Brazilian miner Vale signs $500M palm oil deal in the Amazon

Vale, the world's largest miner of iron ore, has signed a $500 million joint venture with Biopalma da Amazonia to produce 160,000 metric tons of palm oil-based biodiesel per year, reports Reuters.

Vale says the deal will save $150 million in fuel costs starting in 2014, with palm oil biodiesel replacing up to 20 percent of diesel consumption in the company's northern operations. The biodiesel will be produced from oil palm plantations in the Amazon state of Pará.

In a statement announcing the venture, Vale's Director of Energy Vania Somavilla noted that "making biodiesel from palm oil is ten times more productive than making it from soy," making it a significantly cheaper source of biofuel.

As the world's highest yielding mass market oilseed, palm oil will likely offer better financial returns than cattle ranching and mechanized soy farms, the dominant agricultural activities in Brazilian Amazon, and will employ larger numbers of people (oil palm plantations may employ roughly one worker per 8-10 ha, whereas a single cowboy can handle 4,000-5,000 head of cattle grazing hundreds to thousands of hectares of land). Therefore, provided technical and logistical hurdles can be overcome, oil palm is poised to become an important new form of land use in the Brazil Amazon. But limiting oil palm expansion to abandoned agricultural lands could offer producers a more effective way to sustainably meet growing demand for vegetable oils than with other oilseeds. Environmentalists are most concerned by palm oil production that comes at the cost of carbon-dense and biologically-rich rainforests and peatlands, rather than degraded croplands.

The move is likely to stir up criticism from environmentalists that fear palm oil production could soon become a major driver of deforestation in the region. Cultivation of oil palm is a leading cause of forest loss across Southeast Asia, but has yet to be widely planted in the Brazilian Amazon, where deforestation is mostly driven directly by conversion for cattle pasture expansion and indirectly by expansion of industrial agriculture, including soy.

Pressure from green groups may have contributed to last month's decision by Felda, Malaysia's land development agency, to pull out of its joint venture with Braspalma to develop 100,000 hectares of oil palm plantations in the heart of the Amazon. The project would have been one of the largest in Brazil. Currently palm oil production is dominated by Agropalma, which accounts for roughly three-quarters of the market, followed by Dendê do Pará S/A (Denpasa), Marborges Agroindústria of Moju, Pará, and other small producers.

According to the U.S. Depart of Agriculture, Brazil presently produces roughly 110,000 tons of crude palm oil per year, but pending legislation would create new incentives for land owners to increase plantings. Brazilian lawmakers are weighing a law that would allow landowners to count plantations as forest towards their legal forest reserve requirement. By law landowners in the legal Amazon must retain 80 percent forest cover on their holdings.

The potential for palm oil plantations in the Brazilian Amazon is vast: scientists at the Woods Hole Research Center estimate that 2.283 million square kilometers (881,000 sq miles) of forest land in the region is suitable for oil palm, an area far greater in extent than that which could be converted for soy (390,000 sq km) and sugar cane (1.988 million sq km), the dominant biofuel feedstocks in Brazil.

In addition to the potential change in the legal reserve requirement, oil palm expansion in the Amazon will likely be facilitated by infrastructure projects currently underway in these region, including road-building, port expansion, and new hydroelectric projects.