Brazil biodiesel sputters on social, green goals

By Raymond Colitt

IRAQUARA, Brazil (Reuters) - Booming demand for biodiesel has become a lifeline for some poor farmers who plant oil seeds in Brazil's dry northeast but critics say the fuel is not as clean, equitable and bountiful as the government boasts.

"Nobody ever wanted this stuff and now they can't get enough," farmer Joel Queiroz said of the drought-resistant castor beans he sells to a biodiesel refinery in Iraquara, 310 miles west of the Bahia state capital, Salvador.

Investors, including many foreigners, have flocked to Brazil's vast hinterland with its large farm potential and highly competitive production costs to produce biofuels.

"Brazil is the new Saudi Arabia," said Ricardo Alonso, plant manager of biofuel maker Ecodiesel in Iraquara.

The refinery's tall steel structure and the sleek 36-wheel tanker trucks parked outside are a stark contrast to the crumbling adobe shacks of local peasants.

President Luiz Inacio Lula da Silva billed the biodiesel program he launched in 2004 as a key to slashing poverty and slowing global warming.

Diesel sold to motorists contains 2 percent of biodiesel. That ratio will increase to 3 percent in July and eventually 5 percent. Brazil is already the largest exporter of ethanol, which it derives from sugar cane, and Lula wants biodiesel to follow suit.

But the second generation biofuel is not as propitious as the government would have it.