Aldara da Silva Cesar, Mario Otavio Batalha and Luiz Fernando de O. Paulillo

Abstract The national program for production and use of biodiesel (PNPB) intends to include family farming in this sector. Oil Palm cultivation was deemed as ideal for social inclusion in Brazil’s Northern region, and the social projects linked to this production are pilot projects, with about 185 families. This study, which can be classified as multi-case, uses exploratory bibliographic and documen­tal research techniques as well as interviews with the agents inserted in the chain. The study analyzes the governance structure of the biodiesel production chain in Brazil regarding the social link of palm oil. In light of the transaction cost econom­ics (TCE) theory, this chapter analyzes three key transaction attributes between family farmers and industry, namely frequency, uncertainty, and asset specificity, all classified in this study as high ranking. The institutional environment is decisive for the inclusion of palm oil farmers included by means of formal contracts. However, the biodiesel plants located in Brazil’s Northern region—as well as those planning to begin this business—show trends to verticalize their agricultural activities. Thus, the social fuel seal (SCF) assumes its influence in the operating dynamics of that chain’s social pillar.

Keywords Palm oil • Family farming • Social fuel seal • PNPB • Biodiesel

A. da Silva Cesar (H)

GASA—Grupo de Analise de Sistemas Agroindustriais Departamento de Engenharia de Agronegocios, Universidade Federal Fluminense, Niteroi, Brazil e-mail: aldaracesar@id. uff. br

M. O. Batalha • L. F. de O. Paulillo

GEPAI—Grupo de Estudos e Pesquisas Agroindustriais Departamento de Engenharia de Produfao, Universidade Federal de Sao Carlos, Sao Carlos, Brazil e-mail: dmob@ufscar. br

L. F. de O. Paulillo e-mail: dlfp@ufscar. br

A. Domingos Padula et al. (eds.), Liquid Biofuels: Emergence, Development and Prospects, Lecture Notes in Energy 27, DOI: 10.1007/978-1-4471-6482-1_6, © Springer-Verlag London 2014

1 Introduction

The national program for production and use of biodiesel (PNPB) created a strong domestic demand for biodiesel (Pousa et al. 2007). PNPB’s most important under­taking was the enactment of Law No. 11.097/2005, in which the compulsory addi­tion of biodiesel to petroleum diesel was decreed in 2008 in Brazil (Brazil 2005). Biodiesel was incorporated into the Brazilian energy matrix in 2007 on an optional basis and mandatory in 2008 with the addition of 2 % of biodiesel to petroleum diesel (B2)—this addition is currently set at 5 %. Since then, the sector has rapidly increased in the country.

Brazil produced 2.7 million liters in 2011 and has a twofold capacity for the mandatory requirement. The federal program also established a set of policies to encourage diversification of the energy matrix, promoting the inclusion of family farmers in this sector.

The social fuel seal (SFS) was created to focus on the regional development (Garcez and Vianna 2009), and according to this mechanism, companies must provide conditions (quantity, minimum price, and technical service) via contracts to foster the relationship with small farmers. In contrast, the seal has tributary advantages (tax exemption), allowing access to the ANP Auctions, favoring better financing terms with public banks, plus serving as a positive marketing tool for the companies that have the seal.

The diversification feasibility in the production of raw materials used to manu­facture biodiesel favors Brazilian competitiveness. However, the most widely used raw material for biodiesel production in the country has been soybean. In 2012, soybean oil accounted for 75.24 % of the raw materials used by the plants, while beef tallow and cotton oilseed accounted for 17.19 and 4.53 %, respectively (ANP 2012). However, in Brazil, palm oil for biodiesel production is still very small, accounting for 0.18 % in 2012.

In Brazil, despite its limited participation in the matrix, palm oil was chosen as the ideal oilseed for the north of the country since the beginning of PNPB. Palm oil plantations enable social inclusion due to its high employment rate (one direct job is generated for every 10 ha under oil palm cultivation), with gains such as income generation for farmers, workers’ improved quality of life, inserting man­power in the field, and the expansion of local businesses (Cesar et al. 2013). However, of the 100,371 family farming establishments participating in PNPB in 2011, only 246 are located in the north of the country (0.2 %). Of these, 185 farmers are assisted with palm oil and are heavily subsidized by public actions and partnership with the company that fosters such arrangements (Brazil 2011).

Thus, in 2004, the PNPB institution definitely promoted building a productive structure and an institutional framework for the production of biodiesel in Brazil. It is important to investigate the type of governance structure undertaken by the palm biodiesel supply chain some years after the implementation of PNPB, which is a key issue in order to study the oleaginous supply from family farming, given the importance assumed by the SFS seal in the operating dynamics of this sector. Within this scope, this chapter examines the governance structure of the biodiesel

production chain in Brazil. This work is divided into five sections, including the introduction. The second section presents the methodological procedures. The third section includes some considerations about the theoretical referential. Next, the fourth section provides the research results, which are divided in the description of the fomented arrangements related to oil palm.