Biofuels production in Uruguay: an exception that proves the rule?

11 December 2012

The Uruguayan state-owned biofuels enterprise ALUR challenges many assumptions about the societal implications of biofuels production, as it supports local livelihoods, protects the environment, and is rooted in principles of social inclusion and national sovereignty.

Alcohols of Uruguay, ALUR, is a new state-controlled enterprise jointly owned by the national oil companies of Uruguay (ANCAP, 90%) and Venezuela (PDVSA, 10%). Since its creation in 2006, ALUR has successfully implemented an ambitious development programme focused on the integrated production of biofuels (bioethanol and biodiesel), food (sugar), cattle feed, and biomass electricity generation.
The creation of the company has reflected substantial changes in public policy in line with the country's progressive government commitments to renewable energy, diversification of economic production, scientific and technological innovation, and social inclusion.

The case of ALUR challenges many assumptions about the societal and policy implications of the production of biofuels (or agrofuels, using the expression popularised by its critics). The state-led Uruguayan experience seems to be highly atypical, as it supports local livelihoods, protects the environment, and is rooted in principles of social inclusion and national sovereignty.

While the international empirical evidence shows that the production of biofuels is too often geared to serve the needs of the North to the detriment of the rural poor in the South, the results of ALUR seems to be the opposite. There has been no expansion of the agrarian frontier, as the land used for the production of biofuels had been already used for many decades for cultivating sugar and starch crops. ALUR has not triggered radical changes in land use or land property relations, and has not undermined ecosystems or local communities’ social welfare.

Moreover, the expansion of ALUR’s production has not caused a damaging effect on basic food prices, not led to competition between biofuels and food production for the best land and water resources, and has not relied on exploitative labour conditions.

ALUR’s public mission is: “To develop agribusiness initiatives from a comprehensive managerial perspective, based on the biorefinery concept and the integration of diverse productive processes aimed at increasing Uruguay’s food and energy sovereignty, boosting the country's development, generating new employment opportunities and strengthening local capacities”.

The company’s trajectory has combined economic progress with environmental sustainability and social development initiatives. During the past eight years, ALUR’s social and economic impact has been particularly evident in Bella Union, a town in the northern region traditionally linked to sugarcane production and with historically high rates of poverty and social exclusion. ALUR´s operations in the region have had a direct effect on the quality of life of its inhabitants. The new jobs created by ALUR, coupled with national social policies, have helped reduce the infant mortality rate in Bella Union from 29.9 per1,000 births a decade ago to 10.5 per 1,000 births today.

The launch of ALUR has enabled a much more substantial state role in the creation and development of innovative agro-industrial chains.

The launch of ALUR has enabled a much more substantial state role in the creation and development of innovative agro-industrial chains. When the leftist Broad Front coalition took office in 2004, the promotion of sugar production in Uruguay had been already discarded as a policy option by previous neoliberal governments, based on the supposedly lack of competitive advantages for domestic production and the lower cost of imports.

When ALUR reinitiated sugarcane production, the land dedicated to this crop around Bella Union had been reduced to approximately 150 hectares, controlled by 150 producers. In 2012, sugarcane plantations cover 8,000 hectares grown by more than 400 producers, including low-income settlers and cooperative enterprises that have received financial support and land tenure certificates from the government.

Besides its sugarcane factory in Bella Union, ALUR has decentralised its production to other cities, with industrial plants being built in Montevideo and Paysandú. ALUR relies on the industrialisation of locally produced crops such as sugarcane, sorghum, maize, barley and wheat. At present, approximately 4,000 people work directly or indirectly for ALUR. As far as environmental sustainability is concerned, the company has invested in state-of-the-art non-polluting technology, the treatment of liquid or solid effluents, reduced water consumption and efficient energy use.

ALUR is also contributing to increase Uruguay’s energy security. The government expects that by 2015 ALUR’s production will make possible to replace around 10% of the national consumption of hydrocarbons with biofuels, which will also save the country US$ 170 million in imported fossil fuels.

Researchers based at Uruguay’s University of the Republic have concluded that land availability for the production of biofuels in the country is not a problem. They estimate that Uruguay's theoretical maximum capacity for biofuel crops is 800,000 hectares, which could enable the substitution of up to 25% of gasoline consumption , and up to 36% of diesel consumption, without affecting the size and quality of food crops production and without negative impacts on price or food sovereignty.

This estimation is based on the continuous use of agrarian techniques aimed at preserving the current capacity of production, without the introduction of more intensive processes that might lead to soil degradation and other environmental problems. In this context, the possibilities for Uruguay to become an exporter of biofuels, as suggested by some government officials, do not seem realistic, at least with the current patterns of agrarian production.

The 2011 financial year closed for the first time with a positive balance.

The government often portrays ALUR as the ‘flagship’ of the ‘new productive model’ proposed by the left. The political opposition (centre-right parties) have criticised the supposedly wasteful subsidies that the state has provided to ALUR during the past eight years. The audited data released by the company, however, shows that ALUR is already reaching the point of financial equilibrium. After reporting a loss of US$ 8.4 million in 2010, the 2011 financial year closed for the first time with a positive balance.

At present, sugar represents close to a third of the total revenues, but the share of biofuels in the financial balance is increasing steadily. The figures from 2011 show that sugar accounted for 29% of the company´s annual income, ethanol 29.5%, biodiesel 29%, cattle feed (protein meals) 13%, and electricity generation 0.5%. The company’s projections for 2015 foresee that biofuels will constitute 63% of the annual sales, while cattle feed will represent 25%, and sugar and related products the remaining 12%. The company’s directors estimate that by 2015 the total sales of ALUR will increase to US$ 320 million.

The gross turnover of the company in 2011 was US$ 116.6 million, which represented a 41% increase from the US$ 82.6 million registered in 2010. Independent analysts predict that the profit will continue to increase as the installed capacity for biofuel production expands.

Nevertheless, ALUR’s critics denounce the alleged absence of clear information about the resources that ANCAP and PDVSA have effectively invested in the company. According to the financial data published by ALUR, until 2011, the investments of the major shareholder (ANCAP, the Uruguay oil company) had totalled US$ 98.9 million, while the junior partner (PDVSA, the Venezuelan oil company) had invested US$ 8 million. The main controversy refers to ALUR’s real level of indebtedness vis-à-vis public and private banks.

In short, the experience of ALUR demonstrates the positive role that a public enterprise can play in stimulating economic growth and social development. It is a case that deserves to be researched in greater detail, as it can provide relevant lessons for other state-owned companies around the world.

The future development of ALUR as a successful public enterprise relies on strengthening the Uruguayan state’s capacity to be in charge of all stages of production of biofuels, from the supply of raw materials to the management and administration of industrial and commercial processes. It also means preventing transnational corporations taking control of the sector, as has happened in many countries of the South.


Photo credit: Thomas Milne