Cluster- Biofuels in Colombia of issues and Recommendation - Essay Example

While biofuel is not that clean as a source of energy, it can be readily produced in many areas with the right ingredients. In South America and Caribbean countries, Columbia is among the major producers of biofuel, but falls behind Argentina, Brazil, and Chile (Kyritsis 2001). Therefore, the biofuel industry continues to develop and become internationally competitive, though there are issues towards global competitiveness as discussed below. To analyze the issues in biofuel industry in Columbia, key lessons have been drawn from Michael Porter’s Cluster Diamond Model for analyzing competitiveness of industries or countries.

According to Porter, there are four determinants of competiveness. One is a factor condition that involves analysis of a cluster’s factors of production and underlying natural resources. Two, demand conditions at home for the products and services with focus on sophistication and bargaining power of the buyers. Three, availability of related and supporting industries that are globally competitive for a cluster to enjoy economies of scale. Four, firm strategy, structures and rivalry, and how it impacts on the overall competiveness of firms.

More often, the influence of government in providing an enabling business environment is often added to this diamond (Rugman, 1996). The cluster competiveness analysis will be carried out along the five main factors. Assessment of supply factors in biofuel in Colombia shows that the country just like Guatemala has available residue for biofuel production (Kyritsis 2001). Bagasse mainly from sugarcane is available in large quantities to support mass production of bio-ethanol and biomass power production.

Availability of farm land and plenty of feed stock due to large sugarcane production provides the necessary raw materials for production of biofuel. In addition, sugarcane factories and farms are concentrated within short distances meaning that cost of sourcing raw materials for biofuel production is lower, making the commodity more competitive than fossil fuel. Support from sugarcane industries has helped independent biofuel producers. Availability of skilled manpower and research institutions is also a major boost as new methods and techniques keep on being generated.

For example, improved production technologies have helped to increase efficiency in biomass conversion into ethanol and power generation in most factories across Colombia. Demand for biofuel in Columbia has continued to rise due to its wide applications in motor fuel. Analysts view the industry as perfectly elastic, with possibilities of growing bigger, given that only a small percentage of the fuel is being produced currently (Vertes et al., 2011). Competition from fossil fuel will also determine its growth trajectory; hikes in fuel prices will propel demand for biofuel and vice versa.

The increased demand will trigger demand for corn, leading to an increase in corn prices. This move is expected to make biofuel producers to continue producing as long as they can make normal profit. Energy needs in transport related technologies have fuelled demand for biofuel, which has ended up attracting investments within and from outside the country. However, market analysts view the drive towards biofuel production as being politically motivated than being driven by market forces. Countries are seeking energy sovereignty to be in some control over energy prices.

However, in either way, demand has