More grains getting diverted for bio-fuel

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IGC estimates industrial use at 186 million tonnes in 2006-07

G. Chandrashekhar

Mumbai, July 23

From traditional use as food and feed, expansion of grain usage for industrial purposes is rapidly changing the market fundamentals of the grains sector. Industrial use is now the fastest growing sector of the global grains demand, with average annual growth rate estimated at about 9 per cent. Food and feed demand growth is at one per cent, in line with population growth.

Rising diversion of grains for bio-fuel is exerting profound influence on the global grains market. According to the London-based International Grains Council (IGC), industrial use of grains is projected at 186 million tonnes (mt) in 2006-07, up by 14 per cent on the year before, the biggest annual rise ever, and 61 mt increase over a five-year period.

Interestingly, a significant part of grain usage for industrial purpose is for production of ethanol or bio-ethanol, which is blended with gasoline.

Other sources of energy

Strength in the crude market is seen supporting larger diversion of corn (maize) for production of bio-ethanol.

A number of countries that use this energy source is increasing, especially with government support.

While this environment friendly renewable source of energy can be produced from sugarcane too, the US is by far the most powerful driver of bio-ethanol production (from corn) and consumption. Other countries, including China and the European Union, are also building grain-based ethanol production facilities. For 2006-07, the use of grains for ethanol is forecast at a record 65 mt. Global coarse grains output for the year is forecast at 693 mt.

Traditional use remains

Notwithstanding rapidly expanding use of grains for energy, the traditional use of grains for the manufacture of starch remains the largest. For 2006-07, worldwide grains usage for starch is estimated at 79 mt.

The largest users are the US and EU, and the sector's growth rate is 5 per cent a year, in line with the global economic growth.

Growing demand

Starch and its sugar derivatives have a wide range of uses, including in food, beverages, pharmaceuticals, chemicals, paper and textiles. Demand growth in this sector is directly related to economic growth.

Brewing use of grains, particularly barley for beer, is increasing by around 3 per cent a year, and is projected at 31 mt in 2006-07, according to IGC.

Demand for beer is either static or falling in some industrialised countries where alcohol markets are mature.

But demand continues to grow in a number of countries where the per capita use is comparatively low and disposable incomes are rising, especially in the CIS and Eastern Europe and in developing countries in Far East Asia and Latin America, IGC pointed out.

Global bio-fuel output

According to Worldwatch Institute, in 2005, world bio-fuel production from all sources exceeded 670,000 barrels a day, (about 33 mt of oil equivalent), having doubled since 2001. This is still less than 4 per cent of all transport fuel use.

The world's bio-fuel leader Brazil uses almost half of its cane for bio-ethanol production, while in the US corn is the base material.

Bio-fuels are set for even stronger growth over the coming years as the industry responds to higher fuel prices and supportive government policies, the report said, adding that in the longer term, there is potential to make bio-fuels from non-food feed stocks, including agricultural, municipal and forestry wastes as well as fast growing cellulose-rich energy crops such as switchgrass.

(This article was published in the Business Line print edition dated July 24, 2006)
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