Biofuel startup Amyris Biotechnologies announced Wednesday that it has teamed up with Brazilian ethanol distributor Crystalsev to bring what it claims will be the first sugarcane-derived diesel to the market.

Using Amyris’ technology, the newly minted joint venture, Amyris-Crystalsev Pesquisa e Desenvolvimento de Biocombustiveis, will work with Brazilian sugarcane mills and fuel producers to produce biodiesel.

Emeryville, Calif.-based Amyris has a majority stake in the company. Biodiesel producers have traditionally used materials soy and rapeseed, while sugar has generally been the domain of ethanol. Amyris’ technology has the potential to make biofuels from nonfood, or cellulosic, parts of crops, but this project is using sugar – one of the easiest materials to turn into fuel. Among other customers, the company hopes to target ethanol producers that also want to make biofuel at their plants.

Amyris also said that concerns about potential competition with food played into its decision to start production in Brazil, which has a large supply of sugarcane.

“Overall, it’s wise to be concerned” about food supply and environmental issues, said Jeryl Hilleman, chief financial officer of Amyris. “We believe there is enough sugarcane available for our near-term production goals without affecting the food supply.”

Hilleman also said that Brazil could expand its sugarcane fields without disturbing sensitive land areas by tapping land such as depleted pastures.

Amyris-Crystalsev plans to begin commercial production in 2010 and expects to make about 10 million gallons of biodiesel in its first year. The occasion will also mark Amyris’ first commercial biofuel plant.

The goal is to use Amyris’ technology to produce biodiesel that is competitive with oil prices of about $55 to $60 a barrel, said Hilleman.

Santelisa Vale, the second-largest ethanol and sugar producer in Brazil and majority owner of Crystalsev, also is getting in on the action.

In a separate agreement, Santelisa Vale said it will supply Amyris-Crystalsev with mills capable of crushing 2 million tons of sugarcane, which equates to about 25 to 30 million gallons of biofuel a year.

Amyris’ technology is unusual in that it comes from a nonprofit project to produce lower-cost anti-malarial drugs. The company has reengineered the microorganism-based technology to create biofuels from renewable feedstocks, including sugarcane, corn and cellulose.

Aside from biodiesel, Amyris said the joint venture also hopes to develop jet fuel and gasoline.

To advance such efforts, Amyris-Crystalsev plans to open a research and testing facility in Brazil that will house a renewable-fuels pilot plant.

Still, the joint venture – along with the industry as a whole – will have to contend with the continuing debate about whether biofuel could be damaging the environment and competing with the food supply.

Among the latest folks to add their two cents to the debate, fueled even further by a Time magazine story last month, is the Agricultural and Food Policy Center at Texas A&M University.

Earlier this month, university researchers published a study that found the prices of corn, a key ingredient for making ethanol in the United States, have little do with rising food costs.

And on Monday, industry organization Ethanol Promotion and Information Council highlighted a recent study by the Argonne National Laboratory that showed U.S. ethanol production is improving its efficiency, with water consumption reduced by 26.6 percent and energy by 21.8 percent between 2001 and 2006.