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.
Nearly 95 percent of the 1 billion liters of biodiesel produced per year is made from cow fat and soybean oil, both less energy efficient and made by big farm businesses.
"If we are not careful, biodiesel will generate the same concentration of wealth that ethanol did over the decades," said Erico Sampaio Souza, head of a Bahia farm cooperative.
Small farmers lack credit and know-how, he said.
The supply of premium raw materials has been erratic. Last year Ecodiesel was left empty-handed as farmers ignored a contract and sold part of their castor beans to the higher-bidding chemical industry.
Authorities are eager to downplay the environmental impact of biofuels. Crops for biodiesel and ethanol together occupy only 13.59 million acres, under 2 percent of all farm and cattle land, they say.
"The impact on the environment or food prices is negligible," said Ricardo Dornelles, director of renewable fuels at the energy ministry.
He says there are 224.9 million acres of unused farmland. Still, farmers and cattle ranchers help cut down country-sized chunks of the Amazon every year. They are driven by high commodity prices, the environment ministry says.
An increase of biofuels is likely to put additional pressure on land and commodity prices, forcing farmers deeper into the Amazon forest in search of cheaper land, critics said.
"It amazes me how authorities say biofuels don't affect the Amazon -- of course there's a relation," said Paulo Barreto, coordinator at the Amazon Environmental Research Institute.
Increased cane growing for ethanol in Sao Paulo has helped push less profitable cattle ranching north and biodiesel could do the same, Barreto said.
"Brazil is not ready for a biofuels boom," he said.
Still, with policy corrections, biofuels may still be viable in Brazil, said Luis Laranja, farm and environment coordinator with WWF Brasil.
If Brazil's cattle industry, were to increase its low productivity by only 10 percent, it would free up 20 million hectares (49 million acres) for biofuels, he said.
"With more controls in the Amazon and more rational land use, 'planting fuels' could be good for Brazil's economy and the global climate," Laranja said.
Editing by Jackie Frank