The Hindu Business Line : Bio-diesel demand to propel grain, oil prices higher

All these developments clearly point to the possibility of tightening availability of grains and oilseeds/oils for food purposes in the near future.

Mumbai April 30 Bio-diesel production around the world has been rising relentlessly in recent years. Firm crude prices, supply uncertainties and Government support to eco-friendly fuel have combined to boost bio-diesel capacity creation.

Global bio-diesel production is forecast to reach 7.9 million tonnes (mt) in 2007, marking an increase of 46 per cent from 5.4 mt produced in 2006 and three mt in 2005, American Soyabean Association (ASA) has said in its latest report.

Of this, European production is expected to reach 4.72 mt, up 19 per cent from 2006, while US production capacity is forecast at 2.5 mt in 2007 compared to 775,000 tonnes in 2006.

Currently, 105 plants are in production and 77 under construction.

Clearly, European bio-diesel production growth has slowed down from the high 30-40 per cent witnessed between 2002 and 2005, while US capacities have expanded three times between last year and this year.

In Europe, Germany was the largest bio-diesel producer in 2006, and increased its volume to 2.2 mt (1.5 mt).

However, introduction in the summer of 2006 of a tax at the pump, which is slated to rise in stages until 2012 to match the tax on petroleum-based diesel, is expected to lower bio-diesel sales in Germany and slow production.

The ASA also reported that Bunge, a large agribusiness corporate, has said that Europe's 10 per cent bio-fuels inclusion rate in all road transport fuels in all member-States by 2020, decided by the European Council in March this year, was "unrealistic."

The obligation would create additional demand for 45 mt of grain and 38 mt of oilseeds. The EU currently has grain surplus of about 20 mt.

This would mean Europe would have to shift from being a net exporter to a net importer, at a time when grain exporting nations are developing their own bio-fuels industries, it was argued.

In the event of this shift materialising, it will have far-reaching implications for the global grains market.

Brazil will reportedly introduce an obligatory two per cent bio-diesel content in diesel fuel in January 2008, and increase it to five per cent by 2013, although this obligation may be brought forward to 2010.

All these developments clearly point to the possibility of tightening availability of grains and oilseeds/oils for food purposes in the near future.

They will also impact prices and send them further northward. How soon supplies will begin to respond to high prices remains to be seen.

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