an industrial level, the investment made in this sector as regards technology was complemented with the availability of technology from developed countries- that is the case of the Dutch enterprise (De Smet), which introduced in Argentina the technology of oil extraction by solvent. Likewise, the companies of the industrial link increased the production scale: they specialized in soybean and sunflower; they re-located in the province of Santa Fe –thus combining the closeness to the exportation ports (Rosario) and the sources of raw material supply. Finally, industry integrated forwards by building dock22 and storage facilities. This process was intensified in the nineties. At a National State level, the tax pressure on the marketing sectors was reduced, the services related to trading activity were deregulated, public ports were privatized and new ports were built. In addition, there were investments for the sweeping and beaconing of the *Paraná* and *Río de la Plata* fluvial

Soybean processing is concentrated in six companies: Bunge, Cargill, Vicentín, Molinos Río de la Plata, Dreyfus, Aceitera General Deheza, which control more than 87 % of the total capacity. These companies have a modern and efficient port infrastructure of their own and an extended supply net spread throughout the entire country24. The oilseeds industry employ 10,000 people. In Table 2, it is identified the number of plants that each of the

> Total capacity Largest capacity Ton/year % Facility (ton/year)

international market prices.

corridor23 (Civitaresi and Granato, 2003).

Source: Schvarzer and Tavosnasnka (2007)

Table 2. Argentina. Oil Factories by Company.

Fe, first and second producing provinces of soybeans.

22 In 1977, private companies were allowed to set up fluvial ports.

companies owns as well as the annual processing capacity.

Facilities

Others 20 2.467.500 5.3

Bunge 5 8.220.000 17.8 2.550.000 Cargill 4 7.710.000 16.7 3.900.000 Vicentín 3 6.555.000 14.2 3.000.000 Molinos Río de la Plata 3 6.195.000 13.4 3.600.000 Dreyfus 2 6.000.000 13 3.600.000 Aceitera Gral. Deheza 4 5.700.000 12.3 2.550.000 Buyati 2 1.440.000 3.1 1.005.000 Nidera 2 1.260.000 2.7 660.000 OMHSA 2 705.000 1.5 405.000

Total 47 46.252.500 100 3.900.000

23 This corridor is fundamental for the transportation of the grain production from Córdoba and Santa

24 As regards the production of refined oil, 5 companies have 80 % of the production, 4 companies have 80 % of the margarine production and three companies have 80 % of the mayonnaise production.

Company Number of

Table 3. Argentina. Total Output of meal (tons) and of soybean meal and Participation (%) in the Total Output of meal. Periods selected.
