The export price of Argentine soyoil has plummeted 21 percent so far this year, due to new European biodiesel tariffs, putting one of the country's key industries at risk at a time of uncertainty in Latin America's third biggest economy.

With annual inflation running at 25 percent and investment flows reduced by confidence-sucking foreign exchange and import controls, the government needs all the farm-related tax revenue it can get.

Argentina is the world's top exporter of soyoil, which is used to make biodiesel. Argentina's biodiesel manufacturers are operating at only 35 percent capacity due to European import tariffs that followed a 2012 increase in Argentine biodiesel export taxes.

The local price of port-side soyoil is at around $900 per tonne, 13 percent less than that paid on the benchmark Chicago futures market.

"All the soyoil that is not converted into making biodiesel has to be sold on the international market," said Luis Zubizarreta, head of Argentina's Carbio biofuels exporters' chamber.

"We have more and more raw soyoil to sell, so we are going to have to start competing in new export markets that consume less expensive vegetable oils such as palm oil," he added.

Carbio represents major biodiesel processors like Cargill , Bunge, Glencore and Noble. These companies helped the world's No. 1 biodiesel supplier export 1.6 million tonnes of the biofuel last year, worth between $1.8 billion and $1.9 billion.

Argentina's soyoil processing industry is now working at 75 percent capacity "when idle capacity really shouldn't be more than 10 or 15 percent," said Andres Alcaraz, spokesman for the country's CIARA-CEC grains export chamber.

Argentina's biodiesel industry can produce 4 million tonnes per year, but in 2012 it processed only 2.4 million tonnes, about the same as in 2011. Output was curtailed both years by lower demand from economically ailing Europe, Argentina's main biodiesel customer.

Europe's economy is slowly recovering and may crawl out of recession by the end of this year. But the European Union has meanwhile imposed punitive duties on imports of biodiesel from Argentina and Indonesia after charging both countries with selling at unfairly low prices.

Industry sources say Argentine biodiesel production could sink to 1.2 million tonnes in 2013. Exports of the product fell almost 50 percent year on year in the first quarter due in part to the anti-dumping investigation opened by Brussels in 2012.

When the new duties were imposed in May of this year, Argentina denounced them as a "protectionist" response to Europe's own inefficiency.

Argentina is also the world's No. 3 exporter of soybeans and corn. But President Cristina Fernandez, re-elected in 2011 on promises of increasing government's role in the economy, stresses the need to develop value-added export industries such as soyoil and soymeal livestock feed.

Rather than being satisfied with importing South American soyoil and meal, China is investing in more crushing plants to convert soybeans into these derivative products on its own soil. This poses another threat to Argentina's domestic crushing industries.

Argentina's soyoil sales to China amounted to 31,300 tonnes in the first quarter versus 47,198 tonnes in the same 2012 period. Sale of raw Argentine beans to China increase by 66 percent in the same time frame.

"China was once a great buyer of Argentina soyoil," said Rogelio Ponton, an analyst with the Rosario grains exchange. "Now they are crushing their own."